Weekly Tax Update 16 March 2022

The guidance on follower notices and accelerated payments has been updated to cover penalty reductions for taxpayer co-operation, when it is reasonable for a taxpayer to appeal, and for multiple grounds of appeal.

The HMRC guidance now sets out specific percentages for the maximum reductions for each way in which a taxpayer can co-operate, for various circumstances. A worked example is included.

Follower notices are intended to discourage appeals in cases where the planning has been shown to be ineffective in another case. The guidance now explains in what circumstances it is reasonable for a taxpayer not to take corrective action, but to pursue an appeal. Examples are included.

A section on multiple grounds of appeal has also been added.

www.gov.uk/government/publications/follower-notices-and-accelerated-payments/follower-notices-and-accelerated-payments

The UT has found that a taxpayer had no reasonable excuse for not paying the tax demanded by a closure notice, so the tax-geared surcharges were upheld. He did not supply evidence as to why he had not paid, so it could not tell if his reason was valid or not.

The taxpayer was issued with closure notices, and did not pay the tax demanded. He applied for judicial review of HMRC’s decision to commence bankruptcy proceedings. Once these were dismissed, he paid the tax and interest due. HMRC issued surcharge notices calculated as percentages of the outstanding tax due to the late payment.

For those closure notices that the FTT had found to be valid, the taxpayer argued at the UT that he had a reasonable excuse for non-payment. This was that he believed no payment to be due, as the closure notices did not amend his self-assessments, or that he had a real prospect of success on appeal, or that in fairness he should not have been expected to pay the tax before the judicial review proceedings concluded.

The UT remade the FTT’s decision but still found for HMRC. There was no evidence as to why he did not pay the tax, so the UT could not be satisfied as to his reason for non-payment. On the judicial review point, delaying payment until proceedings were concluded was objectively reasonable. The gaps in the evidence however outweighed this, and the failure to pay had continued after the proceedings began to fail. The UT therefore dismissed the appeal but on a different basis than the FTT.

Archer v HMRC [2022] UKUT 61 (TCC)

www.bailii.org/uk/cases/UKUT/TCC/2022/61.html

In a case where a discovery assessment was already under appeal, the FTT has upheld an appeal against an information notice. The taxpayers did not want to provide more information for a resolution before the hearing for that appeal, so no useful purpose would be served. The additional information was not reasonably required by HMRC to check their tax positions.

The taxpayers were a married couple who owned shares in a company in whose management they were involved. Shares were transferred by the wife to her non-UK resident father-in-law, who received dividends. He made loans to the couple, and paid some school fees for their children.

HMRC opened an enquiry on the premise that either the transfer of assets abroad rules or the settlements legislation applied, and issued information notices. These requested a list of bank accounts for each couple, with bank statements, including for accounts of their minor children.

The taxpayers appealed these notices on the grounds that HMRC already had enough information to determine the tax liability. It had already issued discovery assessments that they had appealed, so requesting further information was unreasonable. They stated that they had already provided HMRC with full explanations of the payments made and received by the extended family. This included schedules of dividends, loan agreements, evidence of how the funds were used for the couple’s benefit, details of family Wills, and how properties were owned.

HMRC stated that the information was needed to prove that the couple did not beneficially own the shares nor use the dividends. The FTT upheld the taxpayers’ appeal, finding that as the discovery assessment was under appeal, no useful purpose would be achieved by ordering compliance with the information notice before proceedings. The information was not reasonably required. The taxpayers did not want a resolution before that appeal, so their refusal to provide information was allowed.

Yerou & Anor v HMRC [2022] UKFTT 79 (TC)

www.bailii.org/uk/cases/UKFTT/TC/2022/TC08410.html