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Finance Act 2014

Chapter 2 Follower Notices
Giving of follower notices

7.Section 204 defines the conditions which must apply for HMRC to issue a follower notice to a person.

8.Subsection (2) provides the first condition that there is an open tax enquiry into that person’s return or claim, or the person has made a tax appeal.

9.Subsection (3) provides the second condition that the return or claim subject to the enquiry, or the appeal, is made on the basis that the person obtains a tax advantage from the use of tax arrangements.

10.Subsection (4) provides the third condition that there has been a judicial ruling relevant to the person’s return/claim or appeal.

11.Subsection (5) provides the fourth condition, that no previous follower notice has been given to the person in respect of the same tax arrangements and tax advantage, unless it was withdrawn.

12.Section 205 sets out the conditions in which a judicial ruling is treated as ‘relevant’.

13.Subsection (3) provides that a judicial ruling in another party’s litigation is relevant to a person if the ruling relates to tax arrangements; the principles or reasoning behind the ruling would, if applied to those arrangements, deny the advantage claimed or part of it; and it is a final ruling.

14.Subsection (4) defines a ruling as final if it is made by the Supreme Court or, if made by a lower court or tribunal, no appeal is made against it, permission to appeal is refused or, if an appeal is made, it is abandoned or otherwise disposed of before it was determined.

15.Section 206 provides that a follower notice must identify the judicial ruling on which it is based, explain why HMRC consider it is relevant to the person’s tax arrangements, and set out the consequences of the taxpayer’s action in response to the notice.


16.Section 207 provides that a person may make representations to HMRC within 90 days of a follower notice being issued. The person may object to a follower notice because there is no open tax enquiry or appeal or no tax advantage was obtained by the return/claim; that he has already been given a follower notice in respect of the tax arrangements or tax advantage; that the judicial ruling is not relevant to his circumstances; or that HMRC did not issue the notice within the time allowed following the relevant judicial ruling. HMRC must consider the representations and notify the person that the follower notice is confirmed or amended, or withdrawn.


17.Section 208 sets out the steps a taxpayer would need to take in response to a follower notice in order to be regarded as having taken the necessary corrective action.  The taxpayer is not compelled to take those steps, but the section sets out the consequences where those steps are not taken.

18.Subsection (2) provides that a person who is issued with a follower notice becomes liable to a penalty if he does not take corrective action before the specified time.

19.Subsection (5) defines the first step of the corrective action as the taxpayer amending his return or claim to counteract the tax advantage claimed if the follower notice is in respect of an open tax enquiry, or taking all necessary action to reach agreement with HMRC to relinquish the denied advantage if the notice is issued in respect of a tax appeal.

20.Subsection (6) defines the second step of the corrective action as the taxpayer confirming to HMRC that he has taken the first step and advising them of the advantage that will be denied and the further tax due as a result of the amendment to his return or claim.

21.Subsection (8) sets out the time limits for taking the necessary corrective action.

22.Subsection (9) provides that any time limit applied to prevent a taxpayer amending his return or claim before the end of the tax enquiry is disregarded for the purposes of this section.

23.Subsection (10) provides that a taxpayer may not appeal against a notice closing an enquiry into his return or claim where that notice gives effect to any amendment made by the taxpayer in response to a follower notice.

24.Section 209 sets out the amount of a penalty under section 208.

25.Subsection (3) makes clear that where the taxpayer takes corrective action, within the required time, to counteract or relinquish part of the denied advantage, any penalty under section 208 is to be based on the amount not counteracted or relinquished.

26.Section 210 sets out how a penalty may be reduced for co-operation.

27.Subsection (3) sets out how the taxpayer can provide the co-operation required for HMRC to reduce the penalty. The penalty can be reduced if the taxpayer:

  • Gives reasonable help to HMRC to quantify the tax advantage;

  • Counteracts the tax advantage (but after the time specified in section 208);

  • Provides sufficient information for HMRC to counteract the tax advantage or to reach agreement with the taxpayer to relinquish the tax advantage; and/or

  • Gives HMRC access to records to allow HMRC to ensure the advantage is counteracted.

28.Section 211 sets out how a penalty under this Chapter is assessed.

