Georgios Kamperis v The Commissioners for HMRC [2025] UKFTT 1441 (TC)

[2025] UKFTT 01441 (TC)Case No TC09698
FIRST-TIER TRIBUNAL
TAX CHAMBER
Hearing Heard on: 29 October 2025Date Judgment date: 24 November 2025
[Taylor House]
Appeal reference: TC/2024/03897
INCOME TAX – Follower notices issued pursuant to section 208 of the Finance Act 2014 – participation in Montpelier Scheme – exploitation of Double Taxation Agreement between the UK and the Isle of Man – arrangements held not to be effective following the judicial ruling in Huitson v HMRC – ruling final – whether the Appellant failed to take corrective action by the specified time – yes – whether the Appellant’s actions were reasonable in all the circumstances – no – objective test – a properly informed choice – distinction between ‘reasonable excuse’ and ‘reasonable in all the circumstances’ – the difference between the follower notice regime and the APN regime – Appeal dismissed
Before
JUDGE NATSAI MANYARARADR CAROLINE SMALL
Between
GEORGIOS KAMPERISAppellantTHE COMMISSIONERS FOR HIS MAJESTY’S REVENUE AND CUSTOMSRespondentAppellant-in-Person for AppellantMs Ashleigh Lafaurie, Litigator of HM Revenue and Customs’ Solicitor’s Office for RespondentsDECISION

Introduction

[1]The Appellant (‘Georgios Kamperis’) appeals against follower notice penalties (“the Penalties”) issued pursuant to s 208 of the Finance Act 2014 (“FA 2014”), in the sum of £39,153.22 (reduced from £49,326.65) HMRC have asked us to exercise our powers under s 50(6) TMA to reduce the penalties in accordance with the review. , for the 2004-05 to 2007-08 (inclusive) tax years (“the relevant period”). The Penalties arose in respect of follower notices issued to the Appellant under Chapter 2 of Part 4 FA 2014 (s 204). Part 4 FA 2014 permits HMRC to issue a “follower notice” to a taxpayer where they consider that there is a final judicial ruling in another case that is determinative of a dispute between HMRC and the taxpayer as to the availability of a particular “tax advantage”. If the taxpayer fails to take the necessary “corrective action” - broadly, by telling HMRC that they have given up their claim to the tax advantage - the taxpayer can be charged a penalty of up to 50% of the tax in dispute. The follower notices explained that if the Appellant failed to take corrective action by 5 April 2019 Varied from earlier deadlines of 14 February 2017 and 30 December 2017. (“the specified time”), he would be liable to pay a penalty under s 208 FA 2014.[2]The Penalties were issued as follows: Tax Year Revised Value of denied advantage Revised Penalty % Revised Penalty Amount 2004-05 £1,935.77 42% £813.02 2005-06 £23,390.82 42% £9,824.14 2006-07 £34,081.00 42% £14,314.02 2007-08 £33,028.00 42% £14,202.04 Total £39,153.22[3]The Appellant participated in a tax avoidance scheme (“the Scheme”) which was marketed by a firm of tax consultants known as “Montpelier Tax Consultants (Isle of Man) Limited” (“Montpelier”). The Scheme was said to exempt from UK tax income received by the Appellant as Trust beneficiary on the basis that it was the within para. 3(2) of the UK - Isle of Man Double Taxation Arrangements (“the DTAs”). The Scheme was found not to have worked in Huitson v HMRC [2015] UKFTT 448 (TC) (‘Huitson’) (“the judicial ruling”).[4]The Appellant should also have taken corrective action by:(1) Step 1: amending his self-assessment tax return to counteract the denied advantage; and(2) Step 2: notifying HMRC that he had taken ‘Step 1’ and telling HMRC the amount of the denied advantage and (if different) the amount of additional tax which had, or would, become due and payable in respect of tax by reason of the first step being taken.[5]HMRC submit that the Appellant failed to take corrective action by the specified date. Thus, the Penalties are due.[6]By virtue of s 214(3)(d) FA 2014, a taxpayer has a defence to a penalty if they can establish that it was “reasonable in all the circumstances” not to take the necessary corrective action.[7]Having carefully considered the evidence and the submissions made by both parties, we dismiss this appeal. In this Decision, the legislation and case law are cited so far as is relevant to the issues in dispute.

Issues

[8]The issues in the appeal are:(1) Whether the Penalties were correctly issued (“Issue 1”);(2) If so, whether the Appellant took “corrective action” by the specified time (“Issue 2”);(3) If not, whether the Appellantʼs actions were “reasonable in all the circumstances” (“Issue 3”); and(4) If not, whether the Penalties should be upheld in the reduced amount, increased, or further reduced (“the Issue 4”).

Burden and standard of proof

[9]As this is a penalty case, the burden of proof is on HMRC to demonstrate that the conditions for issuing the Penalties are satisfied. The burden of proof is also on HMRC to demonstrate that the amounts of the Penalties have been correctly calculated.[10]The burden of proof is then on the Appellant to demonstrate that it was reasonable in all the circumstances not to take corrective action.[11]In R & C Comrs v Tager[2018] EWCA Civ 1727; [2018] STC 1755; [2019] 1 WLR 720 (‘Tager’) at [88], Henderson LJ said this:
“... In agreement with the Upper Tribunal, I consider that this condition makes it clear that the Upper Tribunal should have regard to the usual considerations which apply when the imposition of a tax penalty is in question, including such matters as the reasons for non-compliance, the extent to which the position has been remedied, the gravity and duration of the non-compliance, the presence of aggravating or mitigating factors, the availability of other methods for HMRC to recover the tax at risk (most obviously by making an assessment, if necessary on a best of judgment basis), and generally the need to achieve a fair and proportionate outcome, having regard to the interests of the public purse and the general body of taxpayers as well as the circumstances of the non-compliant taxpayer himself.”
[12]The burden of proof is also on the Appellant to demonstrate that he has not been given adequate reduction for co-operation, pursuant to s 210FA 2014.[13]The standard of proof is the ordinary civil standard; that of a balance of probabilities.[14]If the Appellant does not expressly, or impliedly, dispute a matter which must be proved by HMRC, we should proceed on the basis that the Appellant has accepted that the matter is proved.

Authorities and documents

[15]The authorities to which we were referred by the parties included:(1) Broomfield & Ors R (on the application of) v HMRC [2017] EWHC 2926 (Admin) (‘Broomfield 1’);(2) Broomfield & Ors R (on the application of) v HMRC [2018] EWHC 1966 (Admin) (‘Broomfield 2’);(3) HMRC v Neil & Megan Gretton [2012] UKUT 261 (TCC) (‘Gretton’);(4) Huitson v HMRC [2017] UKUT 75 (TCC) (‘Huitson UT’);(5) HMRC v Comtek Network Systems (UK) Ltd [2012] UKUT 81 (TCC) (‘Comtek’);(6) Huitson v HMRC [2015] UKFTT 448 (TC) (‘Huitson’);(7) Onillon v HMRC [2018] UKFTT 33 (TC) (‘Onillon’);(8) Hutchinson v HMRC [2018] UKFTT 290 (TC) (‘Hutchinson’);(9) Benton & Ors v HMRC [2018] UKFTT 593 (TC) (‘Benton’);(10) Corrado Network Systems v HMRC [2020] UKFTT 29 (TC) (‘Corrado’);(11) Glasby v HMRC [2020] UKFTT 352 (TC); (‘Glasby’);(12) Lancashire & Ors v HMRC [2020] UKFTT 407 (TC) (‘Lancashire’);(13) Barlow v HMRC [2020] UKFTT 486 (TC) (‘Barlow’);(14) Andreae v HMRC [2022] UKFTT 142 (TC) (‘Andreae’);(15) Baker v HMRC [2024] UKFTT 126 (TC) (‘Baker’); and(16) Moore v HMRC [2024] 518 (TC) (‘Moore’).[16]The documents to which we were referred included the:(i) Document Bundle consisting of 702 pages;(ii) Appellant’s Document Bundle consisting of 697 pages;(iii) Cover letter enclosing follower notices, dated 11 November 2016;(iv) Authorities Bundle consisting of 622 pages;(v) HMRC’s Skeleton Argument dated 9 October 2025; and(vi) Appellant’s Skeleton Argument (undated).

