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Finance Act 2014


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.

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