Onillon – Failure to take Follower Notice 'corrective action' reasonable in all the circumstances

27 April 2018. Published by Michelle Sloane, Partner

In Onillon v HMRC [2018] UKFTT 33 (TC), the First-tier Tribunal (FTT) allowed the taxpayer's appeal against a penalty imposed for failing to take corrective action following the issue of a Follower Notice (FN) as it was reasonable in all the circumstances for the taxpayer not to take such action.


In the 2006/07 tax year, Mr Emmanuel Onillon (the taxpayer), entered into a tax avoidance arrangement known as 'Working Wheels', which was subsequently found not to be effective (Flanagan v HMRC [2014] UKFTT 175).  The effect of the arrangements on his tax return was that a repayment of £949.68 was increased to a repayment of £261,038.88.  HMRC did not, however, make any repayment as the majority of the amount claimed related to the tax avoidance arrangement. HMRC opened an enquiry into the taxpayer's return. 

In December 2014, HMRC issued a valid FN, under section 204 Finance Act 2014, to the taxpayer, requiring him to take corrective action within a prescribed time, which included him amending his 2006/07 return. HMRC also issued an invalid Accelerated Payment Notice (APN) under section 219, Finance Act 2014. The APN was invalid due to the fact that even after the tax advantage of the arrangement was discounted, the taxpayer was still due a repayment from HMRC.   

The taxpayer failed to take the required action before the prescribed deadline and in accordance with the instructions contained in HMRC's guidance letter which accompanied the FN, his agent contacted HMRC and informed it that his client wished to settle his tax affairs.  The taxpayer's agent confirmed with HMRC that his client had not received the relatively small repayment originally sought and HMRC said that no further action was necessary at that stage. Accordingly, the taxpayer understood that no further action needed to be taken.  

In August 2015, HMRC issued a letter warning of a penalty due to the  taxpayer having failed to take the necessary corrective action and in May 2016 issued a 30% penalty in the sum of £78,000, under section 208, Finance Act 2014.  

The taxpayer appealed the penalty to the FTT on the ground that his actions had been 'reasonable in all the circumstances', for the purposes of section 214(3)(d), Finance Act 2014.    

FTT decision

The FTT allowed the taxpayer's appeal and quashed the penalty.  

The FTT agreed that the taxpayer had failed to take the corrective action required by the FN but considered, construed objectively, that the taxpayer's actions had been 'reasonable in all the circumstances'.  

The FTT was of the view that in the circumstances, the taxpayer's actions had been reasonable given that the instruction in HMRC's guidance letter was ambiguous as it suggested the taxpayer might not take the necessary corrective action but instead contact HMRC to be informed  what to do next, which is what he did. In addition, the APN was inaccurate and invalid, the taxpayer had conceded the denied tax advantage and he owed no tax.  


Whilst penalty appeals are of course fact dependent, the FTT has provided some helpful guidance on the 'reasonable in all the circumstances' defence, contained in section 214(3)(d), Finance Act 2014.  It would appear from the FTT's decision that this was the first time the defence had been judicially considered.  

In its decision, the FTT commented that it is 'incumbent on HMRC to make sure that the paperwork and demands it issues to taxpayers are accurate and valid if it wishes to rely on failures to comply'.  HMRC's failure to clearly explain to the taxpayer what was required led him to reasonably believe that he had done all that was necessary.  

A copy of the decision can be viewed here

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