Background facts

[17]There is a lengthy background to this appeal.[18]The Appellant is an IT consultant who trained as a software engineer.[19]In 2005, the Appellant took part in the Scheme run by Montpelier.[20]On 14 June 2005, the Appellant filed his self-assessment tax return for the 2004-05 tax year.[21]On 20 July 2006, HMRC opened an enquiry into the Appellant’s tax return, under s 9 of the Taxes Management Act 1970 (“TMA”). A copy of the opening letter was sent to the Appellant’s agent.[22]On 10 August 2006, the Appellant’s agent wrote to HMRC to provide information for the 2004-05 tax year regarding employment income and the Isle of Man Trust.[23]On 13 July 2010, HMRC issued a Closure Notice under ss 28(1) & (2) TMA.[24]On 26 January 2007, the Appellant filed his tax return for the 2005-06 tax year.[25]On 20 July 2007, HMRC opened an enquiry into the Appellant’s tax return. A copy of the opening letter was sent to Montpelier.[26]On 30 July 2007, Montpelier wrote to HMRC to provide information for the 2005-06 tax year and advised that income from the Trust had been disclosed in the 2005-06 tax return.[27]On 13 July 2010, HMRC issued a Closure Notice.[28]On 20 July 2010, Montpelier wrote to HMRC appealing against the Closure Notice.[29]On 31 January 2008, the Appellant filed his tax return for the 2006-07 tax year.[30]On 27 March 2008, HMRC opened an enquiry into the Appellant’s tax return. A copy of the opening letter was sent to Montpelier.[31]On 13 July 2010, HMRC issued a Closure Notice.[32]On 20 July 2010, Montpelier wrote to the HMRC appealing against the Closure Notice.[33]On 30 January 2009, the Appellant filed his tax return for the 2007-08 tax year.[34]On 14 April 2009, HMRC opened an enquiry into the Appellant’s tax return. A copy of the opening letter was sent to Montpelier.[35]On 16 May 2012, HMRC issued a Closure Notice.[36]On 31 May 2012, Montpelier wrote to HMRC appealing against the Closure Notice.[37]On 5 March 2015, HMRC issued Accelerated Payment Notices (“APNs”) to the Appellant.[38]On 3 September 2015, the decision in Huitson was released. Huitson also concerned a tax avoidance scheme marketed by Montpelier. The First-Tier Tribunal (‘FtT’) concluded that the arrangements were not effective and the claim for double taxation relief failed. Mr Huitson was subsequently liable to income tax and National Insurance Contributions (“NICs”) on his share of the income from an Isle of Man Trust.[39]On 29 December 2015, the APNs were withdrawn.[40]On 23 January 2016, the decision in Huitson became final - in terms of s 205(4)(b)(iii) FA 2014 - when permission to appeal to the Upper Tribunal (‘UT’) having been granted, the time-limit for submitting the appeal expired without an appeal being submitted.[41]On 21 October 2016, HMRC wrote to the Appellant and SJD Accountancy (“SJD”), warning that follower notices and APNs, would shortly be issued to the Appellant in light of the Huitson decision, and that the follower notices would tell the Appellant about taking ‘corrective action’. The letter went on to give further information about what taking necessary corrective action entailed, and the deadline for doing so. Alongside this letter, HMRC also issued the Appellant with “Factsheet CC/FS25a”.[42]On 11 November 2016, the APNs were issued again, together with the follower notices. Each follower notice covered both income tax and NICs. Included with each follower notice was form “CADAcc38 – Corrective action in response to a follower notice – appeal cases”. All follower notices stated that corrective action was required to be taken by 14 February 2017 (“the first deadline”).[43]On 29 December 2016, HMRC sent a letter to the Appellant, reminding him that corrective action should be taken by the deadline of 14 February 2017. The letter outlined how corrective action could be taken and also advised that if the Appellant did not take corrective action, he would be liable to a penalty and still had to pay the amount shown in the APNs. A copy was sent to SJD.[44]On 9 January 2017, the Appellant telephoned HMRC. HMRC re-issued the follower notices and corrective actions forms to the Appellant for the relevant period.[45]On 2 February 2017, the Appellant made representations against the follower notices, pursuant to s 207 FA 2014. The representations were received within the statutory time-limit set out at s 207(1) FA 2014.[46]On 20 February 2017, the Appellant telephoned HMRC again. HMRC confirmed that they had received the Appellant’s representations.[47]On 24 November 2017, HMRC provided their response, in writing, to the Appellant’s representations dated 2 February 2017. This letter confirmed the follower notices for the relevant period. In light of the representations made, and in accordance with s 208(8)(b)(ii) FA 2014, HMRC extended the deadline for the Appellant to take corrective action to 30 December 2017 (“the second deadline”).[48]On 1 December 2017, the Appellant provided further correspondence in response to HMRC’s letter dated 24 November 2017. He reiterated points raised in his representations in respect of the follower notices and the APNs The APNs are not part of this appeal, reference to these is included for information purposes only. . The Appellant further provided an additional challenge in respect of the implications of the Limitation Act 1980 on the enforceability by HMRC of the NIC elements of the denied advantaged covered by the follower notices.[49]On 12 December 2017, the Appellant telephoned HMRC. The Appellant was advised that making arrangements to repay the APNs was different to taking corrective action and relinquishing the denied advantage. HMRC, once again, explained what corrective action is, and recommended that the Appellant read the corrective action form, factsheet and follower notices, then get in back in touch if he had any queries. The Appellant was again advised of the 30 December 2017 deadline.[50]On 5 January 2018, HMRC wrote to the Appellant to provide their view on the Limitation Act, the NICs issue and its consequent impact on enforceability of the Class 4 NIC assessments for the tax years 2009-10 and earlier. The letter stated that the assessments, including the NIC amendments relating to the follower notices for the relevant period, would not be enforced.[51]On 2 February 2018, HMRC wrote to the Appellant warning of a liability to follower notice penalties at 50%. The Appellant was advised that the percentage rate of the penalties could be reduced if he co-operated with HMRC before they issued the Penalties. Fact sheet ‘CC/FS30a’ was enclosed with the letter.[52]On 1 March 2018, as part of a separate appeal against the APNs, the Appellant stated that the validity of the follower notices was subject to judicial review and a multiple joint claim.[53]On 5 March 2018, the Appellant wrote to HMRC in relation to the judicial review claim in Broomfield 2. The Appellant was not, however, a party to the claim.[54]On 10 July 2018, the Appellant telephoned HMRC. During this call, HMRC advised the Appellant that as he had not completed his corrective action forms, he could be liable to a penalty of up to 50%. The Appellant confirmed that he was aware of this.[55]On 6 March 2019, HMRC wrote to the Appellant and SJD. The letter confirmed that the Appellant had not yet taken corrective action, but set a new deadline of 5 April 2019 to do so (“the third deadline”). The Appellant was advised that he would not have to pay a penalty if he took corrective action by the deadline (i.e., the specified time).[56]On 2 April 2019, the Appellant wrote to HMRC stating that he waived the ‘tax advantage’ by repaying the majority of the APN amounts, had taken corrective action and did not understand what else HMRC wanted him to do. The Appellant also wrote separately, on 2 April 2019, in relation to the NICs, rejecting HMRC’s view of the Limitation Act and stating that HMRC have previously issued County Court proceedings for unpaid NICs. The letter also, alternatively, stated that the Appellant had made representations, which was why he did not pay the APNs or NICs and, for the same reasons:(i) that the follower notices are fundamentally flawed; and(ii) there was no enforceable debt against him for NICs, so there can be no penalty.[57]On 11 April 2019, the Appellant wrote to HMRC, stating, as part of his appeal against APN surcharges, that by repaying the majority of the APN amounts, he “waived what you call a tax advantage”. The Appellant also included complaint points about HMRC, which were referred to the relevant department.[58]On 29 May 2019, HMRC wrote further to a letter dated 2 May 2019, with a ‘Tier 1’ complaint response. HMRC referred, again, to their 6 March 2019 letter, which explained the circumstances surrounding the deadline to take corrective action. The deadline of 30 December 2017 had already previously been extended from 14 February 2017 to allow HMRC to consider the Appellant’s representations. The letter outlined, clearly, that paying the APN is not the same as taking corrective action. Taking corrective action required a taxpayer to settle their affairs with HMRC, giving up the tax advantage they had gained.[59]On 31 May 2019, HMRC wrote to the Appellant to advise that they now took the view that the NICs elements in respect of the relevant period were enforceable, and would now be enforced as recoverable under the related APNs.[60]On 29 June 2019, the Appellant wrote to HMRC disagreeing with the NICs position taken in their 31 May 2019 letter.[61]On 1 July 2019, the Appellant wrote to HMRC requesting confirmation of what paying the APNs means. The Appellant was of the view that paying the APNs meant that he did not owe anything further, and did not have a tax advantage. The letter requested confirmation of why he would still be liable to pay the Penalties if he had paid the balance of what HMRC claim, and requested an explanation of why he was being forced to settle his affairs with HMRC.[62]On 10 July 2019, HMRC wrote to the Appellant to confirm the position taken in their 31 May 2019 letter with regard to the due date for payment of Class 4 NICs (that the NIC elements in respect of the relevant period were enforceable and would now be enforced as recoverable under the related APNs).[63]On 31 July 2019, HMRC wrote to the Appellant to provide their ‘Tier 2’ complaint response. The response outlined the difference between APNs and follower notices, and outlined the different action required for each. The Appellant was advised that any corrective action taken now would be out of time and he would still be within a penalty position, but that HMRC would consider any points he wished to make about why the corrective action was not taken by the deadline. If the Appellant did not wish to take corrective action, the Penalties would be issued, which the Appellant could then appeal.[64]On 15 August 2019, HMRC wrote to the Appellant to advise that they intended to charge the Penalties due to the Appellant’s failure to take corrective action by the deadline. The letter included penalty explanation schedules outlining the amounts that HMRC intended to charge.[65]On 16 September 2019, the Appellant wrote to HMRC stating, again, that he had no tax advantage as he had paid the vast majority of the APN amounts, with the funds now being in HMRC’s bank accounts and not his.[66]On 17 September 2019, HMRC issued the Penalties to the Appellant.[67]On 15 October 2019, the Appellant appealed to HMRC.[68]On 1 November 2019, HMRC telephoned the Appellant with regard to his complaint. During the call, HMRC confirmed that APNs and follower notices are two separate matters, and that paying the APN does not mean that corrective action has been taken. The Appellant was, once again, advised that taking corrective action meant completing the corrective action form, making the declaration to withdraw an appeal, and relinquishing the denied tax advantage.[69]On 8 November 2019, HMRC wrote to the Appellant to advise that APN surcharges had been withdrawn. The letter also advised that the Penalties had been suspended until a response could be provided. During the Covid-19 pandemic, HMRC paused some of their normal business activities to focus on those relating to the pandemic.[70]On 1 August 2023, HMRC contacted the Appellant by telephone to discuss any changes to his circumstances since their last contact with him. When normal business activities began to resume, HMRC contacted the Appellant on 31 August 2023, 13 October 2023 and 30 November 2023, apologising for the delay in replying and to advise that matters raised in his appeal were still being considered.[71]On 12 March 2024, HMRC provided their “View of the Matter” letter and upheld the Penalties. The letter amended the computation of the value of the denied advantage to remove the NICs element, and revised the Penalties to allow a further reduction for co-operation, resulting in a revised penalty percentage rate of 42%.[72]On 25 March 2024, the Appellant requested a review of the decision. Following this letter, HMRC made a referral to their “Complaints Team” as the Appellant had raised complaints regarding the impact that HMRC’s conduct, and the delays, had on his mental health.[73]On 16 April 2024, HMRC wrote to the Appellant acknowledging the review request and proposing that the review period is extended.[74]On 24 April 2024, HMRC provided their ‘Tier 1’ complaint response letter to the Appellant. The complaint was partially upheld on the basis of the stress caused due to HMRC’s delays. However, the response outlined that HMRC were satisfied that the Appellant’s case had been assessed in accordance with the law.[75]On 3 May 2024, HMRC wrote to the Appellant to outline that the statutory review was ongoing, and also outlined that additional support could be provided to the Appellant.[76]On 11 May 2024, the Appellant wrote to HMRC to provide further information and caselaw to be considered during the review, along with further complaint points regarding HMRC’s conduct.[77]On 11 June 2024, HMRC provided their “Review Conclusion Letter” to the Appellant, upholding the Penalties in the revised amounts.[78]On 17 June 2024, HMRC provided their ‘Tier 2’ complaint response letter to the Appellant. The response did not uphold the further complaint points raised in the 11 May 2024 letter.[79]On 21 June 2024, HMRC wrote to the Appellant to provide details of how HMRC could provide him with additional support in his interactions with them.[80]On 26 June 2024, the Appellant wrote to HMRC to advise that he had not received the Review Conclusion letter, and declining the extra support offered.[81]On 3 July 2024, HMRC wrote to the Appellant enclosing another copy of the Review Conclusion Letter, and advising that they would not object to a late appeal being made to the Tribunal, if made by 2 August 2024.[82]On 7 July 2024, the Appellant submitted an in-time appeal to the FtT.

Relevant law

[83]In order to put the parties’ respective contentions into context, we start with the relevant statutory provisions. The relevant law, so far as is material to the issues in this appeal, is contained in ss 204 to 218 and Schedule 30 FA 2014.[84]Section 204 FA 2014 permits follower notices to be issued either(i) (under s 204(2)(a)) while an enquiry into a return or claim is in progress or(ii) (under s 204(2)(b)) after a taxpayer has made or notified an appeal, but the appeal has not been determined or withdrawn. Follower notices can only be given in respect of rulings on “tax arrangements”, which are defined in s 201(3) as being where:
“...it would be reasonable to conclude that the obtaining of a tax advantage was the main purpose, or one of the main purposes, of the arrangements.”
[85]The circumstances in which a “follower notice” may be issued are set out in s 204 FA 2014. That section provides that:
“204 Circumstances in which a follower notice may be given (1) HMRC may give a notice (a “follower notice”) to a person (“P”) if Conditions A to D are met. (2) Condition A is that— (a) a tax enquiry is in progress into a return or claim made by P in relation to a relevant tax, or (b) P has made a tax appeal (by notifying HMRC or otherwise) in relation to a relevant tax, but that appeal has not yet been— (i) determined by the tribunal or court to which it is addressed, or (ii) abandoned or otherwise disposed of. (3) Condition B is that the return or claim or, as the case may be, appeal is made on the basis that a particular tax advantage (“the asserted advantage”) results from particular tax arrangements (“the chosen arrangements”). (4) Condition C is that HMRC is of the opinion that there is a judicial ruling which is relevant to the chosen arrangements. (5) Condition D is that no previous follower notice has been given to the same person (and not withdrawn) by reference to the same tax advantage, tax arrangements, judicial ruling and tax period. (6) A follower notice may not be given after the end of the period of 12 months beginning with the later of— (a) the day on which the judicial ruling mentioned in Condition C is made, and (b) the day the return or claim to which subsection (2)(a) refers was received by HMRC or (as the case may be) the day the tax appeal to which subsection (2)(b) refers was made.” (a) a tax enquiry is in progress into a return or claim made by P in relation to a relevant tax, or (b) P has made a tax appeal (by notifying HMRC or otherwise) in relation to a relevant tax, but that appeal has not yet been— (i) determined by the tribunal or court to which it is addressed, or (ii) abandoned or otherwise disposed of. (a) the day on which the judicial ruling mentioned in Condition C is made, and (b) the day the return or claim to which subsection (2)(a) refers was received by HMRC or (as the case may be) the day the tax appeal to which subsection (2)(b) refers was made.”
[86]In other words, a follower notice can only be given in certain circumstances. Those circumstances are where “Conditions A-D” are satisfied, and the time-limit in ss (6) is met.[87]Section 205 provides the definition of a “judicial ruling”, as follows: “205 “Judicial ruling” and circumstances in which a ruling is “relevant”(1) This section applies for the purposes of this Chapter.(2) “Judicial ruling” means a ruling of a court or tribunal on one or more issues.(3) A judicial ruling is “relevant” to the chosen arrangements if— (a) it relates to tax arrangements, (b) the principles laid down, or reasoning given, in the ruling would, if applied to the chosen arrangements, deny the asserted advantage or a part of that advantage, and (c) it is a final ruling.(4) A judicial ruling is a “final ruling” if it is— (a) a ruling of the Supreme Court, or (b) a ruling of any other court or tribunal in circumstances where— (i) no appeal may be made against the ruling, (ii) if an appeal may be made against the ruling with permission, the time limit for applications has expired and either no application has been made or permission has been refused, (iii) if such permission to appeal against the ruling has been granted or is not required, no appeal has been made within the time limit for appeals, or (iv) if an appeal was made, it was abandoned or otherwise disposed of before it was determined by the court or tribunal to which it was addressed.(5) Where a judicial ruling is final by virtue of sub-paragraph (ii), (iii) or (iv) of subsection (4)(b), the ruling is treated as made at the time when the sub-paragraph in question is first satisfied.” (a) it relates to tax arrangements, (b) the principles laid down, or reasoning given, in the ruling would, if applied to the chosen arrangements, deny the asserted advantage or a part of that advantage, and (c) it is a final ruling. (a) a ruling of the Supreme Court, or (b) a ruling of any other court or tribunal in circumstances where— (i) no appeal may be made against the ruling, (ii) if an appeal may be made against the ruling with permission, the time limit for applications has expired and either no application has been made or permission has been refused, (iii) if such permission to appeal against the ruling has been granted or is not required, no appeal has been made within the time limit for appeals, or (iv) if an appeal was made, it was abandoned or otherwise disposed of before it was determined by the court or tribunal to which it was addressed.[88]Section 206 FA 2014 imposes requirements as to the contents of a follower notice, as follows:
“206 Content of a follower notice A follower notice must— (a) identify the judicial ruling in respect of which Condition C in section 204 is met, (b) explain why HMRC considers that the ruling meets the requirements of section 205(3), and (c) explain the effects of sections 207 to 210.” (a) identify the judicial ruling in respect of which Condition C in section 204 is met, (b) explain why HMRC considers that the ruling meets the requirements of section 205(3), and (c) explain the effects of sections 207 to 210.”
[89]Section 207 FA 2014 entitles a person receiving a follower notice to make “representations” to HMRC, objecting to the follower notice. Section 207 provides that: “207 Representations about a follower notice(1) Where a follower notice is given under section 204, P has 90 days beginning with the day that notice is given to send written representations to HMRC objecting to the notice on the grounds that— (a) Condition A, B or D in section 204 was not met, (b) the judicial ruling specified in the notice is not one which is relevant to the chosen arrangements, or (c) the notice was not given within the period specified in subsection (6) of that section.(2) HMRC must consider any representations made in accordance with subsection (1).(3) Having considered the representations, HMRC must determine whether to— (a) confirm the follower notice (with or without amendment), or (b) withdraw the follower notice, and notify P accordingly.” (a) Condition A, B or D in section 204 was not met, (b) the judicial ruling specified in the notice is not one which is relevant to the chosen arrangements, or (c) the notice was not given within the period specified in subsection (6) of that section.

