Mohammad Farrokhshad v The Commissioners for HMRC [2026] UKFTT 954 (TC)

[2026] UKFTT 00954 (TC)Case No TC 09929
FIRST-TIER TRIBUNAL
TAX CHAMBER
Hearing Heard on: 28 May 2026Date Judgment date: 24 June 2026
Taylor House, London
Appeal reference: TC/2024/05250
Penalties – Whether failure to take corrective action required by follower notices – Whether failure was reasonable in all the circumstances – Whether penalty amounts correct and appropriate reduction given for co-operation – Appeal allowed in part
Before
TRIBUNAL JUDGE JOHN BROOKSTRIBUNAL MEMBER NOEL BARRETT
Between
MOHAMMAD FARROKHSHADAppellantTHE COMMISSIONERS FOR HIS MAJESTY’S REVENUE AND CUSTOMSRespondentMohammad Farrokhshad in person for AppellantDorothy Cantley litigator of HM Revenue and Customs’ Solicitor’s Office for RespondentsDECISION

Introduction

[1]The Appellant, Mr Mohammad Farrokhshad, appealed to the Tribunal on 27 September 2024 against a decision of the Respondents (“HMRC”), made under s 208 Finance Act 2014 on 15 August 2019, to issue follower notice penalties for 2004-05, 2005-06 and 2006-07 in the total sum of £42,446.90 for his failure to take corrective action required by follower notices (“FNs”) issued on 28 October 2016. The penalties were reduced to a total sum of £33,349.49 in HMRC’s ‘View of the Matter’ letter of 14 August 2023. These reduced penalties were upheld on 11 July 2024 following a review by HMRC.[2]The table at Appendix I shows the original and revised penalties charged. The tables at Appendix II outlines how the revised calculation was undertaken by HMRC in this case.

Late Appeal

[3]Sub-sections (4) and (5) of s 214 Finance Act 2014 provide that an appeal against an FN penalty must be made within 30 days beginning with the day on which notification of the penalty is given under s 211 of the Act and that an appeal is to be treated in the same way as an appeal against an assessment to tax, including about HMRC’s review of a decision. Therefore, for present purposes Mr Farrokhshad should have appealed to the Tribunal within 30 days of the conclusion of HMRC’s review, ie by no later than 10 August 2024. His appeal to the Tribunal, which was made on 27 September 2024, was therefore 48 days late.[4]However, Mr Farrokhshad wrote to HMRC on 8 August 2024 requesting that they refer the matter to the Tribunal. HMRC responded by email on 2 August 2024 explaining that it was for Mr Farrokhshad, not HMRC, to notify the appeal to the Tribunal and that if he did so within 30 days HMRC would not object to the admission of a late appeal.[5]As Mr Farrokhsahd notified his appeal to the Tribunal on 27 September 2024, within 30 days of HMRC’s email, HMRC did not object to its admission.[6]Applying the guidance as set out in Martland v HMRC [2018] UKUT 178 (TCC) and as confirmed by the Court of Appeal in HMRC v Medpro Healthcare Ltd [2026] EWCA Civ 14, having noted the length of, and reasons for the delay, and having regard to all the circumstances, in particular that Mr Farrokhshad had sought to appeal within one day of the review conclusion letter and did so within 30 days of being told of the need to appeal to the Tribunal himself (and not via HMRC) and that HMRC do not object, we admitted the appeal notwithstanding it was late.[7]Having admitted Mr Farrokhshad’s appeal it is helpful, at this stage, to set out the statutory provisions applicable to FNs and FN penalties.

Law

[8]Unless otherwise stated all subsequent statutory references are to the provisions of the Finance Act 2014.[9]Insofar as it applies to the present case s 204 provides:(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) …, 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.[10]Section 205 provides that a judicial ruling is a ruling of a court or tribunal and is “final” if no appeal is made against the ruling (see s 205(4)). Such a ruling is “relevant” to the chosen arrangements if it relates to tax arrangements, and the principles laid down in the judicial ruling would deny the asserted advantage[11]A FN must identify the judicial ruling, explain why HMRC consider the ruling to be relevant and state that P may respond by written submissions to HMRC etc (see s 206).[12]If corrective action has not been taken, P is liable to a penalty under s 208 amounting to 50% of the value of the denied advantage. However, that penalty may be reduced for co-operation (see s 209).[13]Sub-sections (4) – (6) of s 208 provide: (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.[14]A person (P) may appeal, under s 214(1), against the decision that a penalty is payable Section 214 continues: (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. (4) An appeal under this section must be made within the period of 30 days beginning with the day on which notification of the penalty is given under section 211. … (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. … (11) In this section “tribunal” means the First-tier Tribunal or Upper Tribunal (as appropriate by virtue of subsection (5)).[15]We should also explain that, as it was created by statute (the Tribunals Courts and Enforcement Act 2007), the Tribunal’s jurisdiction is defined and limited by legislation and, as is clear from the decision of the Upper Tribunal in HMRC v Hok Ltd [2012] UKUT 363 (TC), which is binding on us, it does not extend to the power to override a statute or supervise the conduct of HMRC.