29.Subsection (2) requires HMRC to notify the taxpayer when a penalty is assessed, and requires that the notice must state the tax period to which the penalty relates.

30.Subsection (5)(a) provides that in the case of a follower notice issued in respect of an open tax enquiry, the penalty must be notified no later than 90 days after the enquiry is closed.

31.Subsection (5)(b) provides that in the case of a follower notice issued in respect of a pending appeal case, the penalty must be notified no later than 90 days after the taxpayer takes the necessary action to agree his case with HMRC or withdraws his appeal. If the litigation proceeds, the penalty must be issued no later than 90 days after the final ruling is made.

32.Section 212 deals with situations where more than one penalty may arise in respect of the same amount, and one of those penalties is a penalty under this Chapter.

33.Subsection (2) establishes a limit on the total amount of penalties where penalties may apply under more than one penalty provision to the same amount of tax, and include a penalty under section 208.

34.Subsection (2)(a) sets the general rule – that the aggregate amounts of the penalties cannot exceed the “relevant percentage”, defined in subsection (5).

35.Subsection (2)(b) applies if one of the penalties applying is issued under Schedule 55 to the Finance Act 2009 (Penalty for Failure to Make Returns) because a return is more than 6-months or 12-months outstanding. In such cases the maximum amount of penalties aggregated under this section must not exceed the “relevant percentage”, or £300 if greater.

36.Subsection (5) sets the “relevant percentage” applicable in each case by reference to the penalty provision under which the other penalty is imposed reflecting the seriousness of the default and whether the penalty concerns an offshore matter.

37.Section 213 sets out that HMRC may alter an assessment to a penalty, either to increase it where the denied advantage was underestimated, or to reduce it where the denied advantage was overestimated.

38.Section 214 provides that a person may appeal against HMRC’s decision that a penalty is payable and against the amount of any penalty. A person does not have to pay a penalty before the appeal is determined. The grounds for appeal under this section include an appeal on the basis that there was no judicial ruling relevant to the taxpayer’s arrangements or that it was reasonable, taking all circumstances into account, for the taxpayer to take no action in respect of the denied advantage. If a Tribunal finds that it was reasonable for the taxpayer to take no such action, it may cancel the penalty but the follower notice and any related accelerated payment notice remain valid.

Partners and partnerships

39.Section 215 makes reference to Schedule 31, which sets out how the rules of   Chapter 2 apply to partners and partnerships.

Appeals out of time

40.Section 216 sets out what happens when there is a late appeal against a final judicial ruling, so that the judicial ruling is no longer final.  This could happen some time after HMRC issues a ‘follower notice’, at a time when that decision was regarded as final.

41.Subsection (2) provides for a follower notice to be suspended if an appeal is accepted by a court out of time in respect of a relevant ruling, until HMRC notifies the taxpayer that the appeal has been abandoned or has reached a final ruling.

42.Subsection (3) states that the limits of 90 days, or where appropriate 30 days, for the taxpayer to comply with a follower notice do not include the period during which a notice is suspended. This also applies to the ‘payment period’ for an accelerated payment.

43.Subsection (6) provides that unless cancelled a follower notice continues once HMRC notifies the taxpayer that the suspension is over and, if relevant, that the new judicial ruling is now the final one for the purposes of the notice.

44.Subsection (7)(b) requires HMRC to include in a notice issued under subsection (2) any changes to the final notice needed to take account of a new final ruling.

45.Subsection (8) prevents the issue of further follower notices to other taxpayers in respect of the matter under appeal, unless that appeal is abandoned or otherwise disposed of before it is determined.  If the late appeal results in a new final ruling, subsection (9) permits follower notices to be issued in relation to that new ruling.

46.Subsection (10) provides that when such an appeal is abandoned, the period between when the person was given leave to appeal and the abandonment of the appeal does not count towards the limit of 12 months from the date of the final ruling for HMRC to issue a follower notice.

Transitional provision

47.Section 217 provides that where a judicial ruling was made before the date this Act was passed, a follower notice may not be issued later than a date two years from the day this Act was passed or one year from the day the return or claim was submitted or appeal made, if later.

Defined terms

48.Section 218 contains definitions.

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