(b) withdraw the follower notice,

[90]Section 208(2) FA 2014 imposes a liability to a penalty if ‘necessary corrective action’ is not taken in respect of the ‘denied advantage’ within the ‘specified time’ as follows:
“(2) P is liable to pay a penalty if the necessary corrective action is not taken in respect of the denied advantage (if any) before the specified time.”
[91]Section 208(3) FA 2014 defines the “denied advantage” as follows:
“(3) In this Chapter “the denied advantage” means so much of the asserted advantage (see section 204(3)) as is denied by the application of the principles laid down, or reasoning given, in the judicial ruling identified in the follower notice under section 206(a).”
[92]Section 208(4), (5) and (6) FA 2014 specifies the “necessary corrective action”, as follows:
“(4) The necessary corrective action is taken in respect of the denied advantage if (and only if) P takes the steps set out in ss (5) and (6): “(5) The first step is that— (a) in the case of a follower notice given by virtue of section 204(2)(a), P amends a return or claim to counteract the denied advantage ... (6) The second step is that P notifies HMRC— (a) that P has taken the first step, and (b) of the denied advantage and (where different) the additional amount which has or will become due and payable in respect of tax by reason of the first step being taken.” (a) in the case of a follower notice given by virtue of section 204(2)(a), P amends a return or claim to counteract the denied advantage ... (a) that P has taken the first step, and (b) of the denied advantage and (where different) the additional amount which has or will become due and payable in respect of tax by reason of the first step being taken.”
[93]Section 208(8) FA 2014 defines the “specified time” as follows: “(a) if no representations objecting to the follower notice were made by P in accordance with subsection (1) of section 207, the end of the 90 day post-notice period; (b) if such representations were made and the notice is confirmed under that section (with or without amendment), the later of—(i) the end of the 90 day post-notice period, and(ii) the end of the 30 day post-representations period; “the 90 day post-notice period” means the period of 90 days beginning with the day on which the follower notice is given; “the 30 day post-representations period” means the period of 30 days beginning with the day on which P is notified of HMRC's determination under section 207.” (i) the end of the 90 day post-notice period, and (ii) the end of the 30 day post-representations period;[94]Section 209(1) FA 2014 provides that the penalty is 50% of the denied advantage.[95]Section 210(1) allows HMRC to reduce the amount of the penalty if the person upon whom the penalty is imposed has co-operated with HMRC to reflect the ‘quality’ of co-operation.[96]Section 210(3) specifies what must be done for there to have been “co-operation” as follows:
“P has co-operated with HMRC only if P has done one or more of the following— (a) provided reasonable assistance to HMRC in quantifying the tax advantage; (b) counteracted the denied advantage; (c) provided HMRC with information enabling corrective action to be taken by HMRC; (d) provided HMRC with information enabling HMRC to enter an agreement with P for the purpose of counteracting the denied advantage; (e) allowed HMRC to access tax records for the purpose of ensuring that the denied advantage is fully counteracted.” (a) provided reasonable assistance to HMRC in quantifying the tax advantage; (b) counteracted the denied advantage; (c) provided HMRC with information enabling corrective action to be taken by HMRC; (d) provided HMRC with information enabling HMRC to enter an agreement with P for the purpose of counteracting the denied advantage; (e) allowed HMRC to access tax records for the purpose of ensuring that the denied advantage is fully counteracted.”
[97]Section 210(4) provides that the penalty cannot be reduced below 10% of the value of the denied advantage.[98]Section 211 FA 2014 provides, inter alia, that:
“(2) Where HMRC assess the penalty, HMRC must— (a) notify the person who is liable for the penalty, and (b) state in the notice a tax period in respect of which the penalty is assessed ... (5) No penalty under section 208 may be notified under subsection (2) later than— (a) in the case of a follower notice given by virtue of section 204(2)(a) (tax enquiry in progress), the end of the period of 90 days beginning with the day the tax enquiry is completed ...” (a) notify the person who is liable for the penalty, and (b) state in the notice a tax period in respect of which the penalty is assessed ... (a) in the case of a follower notice given by virtue of section 204(2)(a) (tax enquiry in progress), the end of the period of 90 days beginning with the day the tax enquiry is completed ...”
[99]Section 214 gives the taxpayer a “right of appeal” against a penalty imposed under s 208. The “grounds of appeal”, and the powers of the tribunal, are also set out in s 214FA 2014, which provides that:
“214 Appeal against a section 208 penalty (1) P may appeal against a decision of HMRC that a penalty is payable by P under section 208. (2) P may appeal against a decision of HMRC as to the amount of a penalty payable by P under section 208. (3) The grounds on which an appeal under subsection (1) may be made include in particular— (a) that Condition A, B or D in section 204 was not met in relation to the follower notice, (b) that the judicial ruling specified in the notice is not one which is relevant to the chosen arrangements, (c) that the notice was not given within the period specified in subsection (6) of that section, or (d) that it was reasonable in all the circumstances for P not to have taken the necessary corrective action (see section 208(4)) in respect of the denied advantage ... (8) On an appeal under subsection (1), the tribunal may affirm or cancel HMRC's decision. (9) On an appeal under subsection (2), the tribunal may— (a) affirm HMRC's decision, or (b) substitute for HMRC's decision another decision that HMRC had power to make...” (a) that Condition A, B or D in section 204 was not met in relation to the follower notice, (b) that the judicial ruling specified in the notice is not one which is relevant to the chosen arrangements, (c) that the notice was not given within the period specified in subsection (6) of that section, or (d) that it was reasonable in all the circumstances for P not to have taken the necessary corrective action (see section 208(4)) in respect of the denied advantage ... (a) affirm HMRC's decision, or (b) substitute for HMRC's decision another decision that HMRC had power to make...”
[100]The Tribunal has jurisdiction to consider both whether a penalty should be imposed (s 214(1)) and, if so, the amount (s 214(2)). The Tribunal also has jurisdiction to consider whether the penalty was properly imposed at all (s 2014(1)). It can consider whether Conditions A, B or D were met or not (s 214(3)(a)). By implication, it has no jurisdiction to consider whether Condition C was met. The Tribunal has no judicial review jurisdiction and the language of s 214(3) appears to exclude wide ranging challenges to HMRC’s discretion.

The evidence and the key submissions

[101]The documents for the hearing, set out at [16] above, comprised pleadings, correspondence relating to HMRC’s enquiries, and appeal correspondence. The bundle also contained the statements of the witnesses. We considered the evidence given by all the witnesses to be of assistance to us in understanding the background and details regarding the follower notice penalties.[102]Ms Lafaurie’s submissions can be summarised as follows:(1) The FtT has a purely statutory jurisdiction given to it by the Tribunals, Courts & Enforcement Act 2007 (“TCEA”), and the relevant taxing statute which provides for a right of appeal, and is, therefore, unable to consider general complaints about unfairness, proportionality or HMRC’s decision to issue the follower notices.(2) Parliament has chosen not to give any right of appeal against an underlying follower notice and, accordingly, Parliament cannot have intended taxpayers to be able to litigate any issues relating to the follower notice through an appeal against follower notice penalties. Therefore, the FtT does not have judicial review jurisdiction to consider arguments concerning the issuing of the follower notices.(3) Legislation provides that interest is chargeable under s 101 of the Finance Act 2009, and that statutory interest is not within the jurisdiction of the FtT to consider.(4) The conditions specified in s 204 FA 2014 are met and, as such, HMRC were permitted to issue the Appellant with follower notices for the relevant period.(5) The decision in Huitson became final on 23 January 2016. The follower notices were issued to the Appellant on 11 November 2016 and were, therefore, validly issued within the 12 months permitted by s 204(6) FA 2014.(6) Corrective action is a specific process and is not open to opinion or interpretation. Therefore, the Appellant has failed to take corrective action, as outlined in the follower notices. The Appellant failed to take corrective action in time to avoid the Penalties being charged. It was not reasonable in all the circumstances for the Appellant not to take corrective action in response to the respective underlying follower notices and he is, therefore, liable to the Penalties.(7) The follower notices and APNs were correctly issued on 11 November 2016, and the Appellant’s appeals against the Closure Notices remain open with HMRC.(8) The Appellant has failed to provide any evidence that he took any steps to carefully consider Montpelier’s advice in light of HMRC’s letters, which clearly stated that failing to take the corrective action would result in follower notice penalties being incurred.(9) The Appellant has, objectively, failed to take corrective action by the deadlines as the Closure Notice appeals remain open. Therefore, the Appellant subsequently became liable to the Penalties, which were correctly issued.(10) The Penalties were correctly calculated and no further reductions are due.[103]The Appellant’s submissions can be summarised as follows:(1) The cumulative effect of HMRC’s conduct, combined with the professional advice he received, and his own demonstrable good faith, made his decision not to take corrective action objectively reasonable. The test of "reasonable in all the circumstances" is a straightforward, objective test. The legislation recognises that taxpayers are lawfully entitled not to take corrective action, and the test is whether that choice was reasonable in the totality of the circumstances.(2) The history of his case is defined by significant administrative failings by HMRC, which reasonably undermined his confidence in the correctness of their position. The most critical factor creating uncertainty was HMRC’s inconsistent and contradictory position on whether NICs formed part of the denied advantage. The deadlines themselves, and the reasons for their extension, further illustrate the inconsistent and unpredictable nature of HMRC's approach.(3) HMRC’s entire justification for the Penalties is that the legal position was finalised by the Huitson case at the time of the final deadline in April 2019. However, HMRC's own conduct proves this to be incorrect. In their letter of 12 March 2024, HMRC explicitly stated that they were removing the NICs element from the penalty calculation “further to the decision in Lancashire. That case was decided on 13 October 2020, approximately 18 months after the final deadline had passed. The legal landscape concerning the Montpelier schemes was still evolving long after HMRC claimed it was settled.(4) His reasons for not taking corrective action are similar to those in the FtT cases of Baker and Andreae, which were decided against HMRC. The determinative factors in Baker are all present: (i) a pattern of HMRC administrative errors; (ii) HMRC’s vacillating stance on NICs; and (iii) the taxpayer’s reasonable reliance on professional advice to preserve appeal rights in that uncertain environment.(5) There is no tax advantage as he has paid the APNs and does not owe anything.(6) It was his legal right to wait for certain legal processes to conclude before making any decisions. Montpelier clarified, at that point, that it was reasonable not to take corrective action.(7) The advice he received from Montpelier was not to evade tax, but a procedural warning about the irreversible legal consequences of taking corrective action.(8) By taking corrective action and signing the follower notices, he would not be able to reclaim any amounts paid in error and/or if litigation went against HMRC.(9) HMRC should only have issued the follower notices after all legal processes had been finalised.(10) HMRC’s mission is to collect the required tax, and this has been achieved.[104]At the conclusion of the hearing, we reserved our decision, which we now give with reasons. Our conclusions regarding the key submissions made by the parties are set out below. We have considered any key points of disagreement in determining the facts as set out below.

