The Government introduced the follower notice regime in Finance Act 2014, following a consultation titled “Raising the Stakes on Tax Avoidance”. The Government consider that the follower notice regime is an important element in the legal framework available to HMRC to tackle tax avoidance.
In December 2018 the House of Lords Economic Affairs Committee published its report “The Powers of HMRC: Treating Taxpayers Fairly”. In that report, the Committee recommended that the penalties associated with follower notices be abolished. The Government rejected the recommendation to abolish follower notice penalties as this would render the regime ineffective. However, I said in testimony to the Committee that HMRC would examine the possibility of providing greater judicial oversight of the follower notice safeguards.
The Government understand the concerns that have been raised about follower notices, but it has not been possible to identify any effective means of providing greater judicial oversight of the follower notice regime which would not re-introduce, or even worsen, the delays in settlement and payment of disputed tax which the regime was designed to address. However, the Government have also taken the opportunity to look closely at other options to ensure the follower notice regime can best achieve its objectives. They accept that a better balance can be found between encouraging taxpayers who have used tax avoidance schemes which have been defeated in the courts, to reach agreement with HMRC; and allowing those who genuinely believe their case is different from that heard by the courts, to continue their dispute. This can best be achieved with a stronger focus on those whose continuation of their dispute, even once they have received a follower notice, is without merit.
Therefore, I am announcing publication today of a consultation document “Follower Notices and Penalties”. This consultation proposes to reduce the level of penalty for a taxpayer not acting in response to a follower notice from 50% of the disputed tax to 30%. A further penalty of 20% would be chargeable only in cases where those receiving follower notices continue their disputes to litigation, and the tax tribunal rules that it was not reasonable for them to have done so.
The Government are committed to tackling all aspects of the avoidance market, including those who promote tax avoidance schemes. The Government announced measures in July and November aimed at strengthening HMRC’s ability to tackle those who sell avoidance schemes.
The consultation has been published here:
https://www.gov.uk/government/consultations/follower-notices-and-penalties. It will run to Wednesday 27 January.