Follower Notice penalties – The Corrado Case
The recently reported Corrado case has confirmed the validity of our approach to Follower Notice Penalties. In our previous blog post on the subject of Follower Notice Penalties, we noted that one of the most invidious (and potentially expensive) aspects of the Follower Notice regime was the fact that a Follower Notice penalty of up to 50% of the denied tax advantage may be charged if the recipient of a Follower Notice fails to take “corrective action” by the deadline specified in the notice. Taxpayers who have received a Follower Notice in the past but have not taken the “corrective action” required (or have taken it after the deadline has passed) will receive from HMRC a notice headed: Follower Notice Penalty Assessment: Penalty for not taking corrective action in response to a follower notice.
We pointed out that Section 214 Finance Act 2014 provides a statutory right of appeal against a Follower Notice penalty assessment and we recommended that that this should be exercised in nearly all cases.
We suggested that a successful appeal might be founded on the grounds that it was reasonable in all the circumstances for the taxpayer not to have taken the necessary corrective action in respect of the denied tax advantage. We said that there may be circumstances which could support the argument that section 214(3)(d) Finance Act 2014 would apply so that it was “reasonable in all the circumstances for the taxpayer not to have taken the corrective action”. As we pointed out, taking corrective action involves giving up the right to pursue the claim, which might have been one which had a more than negligible prospect of success at court or tribunal. It might be argued that the judicial decision upon which the Follower Notice was based is not directly relevant in the recipient’s circumstances, or other factors might have come into play. In any event, it seemed to us that what was “reasonable in all the circumstances” must be determined by reference to the circumstances at the time corrective action had been required by the Follower Notice, and not with the benefit of hindsight.
The validity of this approach has now been borne out in the case of Giulio Corrado v HMRC  UKFTT 275 (TC).
In this case, it was found that no Follower Notice penalty was due as the failure to take corrective action was considered by the Tribunal to be reasonable in all the circumstances.
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