Findings of fact

[105]The ‘Background Facts’ set out at [18] to [82] are not in issue between the parties. We adopt the Background Facts as our ‘Findings of Fact’, and do not repeat these here.

Discussion

[106]This appeal concerns Penalties issued under s 208 FA 2014 (Chapter 2, Part 4), in the sum of £39,153.22 (reduced on review from £49,326.65), for the 2004-05 to 2007-08 (inclusive) tax years. The Penalties were issued on 17 September 2019. Follower notices had previously been issued to the Appellant under s 204 FA 2014, explaining that if the Appellant failed to take corrective action to counteract the denied advantage, he would be liable to pay a penalty under s 208 FA 2014.[107]In essence, HMRC submit that:(1) All of the legislative requirements for the issuance of the Penalties were met;(2) The Appellant was informed of what corrective action was required of him (and the deadline for taking such action);(3) The Appellant failed to take one or more of the required corrective actions required of him within the specified time, i.e., by 5 April 2019, and is liable to pay the Penalties;(4) The Penalties were properly calculated; and(5) No further reduction for co-operation is due.[108]HMRC’s view is also that it was not reasonable in all the circumstances for the Appellant to have failed to take corrective action on or before the specified time. At the date of submission of HMRC’s Statement of Case, and indeed at the time of the hearing, the Appellant had not yet taken corrective action.[109]The Appellant submits that he has paid the tax due and there is now no tax advantage. He further submits that he relied on the advice given to him by Montpelier, and that it was reasonable in all the circumstances for him not to take corrective action by the specified time.

The Scheme

[110]The Appellant participated in the Scheme marketed by Montpelier. The Scheme promoted by Montpelier involved the use of an Isle of Man resident Trust, of which the Appellant was the settlor and in which he had an interest in possession, or a right to income, which in turn entered into a contract with the Appellant to provide his services. Under his contract with the partnership, the Appellant was entitled to an annual fee. He was also entitled to a share of the partnership profits as a beneficiary under the Trust. The intended effect of the Trust structure was that the Appellant’s income from the Trust would be treated as being of the same nature as the underlying Trust income; namely a share in the partnership profits. However, the Appellant would not be a member of the partnership and s 858 of the Income Tax (Trading and Other Income) Act 2005 (“ITTOIA”) would not operate to prevent reliance on the DTAs.The Scheme exempted from UK tax income received by the Appellant as Trust beneficiary on the basis that it was the within para. 3(2) of the DTAs.The Scheme was, however, found not to have worked in Huitson, which we will consider shortly.[111]It is helpful to set out the relevant statutory scheme leading up to the follower notices, and the resulting Penalties:

The legislative scheme

[112]The central mechanism used by HMRC to alert themselves to tax avoidance schemes is the Disclosure Of Tax Avoidance Schemes (“DOTAS”) regime. The DOTAS regime is a set of administrative measures designed to impose on promoters a duty - subject to serious sanctions if not observed - to provide advance warning to HMRC of tax avoidance schemes. The essence of the DOTAS regime is, thus, to enable HMRC to apply the law to new types of arrangements as they emerge. The DOTAS regime is designed to allow HMRC to obtain early information about certain tax arrangements, how they work, and who has used them. The statutory provisions are to be found in Part 7 of the Finance Act 2004 (“FA 2004”), as amended by the Finance Act 2021 (“FA 2021”); which amendments came into effect on 10 June 2021. The DOTAS regime imposes obligations on high-risk promoters of tax avoidance schemes. If a promoter satisfies any of a list of threshold conditions in Schedule 34 FA 2004, or a promoted scheme has been defeated (Schedule 34A), an authorised HMRC officer may issue a “conduct notice”. Such circumstances include, but are not limited to, breaches of DOTAS obligations.[113]The DOTAS regime was described by Green J in R (on the application of Walapu) v R & C Comrs [2016] EWHC 658 (Admin); [2016] STC 1682 (‘Walapu’). Walapu was a claim for judicial review concerning the scope and effect of Chapter 3 FA 2014. The case considered that the express objective of the Chancellor of the Exchequer - in promoting the legislation - was to alter the economics of tax avoidance by stripping from parties to such schemes all of the liquidity advantages that they, hitherto, enjoyed. An important consideration leading to the provisions was the experience of HMRC of dealing with aggressive delaying tactics and strategies engaged in by tax avoidance scheme promoters. Documentary evidence placed before the High Court by HMRC showed that, not infrequently, the unravelling of tax avoidance schemes could take many years prior to HMRC being in a position to assess a taxpayer’s liability, and then obtaining payment. In the interim, participants held money that HMRC considered was due to the State, and promoters of tax avoidance schemes continued to be in a position to promote their schemes as having longevity.[114]In R (oao Root2Tax Limited) [2018] EWHC 1254 (Admin) (‘Root2Tax’), Whipple J stated that Parliament is, clearly, seeking to cast the net wide, as would be expected, with the purpose of enabling HMRC to know what they do not know about products which are giving rise to a ‘tax advantage’.[115]What is now s 858(1) and (2) ITTOIA was enacted and provided that a partner would be liable to income tax, despite the existence of DTAs. The legislation was enacted to clarify that, for the purposes of double taxation relief, a UK resident who had an entitlement to income from an offshore partnership was treated as a member of the partnership and could not claim double taxation relief. The legislation had retrospective effect, save in respect of decided, or pending, litigation. At all material times, s 858 ITTOIA (and its predecessors) had effect as follows: “(1) This section applies if –(a) a UK resident ("the partner") is a member of a firm which – (i) resides outside the United Kingdom, or (ii) carries on a trade the control and management of which is outside the United Kingdom, and(b) by virtue of any arrangements having effect under section 788 of ICTA ("the arrangements") any of the income of the firm is relieved from income tax in the United Kingdom. (2) The partner is liable to income tax on the partner's share of the income of the firm despite the arrangements.” (a) a UK resident ("the partner") is a member of a firm which – (i) resides outside the United Kingdom, or (ii) carries on a trade the control and management of which is outside the United Kingdom, and (b) by virtue of any arrangements having effect under section 788 of ICTA ("the arrangements") any of the income of the firm is relieved from income tax in the United Kingdom.[116]On 12 March 2008, a budget statement announced legislation to amend s 858. Section 58 Finance Act 2008 (“FA 2008”) was enacted, which provided that:
“(3) In section 858 of ITTOIA 2005 (resident partners and double taxation agreements), insert at the end - "(4) For the purposes of this section the members of the firm include any person entitled to a share of income of the firm" (4) The amendments made by subsections (1) to (3) are treated as always having had effect. (5) For the purposes of the predecessor provisions, the members of a partnership are to be treated as having included, at all times to which those provisions applied, a person entitled to a share of income or capital gains of the partnership.”
[117]On judicial review, the legislation was found to be lawful and proportionate: R (Huitson) v R & C Comrs [2010] EWHC 97(Admin).Kenneth Parker J held that:(1) Parliament was entitled to legislate with retrospective effect to prevent taxpayers from exploiting the DTAs using what he described as “wholly artificial arrangements”. In doing so, it achieved a fair balance between Mr Huitson’s right to property, set out in art. 1 of the First Protocol to the ECHR (“A1P1”), and the public interest in preventing tax avoidance: [79] to [83].(2) The respondents were not obliged to test the matter in the courts before legislation with retrospective effect was enacted. Failure to follow that route was not disproportionate.(3) The failure to make an impact assessment prior to legislating did not render the legislative amendment disproportionate.[118]In the words of Kenneth Parker J, the scheme would:
“appear to realise every taxpayer's dream of lawfully avoiding, or at least greatly reducing, income tax in any jurisdiction.”
[119]An appeal was also dismissed by the Court of Appeal in R (Huitson) v R & C Comrs [2011] EWCA Civ 893. The basis of the appeal to the Court of Appeal was summarised at [45], as follows:
“45. All of the submissions go to an over-arching general thesis that the retrospective provisions of the 2008 Act failed to achieve a fair balance between the interests of the general body of taxpayers and the rights of the claimant as an individual and that they are disproportionate and incompatible with Article 1.”
[120]The Court of Appeal recorded the ground of challenge at [21] of the judgment of Mummery LJ, as follows:
“21 … The ground of challenge is that the retrospective changes made by the amendments are disproportionate and are incompatible with Article 1. The claimed interference is retrospective deprivation of "possessions": that is, interference with proprietary interests in claims to relief from payment of income tax in the UK in respect of income received by the claimant in his capacity as owner of an interest in possession under his Manx trust. The case rests on legal objections to retrospective legislation, which violate the principle of legal certainty. The retrospective amendments are said to impose an unreasonable burden on the claimant. Issues of fiscal policy and proportionality are also raised. Reliance is placed on the claimed legitimate expectation of the taxpayer thatthe tax benefits of the scheme would not be removed with retrospective effect.”
[121]Inits decision inShiner v Sheinmann [2015) UKUT 0596 (TCC), the UT agreed that the taxpayers should not be allowed to appeal on the grounds of incompatibility with EU movement of capital rules. The European Court of Human Rights (‘ECHR’) found, inFebruary 2015, that the legislation blocking the avoidance scheme did not constitute an infringement of human rights (see Huitson v The United Kingdom).[122]In the course of 2012 and 2013, the Government consulted on a series of proposals to improve, and strengthen, the DOTAS regime. In particular, it focused upon two tax avoidance issues. The first concerned “high-risk promoters”; and the second was focused upon taxpayers who had used avoidance schemes which had been defeated in litigation brought by third parties (“Follower cases”), such as the Appellant in this appeal. In relation to Follower cases, the view of the Government was that the taxpayer should amend their return(s), accordingly, to reflect the litigated result. They proposed to impose a tax-geared penalty upon taxpayers who could not demonstrate that there was a reasonable explanation for not making an amendment.[123]In the 2013 Autumn Statement (December 2013), the Chancellor announced that he would impose “pay now” notices to ‘Follower’ taxpayers whose schemes had already been defeated; and that he would, in addition, consult upon the scope for widening the criteria for ‘pay now’ notices.[124]In his budget speech on 19 March 2014, the Chancellor announced that those who had carried out, or implemented, disclosed tax avoidance schemes would be required to pay their taxes up front, and that this would also apply to schemes covered by the General Anti- Abuse Rule (“GAAR”). For transactions taking place after 16 July 2013, HMRC would consider the GAAR. After 14 September 2016, transactions where the GAAR applied would be subject to a 60% GAAR penalty. In the year after GAAR was brought in, FA 2014 introduced provisions intended to give HMRC tougher powers to deal with tax avoidance. The declared purpose was the reduction of incentives for entering into schemes, and increasing the downsides of engaging in avoidance. HMRC were empowered to:(1) issue “follower notices” to users of arrangements like those which had been defeated in court, with penalties if they did not comply;(2) issue APNs requiring users of certain schemes to pay the amount of disputed tax upfront; and(3) target the supply side of avoidance by monitoring and penalising so-called ‘high-risk promoters’ of schemes, issuing them with conduct notices with penalties for non-compliance.[125]The purpose was to alter the economics of tax avoidance by taking away the cashflow benefits of the tax advantage sought, and giving the State the disputed tax to hold while questions as to the taxpayer’s liability are litigated.