Facts

[16]It is common ground that Mr Farrokhshad was a member of, and participant in, a tax arrangement scheme marketed by Montpelier Tax Management (the “Scheme”). The Scheme sought to exploit the double taxation arrangements between the UK and the Isle of Man by routing the participants earnings through Isle of Man partnerships and an Isle of Man trust. However, in early 2007 Mr Farrokhshad withdrew from, and ceased all participation in, the Scheme. He explained that this was because of the growing press scrutiny and disapproval of tax avoidance schemes.[17]Although he had withdrawn from the Scheme, in his self-assessment tax returns for the years 2004-05, 2005-06 and 2006-07, which were filed on 30 January 2006, 29 January 2007 and 25 January 2008 respectively, Mr Farrokhshad had returned income from the offshore trust and had claimed an equivalent amount of double taxation relief. HMRC opened enquires into these returns and issued closure notices on 28 April 2009 (for 2004-05) and 26 January 2009 (for 2005-06 and 2006-07). Mr Farrokhshad appealed against all of the closure notices.[18]Although the appeals against the closure notices had not been determined, abandoned or otherwise resolved at the time the FNs were issued on 28 October 2016, the appeals were eventually settled by agreement on 3 December 2020.[19]On 3 September 2015 the Tribunal released its decision in the case of Huitson v HMRC [2015] UKFTT 448 (TC) which concerned tax avoidance arrangements marketed by Montpelier Tax Management which were similar to the Scheme. The Tribunal found that the scheme in Huitson did not work and was ineffective in achieving the intended tax result. As a result Mr Huitson was liable to Income Tax and National Insurance Contributions on his share of the income from an Isle of Man trust.[20]The decision in Huitson became ‘final’ (as defined by s 205) on 23 January 2016 when the time in which an application for permission to appeal to the Upper Tribunal could be made expired.[21]On 13 October 2016 HMRC wrote to Mr Farrokhshad stating that, as they considered Huitson was relevant to the arrangements he had used, FNs would be issued within the next 10 weeks. On 28 October 2016 HMRC issued FNs for 2004-05 (£7,039.86), 2005-06 (£10,293.24) and 2006-07 (£25,133.80) with a covering letter. The covering letter advised Mr Farrokhshad that he needed to take corrective action by 31 January 2017 and warned that:
“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. …”
[22]Each of the FNs contained the following information:
“Taking corrective action If you do not take the necessary corrective action by 31 January 2017, you will be liable to pay a penalty under section 208 of the Finance Act 2014. To take corrective action, you must: • first step: − take all necessary action to enter into a written agreement with us to relinquish the denied advantage • second step: − tell us that you have taken the first step − tell us the amount 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 To take corrective action you can complete the enclosed form CADAcc38 and send it back to us. You must make sure that you take the necessary corrective action no later than 31 January 2017. However, if you object to the notice and make representations to us, the date for taking corrective action may change …”
To take corrective action, you must: − take all necessary action to enter into a written agreement with us to relinquish the denied advantage − tell us that you have taken the first step − tell us the amount 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

To take corrective action, you must:

