Follower notices and penalties

The consultation document states that the House of Lords Economic Affairs Committee was critical of follower notices and recommended that the penalties be abolished. However, the main concerns were not the level of penalty but the failure to allow any form of meaningful appeal.

As the Committee report highlighted, "Taxpayers have no right of appeal against a notice, only against the underlying tax liability. The only protection afforded to the taxpayer, other than judicial review, is the opportunity to make representations to HMRC. The protection of oversight by the tax tribunal is missing."

AAT certainly agrees with the Committee that an HMRC determination with no right of appeal, save for costly judicial review, is unusual. It is also very difficult to disagree with the Committee conclusion that "All HMRC determinations and notices should be appealable to the tax tribunal. This is central to the protection of the taxpayer and the balance between taxpayer and tax authority."

The suggestion that allowing this would in some way frustrate HMRC, be unduly costly and lead to delay is not compelling. Firstly, HMRC can recover its costs if successful at the upper tribunal and although it's unable to reclaim costs at first-tier tribunals, in all likelihood, if the case is as clear-cut as HMRC suggests given it has already succeeded elsewhere, these costs should be minimal.

It is also notable that where parties have had the finances necessary to seek a judicial review on follower notices, they have succeeded in defeating HMRC decisions. For example, two separate decisions in 2019, R (Haworth) v HMRC and R (Locke) v HMRC, both of which favoured the plaintiff over HMRC.

AAT agrees with the basic principle of reducing the standard penalty.

Although the figure of 30% has been suggested because it is the same as the maximum penalty for a careless inaccuracy on a tax return, the follower notice is not a careless inaccuracy and so there should be no need to set the penalty at the same level. AAT suggests that a more effective standard rate would probably be 25%.