APNs

[126]FA 2014, which introduced the APN system, received Royal Assent on 17 July 2014. The Act entitles HMRC to impose upon persons suspected of tax avoidance an obligation to, in effect, pay on account the amount the Revenue considers represents understated tax. The Act requires parties to tax avoidance schemes to pay the disputed tax within a fixed period of time from receipt of an APN; which may be issued and payment required before the tax is assessed.[127]The taxpayer who receives an APN has 90 days to make representations objecting to the notice on the grounds that the three conditions that must be met before HMRC can issue an APN have not been met. The first two match the preconditions for a follower notice:(1) Firstly, there must be an open enquiry into the taxpayer’s return or claim, or a pending appeal; and(2) Secondly, the return or claim, or appeal, must have been made on the basis that a particular tax advantage results from particular arrangements.[128]The third condition is that one or more of the following requirements is met:(1) The APN follows, or accompanies, a follower notice in relation to the same return or claim and the same arrangements;(2) The arrangements fall within the DOTAS regime; and(3) A GAAR counteraction notice has been issued following a decision of the GAAR advisory panel that the particular arrangements and the tax advantage resulting from them are not a reasonable course of action.[129]The purpose of an APN is to ensure that while a dispute is ongoing about whether tax arrangements are effective, the taxpayer must pay over the disputed tax or NIC to HMRC.[130]The legality of the APN was challenged by a taxpayer who had been formally assessed in Rowe & Ors v HMRC [2015] EWHC 2293 (Admin) (‘Rowe’). There, it was argued that the system was unlawful because, in essence, it violated legitimate expectations, defeated natural justice, infringed art. 6 of the ECHR, denied citizens access to the courts and infringed the fundamental right to property set out in A1P1. Simler J (as she then was) rejected all of these arguments. A further, and particular, aspect of the scheme was considered by the Court of Appeal in R (on the application of De Silva) v HMRC [2016] EWCA Civ 40, where the Court of Appeal upheld the position adopted by HMRC.

Follower Notices

[131]Follower notices can only be given where HMRC consider that there is a final “judicial ruling” in another case that is determinative of a dispute between HMRC and the taxpayer as to the availability of a particular ‘tax advantage’. The definition of ‘judicial ruling’ is contained in s 205 FA 2014. In essence, it is a ruling of a court or tribunal on one or more issues and is ‘relevant’ to the chosen arrangements if it relates to tax arrangements. The principles set out, or reasons given, in the ruling if applied to the chosen arrangements entered into by the taxpayer have the effect of denying the asserted advantage, or a part of it, and is a final ruling.[132]Section 204 FA 2014 permits follower notices to be issued, either(i) (under s 204(2)(a)) while an HMRC enquiry into a return or claim is in progress; or(ii) (under s 204(2)(b)) after a taxpayer has made or notified an appeal but the appeal has not been determined or withdrawn. Specifically, s 204(1) FA 2014 provides that a follower notice may be given if Conditions A to D are met. (1) “Condition A” is that a tax enquiry is in progress, or there is a relevant open appeal. (2) “Condition B” is that the return, claim or appeal is made on the basis that a particular tax advantage results from particular tax arrangements. (3) “Condition C” is that there is a judicial ruling relevant to the chosen arrangements. (4) “Condition D” is that no previous follower notice has been given to the Appellant (and withdrawn) by reference to the same tax advantage, tax arrangements, judicial ruling and tax period.[133]Once issued with a follower notice, the taxpayer is made aware that while they are entitled to carry on with their dispute, they face a significant financial penalty if they do not succeed. If the taxpayer fails to take the necessary “corrective action” by telling HMRC that they have given up their claim to the tax advantage, the taxpayer can be charged a penalty. This would be a payment of the tax liability, and not an amount on account of the disputed tax liability. As there is no right of appeal against a follower notice per se, the only recourse for a taxpayer wishing to challenge its validity – apart from making representations to HMRC – is by way of judicial review. The FtT has no judicial review jurisdiction and the language of s 214(3) appears to exclude wide ranging challenges to HMRC’s discretion.[134]Section 207 FA 2014 entitles a person in receipt of a follower notice to make “representations” to HMRC, objecting to the follower notice on the grounds that Conditions A, B or D, referred to in s 204 FA 2014, are not satisfied; or objecting that the judicial ruling is not relevant to the chosen arrangements, or that the notice was not given within the period in s 204(6) FA 2014. Any such representations must be made within 90 days of the date the notice was given and HMRC are obliged to consider any representations that are made. The Appellant in the appeal before us made such representations.[135]The purpose of Part 4, Chapter 2 FA 2014 is to discourage taxpayers from pursuing their dispute in avoidance cases once their scheme had been shown to fail in another party’s litigation. The purpose of the follower notice regime is, therefore, to identify ongoing cases involving income tax or NICs avoidance schemes and, by means of a follower notice, linking them with an already decided case which has gone against the taxpayer, or scheme promoter. The decided case must be final in that there must be no possibility of any appeal.[136]Section 16(1) of the Social Security Contributions & Benefits Act 1992 (“SSCBA”) applies the follower notice provisions of Part 4 FA 2014 to include Class 4 NICs. The legislation provides that Class 4 NICs are payable in the same manner as any income tax chargeable on the profits of a UK trade, profession or vocation.[137]In R (oao Haworth) v HMRC [2021] UKSC 25 (‘Haworth’), the Supreme Court upheld the Court of Appeal in ruling that for a follower notice to be valid, HMRC must be of the opinion that the principles or reasoning in the decided case would deny the tax advantage; not merely that they would be more likely to do so than not.

(b) FA 2014 was explained by Lady Rose, at [61], as follows:

“HMRC must form the opinion that there is no scope for a reasonable person to disagree that the earlier ruling denies the taxpayer the advantage…an opinion that it is likely to do so is insufficient.”
[138]In R (oao Locke) v HMRC [2019] EWCA Civ 1909; [2019] BTC 30 (‘Locke’), the Court of Appeal quashed follower notices and APNs because HMRC were wrong to think that a judicial ruling was relevant to the arrangements under consideration. HMRC wanted to apply the principles and reasoning in Eclipse Film Partnerships No 35 LLP v HMRC [2015] EWCA Civ 95 (‘Eclipse’) to the taxpayer’s claim for tax relief on interest he had paid on a loan to acquire an interest in the film partnership, Eclipse 10, but the Court of Appeal decided that the nature of the legal dispute between HMRC and the taxpayer was not something that was at issue in Eclipse.In so doing, the Court of Appeal concurred with the Court of Appeal in R (oao Haworth) v HMRC [2019] EWCA Civ 747; [2019] BTC.

The judicial ruling in Huitson

[139]In Huitson, the Scheme by Montpelier sought to avoid UK income tax and national insurance on income from the provision of Mr Huitsonʼs services as an electrical engineering consultant. Although s 858 ITTOIA provided for a partner to be liable to income tax on his ‘share of the income of the firm’ despite the existence of DTAs (providing otherwise), it was argued that s 858 ITTOIAdid not apply because Mr Huitson was not a member of the partnership. In February 2008, HMRC wrote to Montpelier stating that the Scheme was caught by s 858 ITTOIA. Following the retrospective amendment to s 858, HMRC refused Mr Huitson’s claims to relief and issued closure notices on 21 August 2008 and 8 October 2008. The appeal was heard by the FtT (Judge Cannan) in 2015.[140]The FtT dismissed the appeal against the closure notices issued by HMRC, refusing Mr Huitsonʼs claims for relief from income tax under the DTA between the UK and Isle of Man on income from an Isle of Man partnership. The FtT found that Mr Huitson was liable to income tax under s 858 ITTOIA - notwithstanding the DTAs - because he was entitled to a share of the income of the partnership pursuant to ITTOIA.HMRC’s view that the Scheme did not achieve the intended tax advantage (a view supported by the decision in Huitson). On 23 January 2016, the decision in Huitson became final. This resulted in all of the asserted advantage from the arrangements being denied by HMRC, and the profit share from the partnership treated as income and, therefore, chargeable to income tax.[141]In 2016, HMRC issued follower notices on the basis that the September 2015 decision in Huitsonwas final.[142]Turning to the circumstances of this appeal:

Issue 1: Whether the Penalties applied and were correctly issued

[143]We have already considered that the Appellant was issued with follower notices. This matter is not in issue between the parties. We have further determined that once issued with a follower notice, the taxpayer is made aware that while they are entitled to carry on with their dispute, they face a significant financial penalty if they do not succeed. If the taxpayer fails to take the necessary ‘corrective action’ by telling HMRC that they have given up their claim to the tax advantage, the taxpayer can be charged a penalty. The Appellant in the appeal before us has not taken corrective action.[144]The burden of proof is on HMRC to show that the Penalties were correctly issued. In Hutchinson, at [55],

Judge Mosedale said this:

“55. HMRC do not have to prove every factor that must be present for the penalty to be valid in this appeal: in an appeal they only have to prove what is in dispute. If this were not the case, the person with the burden of proof would need to waste time and money on proving a case that is not in dispute.”
[145]The follower notices were issued to the Appellant, on 11 November 2016, on the basis that the applicable judicial ruling in Huitson (dated 3 September 2015) became final on 23 January 2016; being within 12 months beginning the day on which the judicial ruling mentioned in ‘Condition C’ of s 204 FA 2014 was made (this being a later date than the day the return or claim to which s 204(2)(a)refers was received by HMRC).

(s) :

“The final judicial ruling relevant to the chosen arrangements” the case of Robert Huitson v The Commissioners for HM Revenue & Customs [2015] UKFTT 448 (TC)”
[146]The follower notices explained to the Appellant why HMRC considered that the judicial ruling met the s 205(3) FA 204 requirements, and required the Appellant to bring the dispute to an end on terms favourable to HMRC by:(1) amending his tax return(s) or claim; or(2) settling his appeal with HMRC, in writing, on the basis of Huitson (i.e., by taking corrective action).[147]The Appellant was a participant in the Scheme, which he notified on his 2008 tax return. The Appellant does not deny his use of the arrangements. When the follower notices were issued, there was an open appeal against the Closure Notices issued to the Appellant. Section 208(2) provides that:
“P is liable to pay a penalty if the necessary corrective action is not taken in respect of the denied advantage (if any) before the specified time.”
[148]The Appellant’s appeal against the Closure Notices is still open. The judicial ruling in the circumstances of this appeal is satisfied by the case of Huitson.[149]Having considered all of the information before us, we find that:(1) ‘Condition A’ is met as the Appellant appealed against the amendments made to his returns in the Closure Notices. The appeals had not been determined, abandoned or disposed of at the time the follower notices were issued.(2) ‘Condition B’ is met as the asserted advantage resulted from the Appellant’s use of a tax arrangement; namely an ‘IR35 Arrangement’.(3) ‘Condition C’ is met as HMRC are of the opinion that a relevant judicial ruling was identified (Huitson),and the reasons why it applied to the Appellant’s arrangements were explained, as were the effects of ss 207 to 210 FA 2014.(4) ‘Condition D’ is met as no previous follower notices had been given to the Appellant for the relevant period.[150]The Appellant does not suggest that follower notices and the Penalties were not correctly served on him. We are satisfied that the Penalties were correctly issued.