[23]On 17 November 2016 Mr Farrokhshad confirmed, in a telephone call with HMRC, that he had received the FNs but told HMRC that the FNs had been illegally served and said that he was taking advice on the matter.[24]On 20 January 2017, having received a reminder letter sent by HMRC on 13 December 2016, Mr Farrokhshad made representations to HMRC against the FNs. These representations were amended by Mr Farrokhshad on 26 January 2017. In essence Mr Farrokhshad contended that the FNs were wrong in law and that the statutory conditions had not been satisfied.[25]HMRC rejected Mr Farrokhshad’s submissions and by letter of 27 March 2017 upheld the FNs setting a new date, of 2 May 2017, for the corrective action to be taken. In the absence of any corrective action being taken, on 10 May 2017 HMRC wrote to Mr Farrokhshad stating that he was now liable to penalties.[26]Mr Farrokhshad responded on 16 May 2017, explaining that he had replied to HMRC’s letter of 27 March 2017 and enclosed a copy of his letter of 25 April 2017 which stated he would not be taking corrective action by the due date.[27]On 23 January 2018 Mr Farrokhshad sent HMRC a ‘Letter before claim’. This letter referred to the case of R (on the application of Broomfield and Others v HMRC [2017] EWHC 2926 (Admin) – a judicial review claim by 340 claimants challenging the validity of FNs and accelerated payment notices issued by HMRC – and a consent order under which HMRC would not enforce the FNs in the case of hardship concerning the Broomfield litigants. Mr Farrokhshad (who was not a party in the Broomfield litigation) contrasted his position with that of the Broomfield litigants contending that as HMRC had not made any attempt to consider his financial position he had been discriminated against.[28]HMRC responded on 11 September 2018 stating that any FN penalties would be calculated by reference to the denied advantage. On 8 October 2018 HMRC wrote to Mr Farrokhshad stating that he was now liable to penalties for failing to take the corrective action as required by the FNs by 2 May 2017.[29]On 5 November 2018 HMRC wrote to Mr Farrokhshad. The letter which was headed “Accelerated Payment Notice” stated that he owed £93,390.69 and warned that if he did not ay “within the next few days” HMRC would start enforcement proceedings. Attached to that letter was a “Statement of Liabilities” which provided a breakdown of the accelerated payment charges and interest amounting to £93,390.69. The Statement of Liabilities did not include any amount in respect of FN penalties. It is not disputed that Mr Farrokhshad paid HMRC £93,390.69 in November 2018.[30]Also, between November 2018 and December 2018, additional communications – including written correspondence and telephone conversations – took place between HMRC, Mr Farrokhshad and his new agent. These communications addressed matters relating to the Broomfield judicial review proceedings, Mr Farrokhshad’s complaint about debt payment demands, and requests for a breakdown of charges and copies of the enquiry notices.[31]As noted above (at paragraph 1) the FN penalties were upheld by HMRC on 11 July 2024, following a review, and Mr Farrokhshad appealed to the Tribunal against those penalties on 27 September 2024.

Discussion and Conclusion

[32]It is not disputed that it is for HMRC to establish that the conditions for issuing each of the FN penalties has been met, and the amounts were correctly assessed, calculated and notified to Mr Farrokhshad. If this is established by HMRC, it is then for Mr Farrokhshad to show that either he took corrective action or, if he did not, it was reasonable in all the circumstances for him not to have done so.[33]HMRC contend that the FNs on which the FN penalties are based were valid and, as Mr Farrokhshad had not taken the necessary corrective action required by the FNs by the due date, the FN penalties were correctly issued in the correct amounts. We agree that the FNs are valid as conditions A – D in s 204 have been met, in particular:(1) Condition A is met because Mr Farrokhshad appealed against the closure notices and, at the date the FN penalties were issued, his appeals had not been determined, abandoned or otherwise resolved;(2) Condition B is met as the asserted advantage resulted from Mr Farrokhshad’s use of the Scheme;(3) Condition C is met as it is HMRC’s opinion that Huitson is a relevant judicial ruling; and(4) Condition D is met as no previous FNs had been issued to Mr Farrokhshad by reference to the same tax advantage, tax arrangements or judicial ruling for the tax years concerned.[34]As noted above (at paragraph 20) the decision in Huitson became final on 23 January 2016 and, as they were issued on 28 October 2016, the FNs were issued within 12 months of that judicial ruling and are therefore in time. Accordingly, if Mr Farrokhshad did not take corrective action by the due date, in this case 17 May 2017, he is liable to FN penalties.[35]Mr Farrokhshad contends that he did take corrective action in 2007 by withdrawing from the Scheme and asks if that is not corrective action, what is? However, for the purposes of FNs and FN penalties, a person will only have taken “corrective action” if, and only if, the steps set out in sub-sections (5) and (6) of s 208 are taken (see paragraph 13, above). Nothing else will do.[36]As Mr Farrokhshad accepts that he did not take those steps by 17 May 2017, and as we do not have the jurisdiction to override a statute (see paragraph 15, above), we have no alternative other than to find that Mr Farrokhshad did not take corrective action and, as a result, unless he can establish that it was reasonable in all the circumstances for him not to have taken such action, he is liable to the FN penalties.[37]Having dealt with Mr Farrokhshad’s argument that he had taken corrective action and, hopefully, explained why the withdrawal from the Scheme cannot be regarded as such, we considered other arguments advanced by Mr Farrokhshad but, for the reasons below, we are unable to conclude that it was reasonable in all the circumstances for him not to have taken the corrective action prescribed by s 208.[38]Mr Farrokhshad said that when he joined the Scheme in 2004, HMRC had issued no guidance, warning potential participants, such as IT contractors like himself, that such schemes were unacceptable. He added that the Scheme had been promoted by leading counsel (a QC) who assured the participants that the Scheme was 100% legal. However, it is not for HMRC to provide advice in relation to such tax planning arrangements. The FNs were issued, not because the Scheme was unlawful but, in the light of Huitson, it was ineffective and did not produce the tax savings claimed by its participants.[39]Although Mr Farrokhshad said that he had declared his entire income in his self-assessment tax returns and contended that the FN penalties were therefore in effect double taxation, he is incorrect. The FN penalties were issued as a result of his failure to take corrective action as required by the FNs and have nothing to do with his liability to, and payment of, income tax.[40]Mr Farrokhshad also contends that the FN penalties are out of time. However, for the reasons explained above (in paragraph 34) that is not the case. Also, as Mr Farrokhshad was not a party to the Broomfield litigation any order made in that case could not apply to him and HMRC’s failure to do so cannot be a breach of such an order as Mr Farrokhshad alleges.[41]We are afraid that we are unable to accept that Mr Farrokhshad believed the payment of £93,390.69 he made to HMRC in November 2018 was made in complete settlement of all of his liabilities including the FN penalties. The letter of 5 November 2018 is clearly headed “Accelerated Payment Notice” and the “Statement of Liabilities” attached to that letter did not include any amount in respect of FN penalties (see paragraph 29, above).[42]Finally Mr Farrokhshad contends that the FN penalties were an abuse of HMRC’s power and exploited a vulnerable, unrepresented individual and discriminated against him. He compared his situation to those who had participated in the loan scheme and individuals named in the Panama Papers and Paradise Papers, noting he has seen no evidence of them being pursued by HMRC. He also explained that his health and that of his family has suffered as a result of what he described as “HMRC’s relentless campaign”.[43]We accept that Mr Farrokhshad has suffered anxiety and stress as a result of this litigation and although we very much sympathise with him, our jurisdiction does not extend to issues relating to HMRC’s conduct (see paragraph 15, above) and do not consider this to fall within the circumstances envisaged by s 214(3)(d).[44]We have also considered whether any further reduction in the FN penalties should be given for co-operation by Mr Farrokhshad but, having regard to all the circumstances, have concluded that the reduction given by HMRC was appropriate.

