Haworth, R (On the Application Of) v Revenue And Customs

The follower-notice regime permits HMRC to rely on either legal principles or reasoning given in a final judicial ruling. The statutory test is whether HMRC is of the opinion that applying those principles or that reasoning to the taxpayer’s chosen arrangements would deny the asserted tax advantage.

In assessing place of effective management, the court may consider the whole scheme and its management, including its design, orchestration, temporary relocation and return of the trust, and control from the United Kingdom. A follower notice need give an intelligible explanation of relevance, but need not set out every relied-on fact or document. An accelerated payment notice may rely on the prior conclusion embodied in a valid follower notice.

The claimant sought judicial review of HMRC’s decisions to issue a follower notice and an accelerated payment notice concerning capital gains arising from the disposal of trust assets in the 2000–2001 tax year. He argued that the UK–Mauritius treaty exempted the gains because the trustees were resident in Mauritius when the disposal occurred.

HMRC relied on Smallwood v Revenue and Customs Commissioners [2010] EWCA Civ 778, contending that the arrangements were materially similar and that their place of effective management remained in the United Kingdom. The claimant challenged the statutory interpretation, the explanation given, HMRC’s governance and decision-making process, the designated officer’s decision, and compatibility with Article 1 of Protocol 1. The central issues were whether the notices were lawfully issued and procedurally valid.

1. Claim dismissed. The follower notice and accelerated payment notice were valid.
2. Section 205(3)(b) of the Finance Act 2014 contains two separate and alternative concepts: the principles laid down, or the reasoning given, in the judicial ruling. The statutory condition is met where HMRC is of the opinion that applying either to the chosen arrangements would deny the asserted advantage. The legislation does not impose a higher threshold such as showing that the taxpayer’s case was hopeless.
3. The majority reasoning in Smallwood v Revenue and Customs Commissioners [2010] EWCA Civ 778 contained relevant principles concerning place of effective management. It rejected a snapshot approach focused only on the trustee company resident at the moment of disposal and accepted that all relevant facts and circumstances could be considered.
4. HMRC was entitled to apply those principles and reasoning to the claimant’s documents and evidence. The follower notice gave a sufficient explanation of relevance under section 206. HMRC was not required to identify every fact or document in the notice itself.
5. The arrangements for governance and review did not amount to unlawful sub-delegation or an unbalanced decision-making process. In any event, section 31(2A) of the Senior Courts Act 1981 would have precluded relief because the outcome would highly likely have been the same.
6. Because a follower notice had validly been issued, the designated officer determining understated tax for the accelerated payment notice was entitled to proceed on the statutory assumption in section 220(4)(a) of the Finance Act 2014. The officer did not have to reconsider the effectiveness of the scheme.
7. The notices did not themselves interfere with possessions for Article 1 of Protocol 1. Even if the accelerated payment regime engaged that provision, the interference would be lawful and proportionate.

First-instance judicial review. Holgate J initially refused permission, but Supperstone J granted permission on renewal for grounds 1, 3, 3A, 5 and 6. The Administrative Court dismissed the claim.