The Government’s proposals contained in the Finance Bill 2014 regarding “follower notices” and “accelerated payment notices” have attracted a great deal of attention. We set out below the proposals and some of the regime’s more controversial features. It is important to appreciate that the proposals will only become law when the Finance Bill receives Royal Assent, which is expected to take place in July 2014.

Follower Notices

When will HMRC be able to issue a follower notice?

HMRC will be able to issue a follower notice to a taxpayer if all of the following conditions are met:

  1. HMRC is enquiring into the taxpayer’s return or claim (enquiry cases), or the taxpayer has made an appeal, for example, against a closure notice or discovery assessment that has not been determined (appeal cases);
  2. The taxpayer made the return, claim  or appeal, on the basis that a particular tax advantage arises from the tax arrangements  implemented;
  3. HMRC is of the opinion that there is a final judicial ruling that is relevant to the taxpayer’s arrangements;
  4. HMRC has not previously issued a follower notice to the taxpayer in respect of the same arrangement, tax advantage, ruling and period; and
  5. The time limit for issuing the notice has not expired

On receipt of a follower notice what should the taxpayer do?

On receiving a follower notice, the taxpayer will have to either:

  1. amend his return or claim to counteract the tax advantage (in enquiry cases) or agree to relinquish the tax advantage (in appeal cases) and notify HMRC accordingly; or

  2. object to the notice on the basis that one of the conditions for issuing the notice was not satisfied

Objecting to the issue of a follower notice

A taxpayer will have 90 days from the date on which the follower notice is issued to send written representations to HMRC objecting to the follower notice.

If the taxpayer does object, HMRC must either confirm (with or without amendment) or withdraw the follower notice, and notify the taxpayer accordingly.

Penalties?

If HMRC has not withdrawn the follower notice and the necessary corrective action has not been taken, then the taxpayer will be subject to a penalty of 50% of the value of the “denied advantage”.

The penalty may be reduced if the taxpayer cooperates with HMRC but cannot be reduced to an amount less than 10%.

Is there a right of appeal?

There will be no right of appeal against  the issue of a follower notice. There will  be a right of appeal against the decision to impose penalties and the amount of any such penalties.

Accelerated Payment Notices

When will HMRC be able to issue an accelerated payment notice?

HMRC will be able to issue an accelerated payment notice to a taxpayer if all of the following conditions are met:

  1. HMRC is enquiring into the taxpayer’s return or claim (enquiry case) or the taxpayer has made an appeal (for example, against a closure notice or discovery assessment) that has not been determined (appeal case);
  2. The taxpayer made the return, claim or appeal on the basis that a particular tax advantage arises from the tax arrangements implemented; and
  3. One of the following requirements is met:
  1. HMRC has given (or gives) the taxpayer a follower notice in relation to the same return, claim or, as the case may be, appeal by reason of the same tax advantage arising from the same tax arrangements;
  2. HMRC has allocated a DOTAS reference number for the tax arrangements, which is required to be notified; or
  3. HMRC has issued a counteraction notice under the GAAR and at least two members of the GAAR Advisory Panel have opined that entering into the tax arrangements was not a reasonable course of action

What will the accelerated payment notice contain?

The notice must specify the amount of the accelerated payment, being, broadly, the additional amount of tax that HMRC considers to be due on the assumption that the relevant tax advantage is counteracted.

Objecting to the issue of an accelerated payment notice

A taxpayer will have 90 days from the date on which an accelerated payment notice is given to send written representations to HMRC objecting to the issue of the notice on the basis that one of the conditions for issuing the notice was not satisfied, or the amount of the accelerated payment is too high.

If the taxpayer does object, HMRC must either confirm (with or without amendment) or withdraw the notice and notify the taxpayer accordingly.

Is there a right of appeal?

There will be no right of appeal against the issue of an accelerated payment notice.

Penalties?

If HMRC issues an accelerated payment notice in an enquiry case and the taxpayer fails to make the payment of the accelerated amount by the penalty date (the day following the payment date) the taxpayer will be liable to a penalty of 5% of the accelerated payment amount.

Further 5% penalties apply if any amount of the accelerated payment remains unpaid five and 11 months after the penalty date.

What should I do if I receive a follower notice or an accelerated payment notice? 

We anticipate that once these proposals become law, HMRC will issue a large  number of follower and accelerated payment notices. As each case will depend on its individual facts, expert professional advice should be taken, but at the very least, you should:

  • Check to make sure that the necessary conditions for issuing the notice are satisfied and if they are not, it may be appropriate to challenge the issue of the notice by way of judicial review
  • Make appropriate written representations to HMRC within the specified time periods
  • With regard to follower notices, if you are required to take corrective action and do not and are then faced with a penalty, consider whether you should appeal the penalty within the specified time periods