Conclusion

[45]For the reasons above, other than to confirm the reduction in the FN penalties from £42,446.90 to £33,349.49, thereby allowing the appeal in part, we find that the FN penalties were correctly issued in the right amount and that as Mr Farrokhshad did not take corrective action by 2 May 2017, the due date, he is therefore liable for the FN penalties.

Right to apply for permission to appeal

[46]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: 24 June 202647. APPENDIX I Tax Year Original value of denied advantage Original penalty % rate charged Original penalty charged Revised value of denied advantage Revised penalty % rate charged Revised penalty charged 2004-05 £14,079.72 50% £7,039.86 £12,648.64 42% £5,312.42 2005-06 £20,586.49 50% £10,293.24 £18,634.78 42% £7,826.60 2006-07 £50,267.60 50% £25,133.80 £48,120.18 42% £20,210.47 Total £42,466.90 Total £33,349.4948. APPENDIX II Description Possible Reduction Reduction Given a) Provided reasonable help working out the amount of the denied advantage 20% 20% b) Counteracted the denied advantage 70% 0% c) Given HMRC information that enables corrective action to be taken Not applicable Not applicable d) Provided HMRC with information enabling them to enter into an agreement for the purpose of counteracting the denied advantage 10% 0% e) Given HMRC access to tax records to enable them to make sure that the denied advantage is fully counteracted Not applicable Not applicable49. Steps showing the revised calculation of the FN penalty amounts Step 1 The maximum penalty is 50% of the denied advantage, as per Section 209(1) (as at the relevant time) 2 The minimum penalty is 10% of the denied advantage (Section 210(4)) 3 The penalty range is therefore 40%, this being the difference between the minimum and maximum penalty 4 Section 210(1)(c) provides that the penalty can be reduced for a person’s co-operation; HMRC gave a reduction of 20% out of a possible 100% to reflect the quality of the co-operation 5 The penalty range of 40% was multiplied by the reduction for co-operation of 20%; this results in a reduction to the maximum penalty of 8% 6 Subtracting the reduction of 8% from the maximum penalty amount of 50% results in a penalty percentage of 42% 7 The penalty percentage of 42% was applied to the value of the denied advantage, this being the additional amount of tax charged by the closure notices in line with the reasoning set out in Huitson in respect of the income tax only.