Ignoring Follower Notices was reasonable in the circumstances

In David Andreae v HMRC [2022] TC08473, the First Tier Tribunal (FTT) allowed appeals against Follower Notice penalties. It was reasonable given the circumstances that the taxpayer did not take corrective action within the time limits. They had actively sought and relied on advice from the promoter and sought a second opinion once confidence in the promoter had been lost.

• Mr Andreae entered into a tax scheme promoted by Montpelier and tax returns were prepared by his accountant based on Montpelier's advice.
• HMRC raised enquiries and issued Discovery assessments in May 2009 which were appealed by the taxpayer. Montpelier dealt with the enquiry correspondence with HMRC.
• Accelerated Payment Notices were issued (but later withdrawn) in February 2015.
• Follower Notices were sent in November 2016 against which representations were made, these relied on the decision in R Huitson v HMRC [2011] EWCA 893.
• HMRC correspondence was also sent to Mr Andreae. In January 2018 Montpelier advised him that the demands it made were aimed at scaring him into action. Their advice was that the tax was not due and no action was required.
• Montpelier advised, when Mr Andreae asked, that if payment was made to HMRC it would be refunded if the enquiry ended successfully so he made the payment accordingly.
• He then obtained a second opinion on the scheme and ultimately settled with HMRC based on their figures.
• As the settlement was completed after the time limits for taking corrective action had passed HMRC raised penalties.
• The taxpayer appealed the penalties.

The FTT allowed the appeal finding that:

• The penalties had been correctly raised provided that the taxpayer had not been reasonable in failing to take corrective action.
• The onus was on the taxpayer to demonstrate that the failure to take corrective action was reasonable:
  • Given the letters and advice provided to the appellant by HMRC, the starting point was that failure to comply was unreasonable.
  • However, viewing the matter in this way did not take into account whether the action was “reasonable in all the circumstances”.
  • After considering the taxpayer’s beliefs, acts or omissions which caused the delay, the FTT adjudged that the behaviour was reasonable as:
    • The taxpayer believed that Montpelier were correct, that court cases that could determine the issues were still ongoing, and that HMRC had made prior errors in raising assessments.
    • The taxpayer was not tax literate and relied on tax advice and he had no reason to doubt the advice received from Montpelier until January 2018.
    • As he requested and was in touch with Montpelier frequently and had full records of these interactions, the FTT was satisfied he did everything he could to keep himself informed.
    • Once Montpelier started to be unresponsive to his requests for updates (January 2018) he approached other professionals for second opinions which ultimately lead to settlement.

Useful guides on this topic

Accelerated Payments & Follower Notices
What are Accelerated Payments and Follower notices? What action is required? What are the penalties for non-compliance? Is there a right to appeal?

Disguised remuneration loan charge
What is disguised remuneration? What is the loan charge? When does the loan charge apply? Will the loan charge affect me?

How to appeal a tax penalty (subscriber version)
What are the steps in making an appeal? What should your appeal cover? What does recent case law say on this topic?

External links

David Andreae v HMRC [2022] TC08473