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HMRC “misdirect” themselves as Court of Appeal quashes follower and accelerated payment notices

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Posted by Israr Manawer on 10 May 2019

Israr Manawer - Tax and HMRC Disputes Lawyer
Israr Manawer Tax Consultant

A taxpayer successfully appealed his follower and accelerated payment notices in the Court of Appeal decision (Haworth, R (On the Application Of) v Revenue and Customs)


Mr Haworth set up a trust for the benefit of himself and his family. The trust held shares in Teleware PLC which was subject to a merger with Workplace Systems Group Ltd. The company resulting from the merger, Telework Group PLC, was then floated on the London Stock Exchange. Mr Haworth was advised that Capital Gains Tax could be avoided on the disposal if the existing Jersey resident trustees resigned in favour of trustees resident in Mauritius where there is no tax on capital gains.

The liability to Capital Gains Tax was dependent on whether the place of effective management of the trust was in the UK during the period it had Mauritian trustees. HMRC viewed the arrangements as a ‘Round the World’ scheme which bore similarities to the scheme used in Smallwood. In Smallwood, Capital Gains Tax relief was also claimed under the UK/Mauritius double taxation agreement.

On the basis that Mr Howarth’s arrangements sufficiently resembled Smallwood, HMRC issued a follower notice and an accelerated payment notice (APN) to Mr Howarth. The decision to issue the follower notice was made by the Workflow Governance Group (WFGG).

Appeals to HMRC and High Court

Mr Haworth appealed the notices on the basis that the place of effective management of the trust, when the Mauritian trustees were in place, was Mauritius. HMRC rejected his appeal, issuing a closure notice and amending his return.

Mr Haworth issued a claim for Judicial Review for the notices which was heard by the High Court. Sir Ross Cranston dismissed the claim on the basis that HMRC were entitled to follow the Smallwood decision regard the trust’s place of effective management.

Appeal to Court of Appeal

The High Court’s decision was appealed by Mr Haworth on the basis that:

  • The ‘Round the World’ scheme was not a single standardised scheme but was rather an avoidance device with variations;
  • HMRC misdirected themselves by:
    • Overstating the significance of the Smallwood judgment; and
    • Working on the basis that a follower notice could be issued if HMRC were merely of the opinion that it was more likely than not that the principles and/or reasoning in Smallwood would deny the asserted tax advantage
    • HMRC were incorrect to believe that Haworth and Smallwood’s cases were identical as the places of effective management were different in the two schemes;
    • Therefore, Smallwood could not be used as a basis for issuing follower notices and APNs.


The Court of Appeal agreed with Mr Haworth’s representations and quashed the follower notices and APNs.

They found that HMRC had misdirected themselves by misunderstanding and overstating the significance of the Smallwood judgment. HMRC had proceeded on the basis that Hughes LJ had found in Smallwood that the place of effective management was in the UK when in actuality he had only commented that the Commissioners had been entitled to arrive at the decision.

The Court of Appeal found a further misdirection had occurred when the WFGG had proceeded on the basis that a follower notice could be issued when the ruling in question is more likely than not to deny the asserted tax advantage. Newey LJ commented, “To give a follower notice, HMRC must be of the opinion that the principles or reasoning in the ruling in question would deny the relevant advantage, not merely that they would be more likely than not to do so”.

Wider impact

The Court of Appeal’s judgment and the recent Corrado decision have brought HMRC’s use of follower notices and APNs into the spotlight. HMRC and WFGG will have to give more thought to whether the principles or reasoning in the ruling in question would deny the asserted tax advantage. LJ Newey’s comment that, “I can see no indication that follower notices were meant to be available to HMRC otherwise than in relatively exceptional circumstances” may also suppress the future issuing of follower notices and APNs. The Haworth judgment will bring fresh hope to those who have received or will receive follower notices that it is possible to successfully challenge the validity of HMRC issued notices.

What should I do if I receive a follower and/or accelerated payment notice?

If you (or your clients) have received, or think you may receive, a follower and/or APN - you should seek independent professional advice as soon as possible. We have an experienced team skilled in dealing with various tax issues including follower and accelerated payment notices, including challenging their validity, and where appropriate, negotiating complex settlements with HMRC.

We are also assisting clients in pursuing the professional advisers who put the client in this position in the first place.  A lot of the clients who were advised to utilise schemes did not know the extent of the risks involved in what they were doing.  If that risk was not properly explained to them, there is a potential to bring a claim against the professional for the damage suffered (this is the difference between the position the client is now in versus where they would be had they undertaken appropriate tax planning).

About the author

Israr Manawer

Tax Consultant

Israr is a tax consultant within the commercial litigation team, he previously worked for HMRC.

Israr Manawer

Israr is a tax consultant within the commercial litigation team, he previously worked for HMRC.

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