“The Second Issue: whether reasonable in all the circumstances The relevant legal test 125. FA 2014, s 214(3)(d) provides that an appeal may be made against an FN if “it was reasonable in all the circumstances for [the person] not to have taken the necessary corrective action”. 126. In Benton v HMRC [ 2018] UKFTT 593 (TC) , I considered the meaning of the phrase “reasonable in all the circumstances”
“133. I place no weight on the absence of the statutory prohibition. In order for Mr Corrado’s action to be “reasonable in all the circumstances”, it cannot be sufficient for a person blindly to rely on an adviser: his reliance must be reasonable. I also agree with Mr shea that the relevant circumstances include Mr Corrado’s professional background: he is both intelligent and financially literate.”
“Whether Mr Corrado’s belief was “reasonable in all the circumstances ” 129. In Perrin the UT held that, for a person’s belief to provide a reasonable excuse, it must not only be genuine, but objectively reasonable. The position has to be the same in the context of the “reasonable in all the circumstances” test which applies to FNs. It is therefore not enough for Mr Corrado genuinely to believe he had taken corrective action. His belief must also be objectively reasonable given the circumstances summarised above. I emphasise that it is Mr Corrado’s belief which must be reasonable, not Mr Shehzad’s belief. 130. In deciding whether that is the case, I respectfully adopt the approach set out in Perrin at [81(3)], namely: “[To] decide whether, viewed objectively, those proven facts do indeed amount to an objectively reasonable excuse for the default and the time when that objectively reasonable excuse ceased. In doing so, it should take into account the experience and other relevant attributes of the taxpayer and the situation in which the taxpayer found himself at the relevant time or times.” 131. The parties accepted this was the correct test……….”
“70. I agree with Mr Taylor that a taxpayer who refuses to take corrective action is not necessarily unreasonable. But it depends on the circumstances. I also agree that those circumstances include the experience, knowledge and other attributes of the taxpayer. 71. In Corrado[2019] UKFTT 275 (TC) Judge Redston cited with approval the passage in Onillon, where the FTT had said at [173]: “A po sition which, viewed in context, frustrates the purpose of the legis lation is unl ikely to be viewed as reasonable in all the circumstances. For example, it is not enough for a taxpayer to simply decide to see how the litigation plays out and not take corrective action. Any decision not to take corrective action should be a properly informed choice”. 72. It seems to me that if a taxpayer is not reasonably well informed and does not take steps to make himself such, his action or inaction may not be reasonable. 73. I accept that reliance on the advice of an adviser that a scheme works can mean that a taxpayer acts reasonably in not taking corrective action. Not everyone ha s t he time or expertise to check for himself. If the taxpayer has done his homework and fou nd t hat the qualification and reputation of the adviser ar e high and if he has carefully considered the opinion of his adviser in the light of his particular circumstances as they change from time to time, it is likely that he would be held to have acted reasonably in reliance on that advice. But if he has done no homework and does not carefully consider the advice given and in the light of any of HMRC’s statements it seems to me that not taking corrective action may not be a reasonable response. 74. I had little evidence of Mr Barlow’s experience and expertise, but the emails he sent seemed to me to be those of a literate thinking man who was capable of understanding the nature of the disputes with HMRC if he chose to do so.”
“94. It seems to me that Miss Arnold is right when she says that an important part of cooperation is taking c orrective action: to prompt such action is the purpose of the Follower Notice provisions. Th e timing, nature and extent of a person’s cooperation should therefore be assessed inter a lia by reference to whether or not he has taken such action, and if he has, when and how took it. And, on the basis that if such action is not taken and the taxpayer’s appeal is eventually successful the penalty will be repaid, the potential penalty for not taking such action or taking it late should be a material part of the whole penalty. 9 5. But cooperation ‘with HMRC’ has other important elements. It is important that HMRC’s j ob is made easier and progress faster if the taxpayer willingly, fully, promptly a nd helpfully provides information and access to records to HMRC. This serves the proper aim of ensuring that the right amount of tax is paid……… 101. In setting the penalty reduction I do not consider that the reasons for a taxpay er’s behaviour should generally play any part: the reduction is determined by the quali ty of the cooperation with HMRC –measuring its nature timing and extent - and generally that will consist of an enquiry into what could have been done and was or was not done rather than why something was, or was not, done…………”
“ The final question, therefore, is how much credit to give the Company for the co-operation it gave. We have seen some decisions from the FTT that have approached this as a largely arithmetic exercise: for example allocating a notional 20% amount of maximum mitigation to each of the five categories of “co-operation” specified in s210(3) and then deciding how much mitigation to award in each of those five categories in order to reach an overall penalty total. We consider that such an approach risks losing sight of the holistic nature of the exercise and also the fact that, given the overall purpose of the follower notice legislation to which we have referred, “counteraction” of the tax advantage should in most cases tend to attract greater credit than the other categories. It also gives rise to conceptual difficulties. To take an example, in some cases the “tax advantage” at issue might be so straightforward to quantify that HMRC have no real need of assistance that could constitute co-operation falling within s210(3)(a). If a notional 20% of maximum mitigation was available for that category, the question would arise whether the taxpayer should obtain no credit at all (which might operate harshly since if it provided all necessary co-operation in other categories it could still not obtain maximum mitigation) or whether it should obtain the full 20% of maximum mitigation (which might appear generous when HMRC in fact needed no assistance). We will, therefore, apply the following approach when deciding what level of penalty to impose: (1) We will approach the question holistically. Recognising that not all of the categories of “co-operation” set out in s210(3) are relevant in this case, we will not seek to allocate an overall level of discount to each of those categories, but rather will seek to give the Company credit for the overall level of “co-operation” afforded. (2) We will recognise that the overall purpose of the regime is to discourage taxpayers from pursuing, without good reason, disputes about tax advantages which HMRC reasonably consider to have been determined in their favour in other final decided cases. Co-operation that comes closest to addressing that purpose should, accordingly, attract the greatest credit and conversely, if the Company’s actions, even if technically meeting the definition of “co-operation”, have done relatively little to meet the statutory purpose, correspondingly lower credit should be given. (3) Where the Company took steps falling within s210(3), we will consider the overall effectiveness of those steps in meeting the purpose of the provisions, recognising that even if those steps were not fully effective, and more could reasonably have been done, some partial credit may still be appropriate. Applying that approach, we see no reason to depart from HMRC’s conclusion that the co-operation falling within s210(3)(a) would, on its own, justify a reduction in the penalty rate from 50% to 42%. Taking into account the Company’s additional imperfect steps on the way to counteraction, we consider that an appropriate penalty rate would be 30% (which involves raising the level of mitigation from 20% offered by HMRC to 50%). That, in our judgment, recognises the Company’s genuine attempt to effect some late counteraction, the most significant type of co-operation that could be offered in this case, whose effect was that no more HMRC resources in practice needed to be allocated to the appeal relating to the Scheme, while at the same time recognising that it fell a long way short of what was needed to achieve full counteraction and was based on an unreasonable belief as to the effect of the telephone call with HMRC on22 January 2018 . That puts the Company’s penalty exactly half way between the minimum penalty of 10% and the maximum penalty of 50% which we consider appropriate.”