Whilst tax avoidance is perfectly legal, HM Revenue & Customs (HMRC) have had to seek a way of countering its perceived abuse.
Due to the volume of both tax avoidance schemes and their participants in them, HMRC has been forced to investigate only a small number of taxpayers and on a sample basis and take them to litigation. When HMRC is successful in that litigation, then the unpaid tax and/or National Insurance Contributions (NICs) will be recovered in those cases. The alternative is now for HMRC to issue Follower Notices to the other participants.
HMRC have found that other participants in the same or similar schemes (known as ‘followers’) have not readily accepted the court’s findings and voluntarily paid the tax and NIC. Consequently HMRC has issued Follower Notices to all such participants. A separate Follower Notice is issued for each separate scheme used. HMRC have 12 months from the final ruling date to do this.
A Follower Notice in itself does not crystallise the requirement to make a payment of tax. A Follower Notice requires the taxpayer to amend their Tax Return or claim (or come to Settlement with HMRC) and accept that the tax arrangements do not work.
HMRC also require Corrective Action to be evidenced by a given date, typically 3 months later. In order to take the necessary Corrective Action, a taxpayer must:
- First step – the taxpayer is to take all necessary action to enter into a written agreement with HMRC to relinquish the denied advantage;
- Second step – the taxpayer is to notify HMRC that the the taxpayer has taken the first step and the taxpayer is to notify HMRC of the amount of the denied advantage which has or will become payable by reason of the first step being taken.
If a taxpayer fails to take the necessary Corrective Action and in time, a penalty equating to 50% of the tax due can be levied. Even if a taxpayer complies in full, a 10% penalty may still be due depending on the circumstances of each case.
Payments under a SAFE reference
HMRC will issue a unique SAFE reference to be quoted whenever a payment on account is being made. Such payments on account will stop any further interest accruing on a daily basis. When a full and final Settlement has been reached with HMRC, all payments made under the SAFE reference will be deducted from the overall amount due.
What should I do?
Anyone receiving a Follower Notice should seek specialist advice.
If you wish to explore your options in reaching a Settlement, we offer a free initial consultation.