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Taxpayer's appeal against penalties under the Follower Notice regime allowed

29 April 2024. Published by Keziah Mastin, Associate

In Roy Baker v HMRC [2024] UKFTT 126 (TC), the First-tier Tribunal (FTT) allowed the taxpayer's appeal and cancelled follower notice (FN) penalties that were issued as a result of the taxpayer's alleged failure to take 'corrective action'.


Roy Baker (RB) is an IT data analyst. He participated in a tax avoidance arrangement (the arrangement) marketed by Montpelier Tax Consultants (Isle of Man) Ltd (Montpelier). RB had very little tax knowledge and relied on Montpelier for advice in relation to the arrangement. 

The arrangement sought to exploit the double taxation arrangements between the UK and the Isle of Man by routing RB's earnings through two Isle of Man partnerships and an Isle of Man trust. In his self-assessment tax returns for the relevant years, RB returned income from the offshore trust and claimed an equivalent amount of double taxation relief. HMRC opened enquiries into RB’s tax returns under section 9A, Taxes Management Act 1970.

HMRC considered that the decision of the FTT in Huitson v HMRC [2015] UKFTT 488 (TC), was relevant to RB's case. In Huitson, a similar arrangement to that marketed by Montpelier was found to be ineffective and issued FN's to RB, under Chapter 2, Part 4, Finance Act 2014 (FA 2014), requiring him to take 'corrective action'. 

RB had followed the advice of Montpelier throughout which led him to believe that he had a 'strong case to succeed'. He did not therefore take any corrective action. 

RB appealed to the FTT against HMRC decided to charge RB penalties, under section 208, FA 2014, in respect of his failure to take corrective action as required by the FNs.

The main issue before the FTT was whether it was reasonable, in all the circumstances, for RB not to have taken the necessary corrective action within the time period specified in the FNs.

FTT decision

The appeal was allowed and the FTT cancelled the penalties.

The FTT found that RB acted reasonably in relying on Montpelier's advice not to take corrective action. Owing to the number of mistakes and inconsistencies in HMRC's dealings with RB, the FTT was of the view that RB had no reason to doubt Montpelier's advice and a number of reasons to doubt HMRC. RB was also unaware that his and other Montpelier clients' appeals against closure notices to the FTT had been struck out thereby bringing to an end their appeals. In the view of the FTT, RB's failure to take corrective action was, in all the circumstances, objectively reasonable.


This case will be of interest to anyone receiving or advising their clients in respect of FNs. Whilst this decision was of course fact dependent, it does nonetheless confirm that in deciding whether it is reasonable for the recipient of a FN not to take corrective action, the FTT will apply an objective test. If a taxpayer intends to rely on advice received from an advisor who has been involved in the marketing of the tax avoidance arrangement, it is important that they carefully evaluate that advice with the assistance of independent legal advice provided by a lawyer with appropriate expertise in this complex area of the law.

The decision can be viewed here.

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