What is a Follower Notice?

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What does taking corrective action consist of?

The taxpayer must take corrective action within 90 days, by: amending their return, or claim to counteract the denied advantage; or, where there is an open tax appeal, relinquish the denied advantage (in writing, through a template issued by HMRC); AND the person must notify HMRC that they have taken corrective action, the amount of the denied advantage and, if different, the additional amount of tax due and payable.

Content of a Follower Notice

  • Identifies the judicial ruling & explains why it's relevant

  • Explains how to make representations (if taxpayer disagrees with the follower notice). Representations must be made in writing within 90 days of the date the notice was given, and can only be made if conditions A, B or D were not met; the notice was not given within the time limits; or that HMRC's opinion under condition C is incorrect.

  • The cirumstances in which a penalty may be reduced for cooperation:

    Cooperation is considered to be one of more of the following:
    • provided reasonable assistance to HMRC in quantifying the tax advantage;

    • counteracted the denied advantage (at a time after time limit for corrective action);

    • provided HMRC with information enabling them to take corrective action;

    • provided HMRC with information enabling them to enter into an agreement with you (to counteract the denied advantage);

    • allowed HMRC to access tax records to ensure the denied advantage is counteracted;

    • NOTEThe penalty must not be reduced to less than 10% of the value of the denied advantage

  •  The maximum penalties if corrective action is not taken: The maximum penalty is 50% of the value of the denied advantage (i.e. the tax due if the scheme fails).  Min. rate (accounting for full availability of mitigation - see point above) is 10%NOTE: Interest is charged on a penalty

  • Explains that the penalty can be reduced by the quality of the co-operation received by HMRC from the taxpayer

Other Penalties

As detailed above, there is a penalty for failure to take corrective action following receipt of a follower notice, based on the “denied advantage” (the tax due if the scheme fails).

However, the taxpayer may also be liable to a penalty under other legislation (e.g. on the grounds that there return was incorrect because of deliberate action on their part).

Total penalties relating to the same tax liability do not in aggregate exceed the maximum of these certain other penalties (either 100% or in excess of 100%).