In July 2015 , HMRC produced guidance on Follower notices and accelerated payments.
When faced with a large number of very similar cases, it is often most efficient for HMRC to investigate ‘representative cases’; taking those cases to litigation, if necessary.
If HMRC is successful in that litigation, unpaid tax and/or National Insurance contributions (NICs) is recovered in those cases. However, there has been little incentive for others using the same or essentially similar arrangements (known as ‘followers’) to accept the court’s findings, and pay any underpaid tax and/or NICs to HMRC.
The follower notice rules are designed to improve the rate at which avoidance cases are resolved where the point at issue has, in HMRC’s view, already been decided in another person’s case.
When a judicial ruling is made by the court or tribunal that potentially resolves a large number of cases, many ‘followers’ agree to settle, but some do not. They argue that small differences in the arrangements mean that the decision does not apply to them. This leads to further litigation, adding months or years to the time taken to resolve their dispute.
A person who is a ‘follower’ will be given a follower notice. If they do not settle their dispute (known as ‘taking corrective action’), they will be at risk of a penalty.
HMRC has now produced a Fact Sheet titled - Guidance: Compliance checks: tax avoidance schemes - penalties for follower notices - CC/FS30a – which sets out the potential penalties that could be incurred should the Follower Notices not lead to corrective action on time. The follower notice explains what corrective action needs to be taken.
The penalty for not taking corrective action is equal to 50% of the value of the denied advantage. However, HMRC can reduce the penalty percentage rate if they have received co-operation.