Issue 2: Whether the Appellant took corrective action by the specified time

[151]This issue follows on from the issue concerning whether the Penalties were correctly issued. The Penalties arose as a result of the Appellant’s failure to take corrective action by the specified time. Section 208 FA 2014 applies where ‘a follower notice is given to P (and not withdrawn)’. Section 208(2) further requires the corrective action to be taken before ‘the specified time’.[152]The Appellant is of the view that no further action is required of him following the APNs. In his letter 25 March 2024, the Appellant states:
“I have taken corrective action by paying every liability and complying with the required steps.”
[153]The Appellant’s position is, however, misconceived. This is because ‘corrective action’ is described in s 208(4) as being two steps, which are clearly set out in ss (5) and (6), as follows:
“(4) The necessary corrective action is taken in respect of the denied advantage if (and only if) P takes the steps set out in subsections (5) and (6). (5) The first step is that– (a) in the case of a follower notice given by virtue of section 204(2)(a), P amends a return or claim to counteract the denied advantage; (b) in the case of a follower notice given by virtue of section 204(2)(b), P takes all necessary action to enter into an agreement with HMRC (in writing) for the purpose of relinquishing the denied advantage. … (6) The second step is that P notifies HMRC– (a) that P has taken the first step, and (b) of the denied advantage and (where different) the additional amount which has or will become due and payable in respect of tax by reason of the first step being taken.” (a) in the case of a follower notice given by virtue of section 204(2)(a), P amends a return or claim to counteract the denied advantage; (b) in the case of a follower notice given by virtue of section 204(2)(b), P takes all necessary action to enter into an agreement with HMRC (in writing) for the purpose of relinquishing the denied advantage. … (a) that P has taken the first step, and (b) of the denied advantage and (where different) the additional amount which has or will become due and payable in respect of tax by reason of the first step being taken.”
[154]“Counteract” means that the taxpayer must, irrevocably, give up their claim to the tax advantage, either by amending their tax return so that the claim to the tax advantage is no longer a part of it, or by settling the appeal on terms that their claim to the tax advantage is given up. The Appellant has taken neither of these steps.[155]The requirement to counteract the denied advantage was illustrated in Comtek (Judges Jonathan Richards and Ashley Greenbank), at [43] and [45], where the UT said this:
“43. …In our judgment, “counteraction” in s210(3)(b) embraces a broader category of action than the similar concepts referred to in s208(5). That is readily apparent in relation to follower notices issued during an enquiry. For such follower notices, the action required in s208(5)(a) is to “amend a return or claim to counteract the denied advantage”
. Therefore, only a specific type of counteraction (amending a return or claim) is to count for the purposes of s208(5)(a), but “counteraction” generally counts for the purposes of s210(3)(b). We see no reason why the position should be otherwise for follower notices issued after an appeal not least since Parliament has not chosen to replicate, in s210(3)(b), the concept of taking all necessary steps to reach agreement with HMRC that appears in s208(5)(b). … 45. In our judgment, the concept of “counteraction” needs to be understood purposively. The purpose of the follower notice regime is to provide taxpayers with a strong disincentive to continue to consume public resources by continuing tax disputes which appear to have been resolved by other finally decided cases. Therefore, in our judgment, full “counteraction” occurs, in the case of a follower notice issued after an appeal has been commenced, if the taxpayer gives up the appeal and communicates that fact to HMRC. The requirement to consider “timing” means that the amount of credit available for such counteraction will reduce the later it takes place. The requirement to consider “nature” and “extent” means that partial credit may be available for steps on the way to full counteraction.”[156]At [52(2)], the UT made clear that:
“[52(2)] ...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...”
[157]The “denied advantage” is, essentially, the benefit which has been claimed as due under the failed avoidance scheme, but which has now been ‘denied’ by a final judicial ruling. In Broomfield 2, the High Court said this:
“68. The corrective action is taking the necessary steps to enter into an agreement to relinquish the denied advantage. In this case, for the reasons given above, the natural meaning of the “denied advantage” is the claim that payments from the trust fund are exempt from income tax by reason of the relevant double taxation arrangements. That is the particular tax advantage within the meaning of section 204(3) of the 2014 Act. It is that tax advantage which will be denied by the application of the reasoning of the First-tier Tribunal in Huitson. Taking the necessary action to relinquish that advantage would involve the taxpayer agreeing to cease to claim that the payments are exempt from income tax and agreeing not to maintain that ground of appeal in the appeal before the First-tier Tribunal. That would not require the taxpayer to abandon the other ground of appeal, namely that if the payments are income subject to income tax, then the taxpayer is to be treated as having had income tax deducted already...”
[158]The timeframe for taking corrective action is detailed in s 208(8)(a) and (b) FA 2014. Section 208(8)(a) defines ‘the specified time’ where there are no representations as being 'the end of the 90-day post-notice period’. That phrase is then defined in the same sub-section as meaning ‘the period of 90 days beginning with the day on which the follower notice is given’. As representations were made in this appeal, the compliance date was 5 April 2019. If an enquiry is still open, the taxpayer is required to amend their tax return to negate the claim to the tax advantage (s 208(5)(a)). If the enquiry is closed and an appeal against the amendment is in progress, the taxpayer is required to settle the appeal in such a way that he relinquishes the claim to the tax advantage (s 208(5)(b)).[159]A taxpayer can only amend their tax return within the first twelve months after the filing date: s 9ZA(2) TMA. But that provision is explicitly overridden by s 208(9) FA 2014, which provides that:
“No enactment limiting the time during which amendments may be made to returns or claims operates to prevent P taking the first step mentioned in subsection (5)(a) before the tax enquiry is closed (whether or not before the specified time).”
[160]HMRC had opened an enquiry into the Appellantʼs tax returns for the relevant period. The interaction between an enquiry and the amending of the return so as to take corrective action under s 208 FA 2014 is dealt with by s 9B TMA, which provides that the amendment does not take effect while the enquiry is in progress, but instead ‘when the closure notice is issued’: s 9B(3)TMA. HMRC subsequently closed the enquiries, amending the returns to remove the claims.[161]We are satisfied that the Appellant did not take corrective action by the specified time. Under s 208(2) FA 2014, the Appellant is therefore, prima facie, liable to pay the Penalties. Subject to consideration of the issue of whether the Appellant has established that his actions were reasonable in all the circumstances, the Penalties are due. To avoid a penalty, it is not sufficient merely the taxpayer believes they might be right. It must be reasonable in light of all the circumstances for them to take this position.[162]A penalty is chargeable, under s 208 FA 2014, if a taxpayer in receipt of a follower notice has not taken corrective action within the time-limit (i.e., 90 days from the date of the follower notice). However, pursuant to s 214(3)(d) of FA 2014, the taxpayer has a defence to the penalty if they can establish that it was ‘reasonable in all the circumstances’ not to take the necessary corrective action. The issues that we therefore have to consider are:(1) Whether it was reasonable in all the circumstances for the Appellant not to have taken the necessary corrective action on, or before, 5 April 2019, so that the Penalties are not payable; and(2) If the Penalties are payable, whether we should affirm the amount of the Penalties, or whether we should substitute for HMRC's decision regarding the amount of the Penalties for another decision regarding the amount that HMRC had power to make.[163]Section 214(3)(d) FA 2014 provides that an appeal may be made against a follower notice penalty if:
“it was reasonable in all the circumstances for [the person] not to have taken the necessary corrective action.”
[164]This issue does not concern the amount of the penalty but, rather, whether the conditions that are necessary to impose any penalty are met. The concept of it being “reasonable in all the circumstances” not to take the necessary corrective action acts as a defence to the imposition of any penalty. In determining the phrase “reasonable in all the circumstances”, a set of considerations was established by the UT in Comtek, where the UT determined that the phrase involves the application of a straightforward test, within the ordinary and natural meaning, as follows:
“33. It follows, in our judgment, that the FTT simply had to consider whether it was ‘reasonable in all the circumstances’ for the Company not to take corrective action, giving that phrase its ordinary and natural meaning. That required the FTT to do the following in this case (which should not be taken as setting out an exhaustive list of the examination required in all cases): (1) The FTT needed to consider why the Company chose not to take corrective action as its thought process formed part of the relevant ‘circumstances’. (2) The FTT also needed to take into account the fact that the question of whether it was ‘reasonable in all the circumstances’ not to take corrective action operates as a defence to a penalty that applies if corrective action is not taken by a deadline. Accordingly, the fact that the deadline was missed, and the Company’s reasons for missing it were highly relevant. (3) The FTT needed to take into account the structure and purpose of the relevant provisions of FA 2014. Those provisions are designed to ensure that taxpayers who fail to take corrective action by the deadline in response to a follower notice are to suffer a penalty unless, among other defences, they can establish that it was reasonable in all the circumstances not to take the corrective action. Once a taxpayer fails to meet the deadline, even if that failure was not reasonable in all the circumstances, it is not pre-ordained that the maximum penalty of 50% will be charged, since s210 provides for the penalty to be mitigated if there has been ‘cooperation’ as statutorily defined. But it would be quite contrary to the purpose of the legislation for a taxpayer who misses the deadline for no good reason to enjoy complete exemption from a penalty simply because of actions taken after the deadline has been missed.” (1) The FTT needed to consider why the Company chose not to take corrective action as its thought process formed part of the relevant ‘circumstances’. (2) The FTT also needed to take into account the fact that the question of whether it was ‘reasonable in all the circumstances’ not to take corrective action operates as a defence to a penalty that applies if corrective action is not taken by a deadline. Accordingly, the fact that the deadline was missed, and the Company’s reasons for missing it were highly relevant. (3) The FTT needed to take into account the structure and purpose of the relevant provisions of FA 2014. Those provisions are designed to ensure that taxpayers who fail to take corrective action by the deadline in response to a follower notice are to suffer a penalty unless, among other defences, they can establish that it was reasonable in all the circumstances not to take the corrective action. Once a taxpayer fails to meet the deadline, even if that failure was not reasonable in all the circumstances, it is not pre-ordained that the maximum penalty of 50% will be charged, since s210 provides for the penalty to be mitigated if there has been ‘cooperation’ as statutorily defined. But it would be quite contrary to the purpose of the legislation for a taxpayer who misses the deadline for no good reason to enjoy complete exemption from a penalty simply because of actions taken after the deadline has been missed.”
[165]As such, this requires three steps - though not exhaustive - to determine whether the Appellant’s actions were reasonable in all the circumstances:(1) Consider why the person chose not to take corrective action as their thought processes are part of the ‘relevant circumstances’.(2) Account for the specific deadline to take corrective action and examine the reasons why the deadline was missed.(3) Account for the structure and purpose of the relevant provisions of FA 2014.[166]‘Reasonable in all the circumstances’ must be viewed in light of the facts of the matter, and the legislative context. The test is ‘objective’ and is broader than the formulation of ‘reasonable excuse’ derived from the judgment of His Honour Judge Medd OBE QCin The Clean Car Company Ltd v Customs and Excise [1991] VATTR 234, in which he stated:
“the test of whether or not there is a reasonable excuse is an objective one. In my judgment it is an objective test in this sense. One must ask oneself: was what the taxpayer did a reasonable thing for a responsible trader conscious of and intending to comply with his obligations regarding tax, but having the experience and other relevant attributes of the taxpayer and placed in the situation that the taxpayer found himself at the relevant time, a reasonable thing to do?”
[167]Any decision not to take corrective action should be a properly informed choice. There are no statutory exclusions to what may be reasonable in all the circumstances. We are required to look at “all the circumstances”. This would include the taxpayer's individual circumstances and any factors that they had, or should have, taken into account in deciding whether to take corrective action. In Comtek, the UT said this:
“179. While it is worth considering what a reasonable and prudent taxpayer in the position of the Appellant would have done if in the Appellant’s position, the Tribunal must look at all the circumstances. 180. It is a fact specific exercise. This must mean that the reasonableness of the beliefs and actions of the taxpayer are relevant in light of their attributes, just as the actions of HMRC and any other external circumstances are so.”
[168]Whilst the following are decisions of the FtT, we consider them to be persuasive, though not binding on us:[169]The FtT in Moore considered Comtek,stating that:
“77. As the Upper Tribunal made clear at paragraph 33(3) of Comtek, the phrase “reasonable in all the circumstances” must be viewed in light of the legislative context. A position which viewed in context, frustrates the purpose of the legislation is not likely to be reasonable in all the circumstances. To see how other litigation plays out would be to defeat the purpose of the legislation which is to discourage taxpayers from pursuing their dispute in avoidance cases once their arrangement has been shown to fail in another party’s litigation.”

