Introduced in Finance Act 2014, follower notices (FNs) and accelerated payment notices (APNs) were seen as an effective weapon in HMRC’s pursuit of users of tax avoidance schemes. However, in recent years these appear to be used less frequently although we anticipate this will soon change.
What has not changed since FNs and APNs first started to be issued in July 2014 is HMRC taking a stern standpoint on those that have entered into tax avoidance schemes. We expect to see FNs and APNs used more often as more tax avoidance cases are decided in the courts.
If you, or your company, have been involved in a tax avoidance scheme then you should familiarise yourself with HMRC’s powers with regard to these notices so you know what to do if you receive one.
Follower notices
Often HMRC are faced with a large number of similar tax avoidance cases and will identify a representative case to take to litigation so the fundamentals of a scheme can be tested in a Tax Tribunal. In cases where HMRC are successful in litigation, there had historically been little incentive for others using the same or similar arrangement to accept the findings until FNs were introduced.
Others using the same or very similar arrangements are known as “followers”.
Follower notices are designed to speed up the rate at which avoidance cases are resolved where the contentious point of issue has already been decided in another taxpayer’s case. Of course, the decision that two cases are fundamentally the same is only HMRC’s view and many followers disagree that their case is the same. In order to issue a follower notice based on the result of another case, the decision in that decided case must be “final” which means the taxpayer in the representative case has exhausted or decided not to pursue their appeal any further, or is a decision of the Supreme Court. This is referred to in the legislation as the ‘final judicial ruling’.
The legislation sets out 4 conditions that must all be met in order for someone to receive a follower notice. Summarised as follows:
Condition A requires for there to already be an open enquiry into the tax return or a claim been made by the taxpayer, or an appeal has been made against an assessment of tax due and the appeal has not yet been decided.
Condition B is met if the return, claim or appeal is made on the basis that a particular tax advantage results from a particular tax arrangement. This is to say that the transactions that resulted in the tax or national insurance savings were made with the main aim or receiving an advantage and not, for example, on a commercial basis.
Condition C is met if HMRC believe there is a judicial ruling which is relevant to the chosen arrangements (i.e. a case that they have won in litigation is the same or very similar as the one used by the recipient of the FN).
Condition D is that there must not be a previous follower notice that has been given to the same taxpayer by reference to the same tax advantage, tax arrangements, judicial ruling and tax period, unless that previous notice has been withdrawn.
Time limits
A follower notice must be given within 12 months, beginning with the later of:
- The day on which the relevant judicial ruling is made,
- The day that the return, claim or notification of dispute in relation to the contribution was received by HMRC, and
- The day on which the tax or national insurance contributions appeal was made.
It is very important, therefore, that care is taken to check the date a follower notice is received to ensure that HMRC have issued the notice within time. If not, you can consider your options to respond which we would recommend obtaining professional advice on (see our contact details at the bottom of this article).
There are other reasons you can challenge a follower notice (such as you disagree that you meet the conditions) and, if so, you must make representations to HMRC within 90 days of the notice being issued. In order to be a valid follower notice the notice must also include, as a minimum, specific details outlined within the legislation.
When a follower is given a follower notice they will be expected to settle (which will be referred to as “taking corrective action”) or be at risk of a penalty of 30%, which can rise up to 50% in certain circumstances.
Accelerated payment notices
Before the introduction of APNs, a person who has obtained a tax or national insurance advantage via a tax avoidance arrangement retained the cash advantage until the dispute is resolved. The idea behind APNs was to remove any cash flow advantage enjoyed by the taxpayer who benefitted from the arrangements.
Recipients of APNs are required to pay the disputed tax and national insurance to HMRC on receipt of the notice, and before the outcome of the dispute is known.
HMRC can issue a taxpayer with an APN where all of the following conditions are met:
Condition A requires for there to already be an open enquiry into the tax return or a claim been made by the taxpayer, or an appeal has been made against an assessment of tax due.
Condition B is met if the return, claim or appeal is made on the basis that a particular tax advantage results from a particular tax arrangement.
Condition C includes three requirements where one or more must be met. These are as follows:
- Follower notice has been issued in relation to the same matter.
- The chosen arrangements are DOTAS arrangements.
- A GAAR counteraction notice has been given.
This means in cases where someone receives a follower notice and an APN, even if they disagree with the follower notice they will still be required to pay the amounts stated under accelerated payment rules if these conditions are met.
Once received, the person issued with the APN will have 90 days to either pay what is due or make a representation to appeal on the basis the conditions A to C are not met, or the amount included in the APN is incorrect. There will be an opportunity to request a payment arrangement with HMRC at this point.
Failure to pay an APN on time will result in an initial 5% penalty of the tax due, with additional 5% penalties applying 5 and 11 months’ after the first failure to pay an APN penalty applies.
The APN will be treated as a payment on account of any tax later found to be due in litigation or settlement, and payment of the APN will reduce the amount of late payment interest charged. Alternatively should the arrangements succeed then HMRC will repay the amount paid under the APN and apply repayment interest.
What to do if you receive a follower notice or an APN?
Get advice from an experienced tax dispute specialist such as our dedicated Tax Disputes and Disclosures team. Given the time frames to respond, it is important to act quickly and ensure that you are compliant with the process and avoid any unnecessary penalties.
If you are currently in a dispute over tax or national insurance gained via tax avoidance arrangements, it might be beneficial to be proactive ahead of the receipt of one of the above notices. If in doubt, please get in touch with us on the below details for a free, no obligation discussion about your case.
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