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Court of Appeal interprets HMRC’s "draconian" powers narrowly

7th May 2019

Royal Courts of Justice

 

HMRC have power to issue "follower notices". Such notices are given to persons that assert that a tax advantage results from certain arrangements. Various conditions must be satisfied. In particular, HMRC must be of the opinion that the principles or reasoning of a previous final ruling of a court or tribunal would deny the tax advantage.

A person receiving a follower notice is effectively required to give up the advantage. Failing that, such a person is liable to a penalty of up to 50% of the denied advantage.

Where HMRC issue a follower notice, they can also issue an "accelerated payment notice" ("APN"). This overrides any postponement of tax pending an appeal. Where there is no appeal, it requires the payment of disputed tax within a specified time.[1]

The Court of Appeal considered HMRC's power to issue a follower notice in R (on the application of Haworth) v HMRC[2]. The Court gave judgment on 1 May 2019. HMRC argued that they could issue a follower notice if they considered that the principles or reasoning of the previous final ruling were more likely than not to result in a tax advantage being denied. The Court of Appeal, however, unanimously held that, before issuing a follower notice, HMRC must be of the opinion that the principles or reasoning would deny the advantage - not just that they would be more likely than not to do so.

The court was particularly concerned that, on HMRC's view, its powers could restrict access to the courts and the rule of law. One of the judges described HMRC's powers as draconian.

If HMRC pursue this to the Supreme Court, one must hope that the Supreme Court reaches the same conclusion as the Court of Appeal.

 

 


[1] (To avoid confusion: APNs can also be issued in situations where no follower notice is involved. Basically these are DOTAS arrangements and situations involving the GAAR. The Court of Appeal's decision does not appear to affect these situations.)

[2] [2019] EWCA Civ 747

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