Kevin John Pitt v The Commissioners For HMRC

For a follower notice to be supported by a relevant judicial ruling under section 205(3)(b) of the Finance Act 2014, there must be no reasonable scope for disagreement that applying the earlier ruling’s principles or reasoning to the taxpayer’s arrangements would deny the asserted advantage.

The required comparison is not confined to primary facts or identical scheme documents. It may include facts evaluated realistically after purposive construction of the relevant tax provisions. The task is to identify the earlier ruling’s principles and reasoning, and assess whether they would apply to the taxpayer’s arrangements with the requisite certainty.

HMRC issued Mr Pitt with a follower notice identifying Audley v HMRC [2011] UKFTT 219 as a relevant judicial ruling. Mr Pitt did not take corrective action and HMRC imposed a penalty of £83,547 under the follower notice regime.

The First-tier Tribunal dismissed his penalty appeal in Kevin John Pitt v HMRC [2022] UKFTT 222. It held that Audley was relevant to arrangements involving loan notes which were relevant discounted securities under Schedule 13 to the Finance Act 1996.

With permission, Mr Pitt appealed on a single ground. He contended that the tribunal should compare only primary facts, and should disregard evaluative findings reached by applying the Ramsay approach.

1. Appeal dismissed. The First-tier Tribunal made no error of law in holding that Audley v HMRC [2011] UKFTT 219 was a relevant judicial ruling for the purposes of section 205(3)(b) of the Finance Act 2014.

2. The statutory question is whether the principles laid down or reasoning given in the earlier ruling would, if applied to the taxpayer’s arrangements, deny the asserted advantage. Following R (on the application of Haworth) v Revenue and Customs Commissioners [2021] UKSC 25, the tribunal must determine that question for itself and apply the high threshold of certainty required by the word “would”.

3. Nothing in section 205(3)(b), or in Haworth, confines the comparison to primary facts. The principles and reasoning of an earlier ruling can include factual findings. Facts viewed realistically after purposive construction are not altered facts; they are the facts identified as relevant to applying the statutory provision.

4. The comparison necessarily requires judgment about which facts are material in light of the earlier ruling’s reasoning. It is therefore not a simple exercise of matching facts or documents. The regime is not confined to taxpayers who used an identical mass-marketed scheme, nor to rulings which expressly state that they apply to variants.

5. The First-tier Tribunal correctly extracted the reasoning in Audley and applied it to Mr Pitt’s arrangements. That reasoning required the facts to be viewed realistically in light of the purpose of the loss provisions in Schedule 13 to the Finance Act 1996. The differences advanced by Mr Pitt, including the description of the excess payment as a capital contribution rather than a gift, were not material. The tribunal’s reasoning was adequate.

• Upper Tribunal (Tax and Chancery Chamber): dismissed Mr Pitt’s appeal against the penalty decision: [2024] UKUT 21 (TCC).

• First-tier Tribunal (Tax Chamber): dismissed Mr Pitt’s appeal against the follower-notice penalty, and also dismissed his closure-notice appeal, in Kevin John Pitt v HMRC [2022] UKFTT 222.