[Emphasis added]

[170]In Onillon,

Judge Rupert Jones said this:

“171. ...the starting point must be that there is no need to add any gloss to the words contained in the statute. 172 ...The purpose [of the legislation] is to discourage taxpayers from pursuing their dispute in avoidance cases once their scheme has been shown to fail in another party's litigation ...To avoid a penalty, therefore, it cannot be sufficient merely that the taxpayer believes they might be right, it must be reasonable in light of all the circumstances for them to take this position. … 175 ....'reasonable' must be construed objectively, not subjectively. This means that the taxpayer must have done what a prudent and reasonable hypothetical person would have done in his situation in light of all the facts and the legislative context.” 176. It goes without saying that the test is not identical to the test of ‘reasonable excuse’ [...]. For example, there are no statutory exclusions to what may be ‘reasonable in all the circumstances’ [...]. 177. Nonetheless, the test is similar to that for a reasonable excuse because it is an objective test and thus ‘is a matter to be considered in the light of all the circumstances of the particular case’ – Rowland [...] para. 18.”
[171]The test is similar to that set out by the UT in Perrin v R & C Comrs[2018] BTC 513 (‘Perrin’)(Judges Herrington and Poole). There, the UT set out a four-step process for the FtT to use when considering whether a person has a ‘reasonable excuse’.[172]In Corrado,at [130],Judge Redston adopted the approach in Perrin at [81](3)]:
“[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.”
[173]In Barlow,

Judge Helier stated, at [69] to [70] and [72] to [77], that:

“69. I note that section 214(3)(d) specifies as a ground of appeal that it was reasonable for the taxpayer not to take corrective action. Those words do not contain any time limitation and I conclude that they may refer to circumstances both before and after the date specified for corrective action. 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.” … 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 has the time or expertise to check for himself. If the taxpayer has done his homework and found that the qualification and reputation of the adviser are 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. 75. I had no evidence as to how Mr Barlow had chosen Montpelier to advise him – as to whether or not he had enquired into their reputation, qualifications, regulation or tax expertise. Montpelier was a company which appeared to conduct its business in the Isle of Man, and to my mind that would have sparked in the mind of a reasonable taxpayer some curiosity as to its UK tax expertise. 76. There was no evidence before me as to how Montpelier explained the tax scheme to Mr Barlow: what they had initially said about the likelihood of success, whether they had given him a reasoned opinion or the opinion of external counsel. 77. The absence of evidence on these matters means, in an appeal in which the evidential burden of proof is on the Appellant, that I am unable to conclude that, merely because Mr Barlow was advised by Montpelier, his actions were reasonable.”
[174]In Barlow, Judge Hellier cited Corrado at [71], where Judge Redston cited with approval the passage in Onillon, where the FtT said this, at [173]: “A position which, viewed in context, frustrates the purpose of the legislation is unlikely 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 the corrective action. Any decision not to take corrective action should be a properly informed choice”.[175]In the circumstances of the appeal before us, we have found that the applicable judicial ruling in Huitson, dated 3 September 2015, became final on 23 January 2016. On 11 November 2016, the follower notices were issued to the Appellant, under s 204 FA 2014, relating to the relevant period. The cover letter confirmed: “Paying the amount due does not mean that you have taken the necessary corrective action. If you pay the amount due but do not take the necessary corrective action, then you will be liable to pay a penalty for not having taken that corrective action”.[176]The follower notices advised that corrective action was required to be taken to counteract the denied advantage, and to enter into an agreement with HMRC to relinquish the denied advantage. HMRC further advised that:
“Penalties for failing to take corrective action on time If you do not take the necessary corrective action on time and we do not withdraw the notice, you will be liable to pay a penalty of 50% of "the value of the denied advantage" as determined by section 209 of the Finance Act 2014. Schedule 30 to the Finance Act 2014 explains how the value of the denied advantage is calculated. If you take corrective action on time and this relinquishes the denied advantage only in part, you will be charged a penalty by reference to the remainder of the denied advantage. If we charge you a penalty, we will send you a notice of penalty assessment telling you how we have worked out the amount of the penalty. You will need to pay the penalty as well as the tax that is due.”
[177]The follower notices also included the form CADAcc38 – ‘Corrective action in response to follower notice – appeal cases.’ As mentioned earlier, given that representations were made by the Appellant, the specified time for taking corrective action became 5 April 2019.[178]Furthermore, having considered all of the correspondence included in the bundle, we are satisfied that the Appellant was expressly told, on more than one occasion, what was required to be done in order for him to be considered to have taken corrective action. This was by way of the letter warning of the serving of the follower notices, the follower notices, the reminder letters about the follower notices,and HMRC’s response to the representations made by the Appellant. The follower notices also warned the Appellant of penalties if he did not do what the follower notices required. HMRC outlined to the Appellant what he was required to do to take corrective action in their letters dated 21 October 2016, 29 December 2016, 24 November 2017, and telephone calls on 12 December 2017 (in which it was specifically explained to the Appellant that paying the APNs was separate to taking corrective action to relinquish the denied advantage) and 10 July 2018.[179]HMRC also wrote to the Appellant warning him of liability to a penalty for failure to take corrective action in respect of the follower notices. The letter was in the following terms:
“On X we sent you a follower notice. This explained that if you didn't take the necessary corrective action on time, you would be liable to pay a penalty. The deadline for taking corrective action was X. That deadline has now passed and because you haven't taken the necessary corrective action, you're now liable to pay a penalty under section 208 of the Finance Act 2014. The penalty for not taking the necessary corrective action in response to a follower notice is 50% of the tax and National Insurance contributions (NICs) in dispute (which is referred to as 'the denied advantage' in the follower notice). However, we can reduce the penalty percentage rate to reflect your co-operation. There's more information about this below. How you can help reduce the penalty We can reduce the percentage rate of the penalty if you co-operate with us before we send you the notice of penalty assessment. (There's more about this in the section headed 'Telling you about the amount of the penalty'.) However, we can't reduce the penalty percentage rate to less than 10%. • Co-operation means doing one or more of the following: • providing us with reasonable help in working out the amount of the tax and NICs advantage • counteracting the denied advantage (your follower notice describes this as 'relinquishing' the denied advantage). • giving us the information to enable us to take corrective action • giving us the information to enable us to reach an agreement with you to counteract the denied advantage • giving us access to tax records so that we can make sure that the denied advantage is fully counteracted.”
How you can help reduce the penalty • Co-operation means doing one or more of the following: • providing us with reasonable help in working out the amount of the tax and NICs advantage • counteracting the denied advantage (your follower notice describes this as 'relinquishing' the denied advantage). • giving us the information to enable us to take corrective action • giving us the information to enable us to reach an agreement with you to counteract the denied advantage • giving us access to tax records so that we can make sure that the denied advantage is fully counteracted.”

How you can help reduce the penalty

[180]The Appellant submits that it was reasonable in all the circumstances not to take corrective action by the deadline because:(1) Montpelier advised him to wait for certain legal processes to conclude before making any decisions.(2) HMRC should have issued the follower notices only after all legal processes had been finalised.(3) If litigation went against HMRC and he had taken corrective action, he would not be able to reclaim amounts paid in error[181]We have considered the correspondence received from Montpelier. In response to the Appellant’s question of whether he had taken corrective action by paying the APNs, Montpelier confirmed that the Appellant had been sent two sets of notices at the same time; the APNs sought payment, and the follower notices required the Appellant to take corrective action. On 19 December 2017, Montpelier advised the Appellant that:
“The 50% penalty has nothing to do with the APN's. The penalty that they are threatening is in respect of the follower notices and non completion of the corrective action forms.”
[182]We are satisfied that the Appellant was made aware that the APN and the Penalties were separate. There is, therefore, no basis for the Appellant to have believed that payment of the APN would amount to having taken corrective action. The additional correspondence between the Appellant and Montpelier is dated 5 December 2017 and 11 December 2017. On 10and 15January 2018, the Appellant emailed Montpelier requesting further updates, to which Montpelier provided a holding response (on 16 February 2018 and 19 February 2018). Montpelier provided the Appellant with wording to appeal the APNs.Following an exchange of correspondence between the Appellant and Montpelier on 26 March 2019, the Appellant requested details of the corrective action he could take. Montpelier informed the Appellant this would involve withdrawing the appeals and agreeing to settle them. Montpelier further stated it is the Appellant’s decision if he would prefer to take corrective action, as follows:
“It is your decision if you would prefer to complete the corrective action forms.”
[183]We find, from our consideration of the correspondence included in the Document Bundle, that the last correspondence that the Appellant received from Montpelier was dated 26 March 2019. This is before the specified time of 5 April 2019.The Appellant stated that he did not understand the correspondence regarding these mattersin his letter dated 25 March 2025, stating:
“All this maybe meant something to Montpelier who would provide me with responses to your intentionally confusing communication. To me they mean nothing as I cannot make any sense of it.”
[184]The Appellant has provided no evidence that he sought secondary advice from another party in relation to the follower notices, or the Penalties. In Glasby, the FtT commented unfavourably on an arrangement where a taxpayer merely forwarded correspondence to HMRC that was provided to them by Montpelier:
“28. That sympathy is, however tempered by the fact that those representations and that 19 May 2017 letter were both originally authored by Montpelier, and the appellant acted almost as a postbox for that letter; and little of the Appellant’s real sentiments concerning the issues surrounding the FNs were reflected in those communications.”
[185]The Appellant only submitted one ground of appeal in his appeal against the Closure Notices: that he was entitled to the double taxation relief claimed. The Appellant had no further Grounds of Appeal at the corrective action deadlines. On 15 October 2019, in his appeal against the Penalties, the Appellant stated that Huitson only concerned the double taxation relief and did not consider another ground of appeal. He further stated:
“I may have been an employee with that employer for PAYE and NICs.”
[186]In his 24 November 2024 email to HMRC, the Appellant stated:
“My case with HMRC is one. There are no parts that make it up. It is at the Tax Tribunal appeal stage and it is about the FN penalties issued against me.”
[187]This clearly shows that the Appellant was not concerned with his appeal against the Closure Notices (which is still open).[188]HMRC explained to the Appellant, on 29 November 2024, that there were open appeals to HMRC against the Closure Notices, as well as the Appellant’s appeal at the FtT regarding the Penalties. Details were provided of how the Appellant could settle his appeal against the Closure Notices with HMRC. In response to this, the Appellant stated:
“I am only observing and applying my legal rights in terms of the related legal processes”
[189]But at the same time states:
“regarding the open matters section and the Lancashire appeal, I honestly have no idea how this is related to my case.”
[190]The principles and reasoning in Huitson removed the claim to double taxation relief. This had the effect of bringing income tax and NICs into charge. There was no doubt that Huitson was final at the point when HMRC issued their conclusion letter, addressing the Appellant’s representations – prior to the date that corrective action was required to be taken. There is also no doubt that the legal processes in Huitson was final. We are satisfied that a prudent and reasonable hypothetical taxpayer would have taken steps to understand the arguments being made to allow them to make an informed decision whether or not to take corrective action. The deadline for the Appellant to take corrective action was extended on more than one occasion. The Appellant has still not taken corrective action.[191]The Appellant has referred to various decisions of the FtT in an attempt to reconcile his circumstances with the appellants in those appeals. We turn to consider those decisions.[192]In Baker, which concerned the same Scheme marketed by Montpelier, Mr Baker said that the issue of NICs kept coming in and out of the whole matter and he did not understand why he had been subject to a penalty as he had agreed to pay the tax due on the Scheme in November 2017. Mr Baker stated that he had not taken corrective action based on the advice he received from Montpelier that he would have to give up his right of appeal if he relinquished his denied advantage. This was a requirement under s 209 FA 2014 in order to avoid a penalty. In Mr Baker’s opinion although he knew he had a denied advantage there were a number of “iffy items” and errors made by HMRC which gave him no confidence that what they were saying was correct. He, therefore, did not wish to give up a right to appeal. He claimed he was subsequently justified in doing so in relation to NICs as HMRC repeatedly changed their view on their inclusion.[193]Mr Baker also stated that he had made representations against both follower notices and APNs, which HMRC had replied to on 13 October 2017, but he did not believe those replies properly or adequately dealt with his representations. He also stated that the follower notices relied on the judicial ruling of Huitson, but that decision only concerned the availability of double tax relief under the UK/ Isle of Man double tax treaty. His letter continued:- “It did not concern my other ground of appeal that in fact I may have been an employee with that employer liable for PAYE and NIC. I understand that an appeal on these grounds was heard by the First Tier Tax Tribunal in May and the decision is awaited. Section 214(3)(b) FA 2014 refers to a judicial ruling but the ruling referred to in the FN does not deal with the substantive appeal of agency and PAYE. It appears that HMRC has not taken this matter into account.”[194]Whilst Mr Baker had relied on Montpelier, the first follower notices were sent out in December 2016, only to be withdrawn and reissued the following month because of errors.[195]In Andreae, the FtT allowed a taxpayer’s appeal against penalties for failure to take corrective action on receipt of follower notices finding that it was reasonable for him not to have done so because of his belief in the scheme promoters’ view that there had not been a final ruling in the related case. In that appeal, Mr Andreae was in regular contact with Montpelier to resolve the issues and, as soon as it was noted that Montpelier were no longer responding, he obtained secondary advice from his accountant and left the scheme immediately. Notably, this led Mr Andreae to take corrective action, and as Mr Andreae was in the process of quantifying the value of the denied advantage at the time the penalties were issued, it was reasonable in all the circumstances for him not to take corrective action.[196]In Moore, Mr Moore sought to rely on Andreae stating that his circumstances were similar. However, the FtT distinguished his casefrom Andreae on the following basis:
“54. A key issue that we should address is that the appellant insisted at the end of the hearing that he had taken corrective action because he had made an offer to settle as demonstrated by the Supplementary Bundle. As we have pointed out at paragraph 128 above “corrective action” is defined in the legislation and as at the date of the hearing the appellant certainly had not taken corrective action … 56. There are other key differences, the most significant of which, in our view, is that in Andreae, the date for taking corrective action was postponed only once after the representations were lodged (from 7 February 2017 to 16 November 2017) but in this case HMRC extended the deadline three times from 14 February 2017 to 7 November 2017 and then to 29 March 2019 and then again to 12 April 2019. In popular parlance he had three bites at the cherry. 58. Whilst it is obvious that in Andreae once the deadline expired prompt action, including corrective action was taken, the appellant’s position is rather different. It is certainly the case that he made contact with HMRC from mid-January 2018 but, that was implementing the advice received from Montpelier on 11 January 2018 about making payments.”
[197]Therefore:(1) In Baker, there were procedural flaws that had led to HMRC withdrawing follower notices and APNs, and then reissuing them to the Appellant. In those circumstances, the FtT found that it was reasonable in all the circumstances for Mr Baker not to take corrective action due to the uncertainty.(2) In Andreae and Baker, the appellants had provided extensive evidence of their correspondence with Montpelier.(3) In Moore and Barlow, the appellantshad had evidenced contact with Montpelier throughout the process.(4) In Moore, secondary advice was sought regarding the follower notice.[198]Having considered all of the information before us, cumulatively, and in light of the correspondence and the ruling in Huitson, we are satisfied that it was not reasonable in all the circumstances for the Appellant to have failed to take corrective action by the specified time. A position which, viewed in context, frustrates the purpose of the legislation is unlikely to be viewed as reasonable in all the circumstances. For example, it is not enough for a taxpayer to 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. This was not so concerning the Appellant before us in light of his correspondence with HMRC and Montpelier, prior to the deadline for taking corrective action.

Issue 4: Whether the Penalties should be reduced

[199]The FtT has jurisdiction to consider whether a penalty was properly imposed, at all (s 2014(1)). It can consider whether Conditions A, B or D were met, or not (s 214(3)(a)). By implication, it has no jurisdiction to consider whether Condition C was met. FtT has no judicial review jurisdiction, and the language of s 214(3) appears to exclude wide ranging challenges to HMRC’s discretion in any event.[200]The right of appeal under s 214(2) is against HMRC’s decision as to the amount of the penalty. The FtTʼs powers in such an appeal are (in accordance with s 214(9)) either to affirm HMRCʼs decision, or to substitute for it another decision that HMRC had the power to make (s 208(9)). It follows that the FtT can, on an appeal under s 214(2), only reduce a penalty by reference to the provisions of s 210. In particular, therefore, the FtT only has power to reduce a penalty to reflect the nature and quality of co-operation; bearing in mind the limited and specific definition of that term used in s 210.[201]If corrective action was not taken by the specified time, a penalty of up to 50% of the tax in dispute becomes due under s 209 FA 2014. The FtT can alter the percentage to a lower one, but not to one less than 10% as HMRC have no power to impose a penalty lower than 10% (s 210(4)). It is implicit in s 210(3)(c) that credit should be given where the taxpayer co-operates with counteraction by HMRC. The FtT is able only to give credit for “co-operation”, as specifically and restrictively defined in s 210(3).[202]Penalty Explanation Schedules were issued to the Appellant, outlining how the Penalties had been calculated. The Schedules outlined that the value of the denied tax advantage is the figure that reflects the amount under appeal in relation to the revenue amendments for each tax year. The penalty percentage initially applied was 50%, as follows: 2004-05 2005-06 2006-07 2007-08 Additional income from tax return £8,800.00 £66,400.00 £93,350.00 £90,000.00 Value of denied advantage £2,639,77 £25,006.47 £36,017.01 £34,990.09 Penalty amount £1,319.88 £12,503.23 £18,008.50 £17,495.04[203]The penalty amounts were recalculated during the Appellant’s appeal to HMRC. This was due to the NICs element being removed from the value of the ‘denied advantage’, and a revised penalty percentage of 42% was applied. The reduction was given following a review of HMRC’s general policy regarding co-operation when assessing follower notice penalties.[204]The Appellant submits that he has paid the tax due and has, therefore, relinquished the tax advantage. In Comtek, the UT said this:
“46. We do, however, agree with HMRC that mere payment of the amount in dispute, or of any APN does not of itself amount to full counteraction. A person paying an APN is doing nothing more than complying with a statutory obligation to pay a particular sum by a particular time on account of that person’s overall tax liability. Compliance with that statutory obligation is entirely consistent with continuing to progress an appeal against that liability. In the context of this appeal, therefore, “counteraction” involves surrendering the underlying dispute as to the efficacy of the Scheme and not the payment of amounts demanded under the APN. … 49. …The interaction of these regimes is not straightforward. We can understand that it may not be immediately obvious to an unrepresented taxpayer that a payment made under the advance payment notice regime does not affect the status of the underlying appeal. HMRC can, of course, only operate within the confines of the legislation as enacted by Parliament.”
[205]In Hutchinson, Judge Mosedale considered whether payment of an APN is relevant when considering a taxpayer’s co-operation and calculating the appropriate follower notice penalty amount, and found that it was not:
““72. I find as a matter of law, paying an APN did not amount to taking corrective action as it did not result in the tax return being amended nor (where the matter was under appeal) did it result in a settlement of the dispute over the correct tax liability. I am satisfied that HMRC have proved that Mr Hutchinson did not take corrective action by the compliance date, either by paying the APN or otherwise, and therefore whether or not this new ground of appeal should be admitted makes no difference, as the appellant cannot succeed on it. … 98. His counsel relied on his payment of the APN as corrective action. I have already said that it was not. Moreover, Mr Hutchinson’s payment of the APN did not inform HMRC one way or the other on whether or not Mr Hutchinson was planning to fight on over the substantive tax dispute, as he was required to pay the tax over even if he intended to continue to dispute his liability. The payment of the APN was quite irrelevant to the requirement to comply with the Follower Notice and so I do not consider he should be credited with payment of the APN when considering the appropriate penalty for non-compliance with the Follower Notice. The credit for timely payment of the APN is that Mr Hutchinson received no penalty in respect of the APN.”
[206]Therefore, as considered earlier, payment of the APN is not relevant to the amount of the Penalties.[207]In Corrado, Judge Redston agreed with Judge Mosedale in Hutchinson that follower notices and APNs were, indeed, separate regimes; and that ‘corrective action’ required that a taxpayer irrevocably gives up his tax advantage, as follows:
“122. I agree with Judge Mosedale in Hutchinson that FNs and APNs are separate regimes, and that “corrective action” requires that a taxpayer irrevocably gives up his tax advantage. Although it is not necessary for a taxpayer to use the FN form in order to ask HMRC to amend an SA return, there must be some clear communication to HMRC that this is his intention.”
[208]While the APN relates to exactly the same tax advantage claimed by a taxpayer in his or her tax return, the effect of paying the APN is that the payment is:
“to be treated as a payment on account of the understated tax”
[209]The APN required the Appellant to pay the tax in dispute while it remained in dispute. Paying the APN does not, however, bring the dispute over the liability to the tax, or entitlement to the relief, to an end. If the dispute continued, and ultimately the taxpayer was successful, any money he had paid under the APN on account of the tax would have to be repaid to him by HMRC. Payment of the APN does not inform HMRC, one way or the other, whether or not a person is planning to fight on over the substantive tax dispute, as the individual is required to pay the tax over even if they intended to continue to dispute their liability. The payment of the APN was irrelevant to the requirement to comply with the follower notices.[210]The APN and follower notice regimes are two distinct regimes. The first has the object of depriving the taxpayer of the timing advantage of keeping hold of the tax the subject of the dispute during the course of the dispute; while the follower notice is intended to pressurise the taxpayer into bringing the dispute to an end on HMRC’s terms (but only in cases where there was a final judicial ruling that the scheme which is the subject of the dispute was ineffective). It was possible, as happened here, for the taxpayer to be the recipient of both kinds of notice but they were distinct. Complying with one does not amount to compliance with the other: see Hutchinson, at [71].[211]We are satisfied that no further reductions are warranted in respect of the Penalties.

Proportionality

[212]There is no possible ground of appeal that payment of a penalty unjustly enriches HMRC, other than if this is taken to be a ground of appeal that the penalty is (allegedly) disproportionate. The leading cases on proportionality in cases involving tax penalties are Total Technology [2012] UKUT 418 (TCC), Bosher [2013] UKUT 579 (TCC) and Trinity Mirror [2015] UKUT 421 (TCC).[213]At [31] and [35] in Glasby, Judge Popplewell said this: “...for the avoidance of doubt it is our view, too, that the FN penalty regime is a proportionate one...” “Furthermore our jurisdiction is not a supervisory one. In other words, we cannot review the reasonableness of HMRC’s original decision regarding the level of penalties”.[214]And in Hutchinson,

Judge Mosedale said this:

“112. I see nothing disproportionate in the penalty being tax geared (in other words, set as a % of the tax). The purpose of follower notices is to require a taxpayer to give up his dispute over a tax arrangement once a judicial ruling has held the arrangement to be ineffective; the purpose of the penalty is to penalise him if he does not do so (without good reason) by a certain date. The higher the amount of tax in dispute, the greater the prejudice to HMRC (and the public purse) in the amount remaining in dispute.”
[215]These cases indicate that the penalty legislation, as a whole, cannot be found to be disproportionate; or, alternatively, that an individual penalty can be found to be disproportionate, without the entire scheme of the legislation being disproportionate. We are satisfied that the Penalties are proportionate and uphold the Penalties.

Conclusions

[216]We hold that:(1) The Penalties were correctly issued;(2) Paying APNs is separate to taking corrective action. The two regimes are distinct.(3) The Appellant failed to take corrective action by the specified time.(4) Corrective action is defined by the legislation.(5) It was not reasonable in all the circumstances for the Appellant not to take corrective action in response to the underlying follower notices.(6) No further reduction in any of the Penalties is due[217]Accordingly, therefore, the appeal is dismissed.[218]We have exercised our powers, under s 50(6) TMA to reduce the Penalties to the amounts in the review. This results in Penalties of £39,153.22.

Right to apply for permission to appeal

[219]This document contains full findings of fact and reasons for the decision. Any party dissatisfied with this decision has a right to apply for permission to appeal against it pursuant to Rule 39 of the Tribunal Procedure (First-tier Tribunal) (Tax Chamber) Rules 2009. The application must be received by this Tribunal not later than 56 days after this decision is sent to that party. The parties are referred to “Guidance to accompany a Decision from the First-tier Tribunal (Tax Chamber)” which accompanies and forms part of this decision notice. Release date: 24th NOVEMBER 2025