The following Personal Tax guidance note Produced by Tolley provides comprehensive and up to date tax information covering:
HMRC can issue ‘follower notices’ requiring taxpayers to take ‘necessary corrective action’ (ie amend their returns / claims or drop their appeals) where:
the return or claim is subject to an ongoing enquiry or appeal (this includes an appeal against an assessment, determination or closure notice issued by HMRC), and
there is a final judgment (which includes a decision in the First-tier Tribunal which is not appealed) in a tax case which HMRC is of the opinion applies to the taxpayer’s situation
FA 2014, ss 204–205
The penalties for failing to take the necessary corrective action following receipt of a notice can be as much as 50% of the tax and / or NIC at stake and will apply in addition to any other penalties due up to a maximum of 100% of the tax (higher maximum percentages apply where an offshore matter is involved). For more on offshore matters, see the Penalties for offshore matters and offshore transfers guidance note.
The taxpayer must decide whether they should:
accept the follower notice, take the necessary corrective action and pay the tax and / or NIC due (plus interest and penalties), or
continue with the enquiry / litigation and appeal the penalty charged by HMRC for failing to take corrective action on receipt of a follower notice
If the taxpayer takes the second option they will have to pay not only the tax but also a penalty of up to 100% of the tax (higher if there is an offshore element involved) if he:
loses the litigation on the tax / NIC advantage issue, and
loses or abandons the litigation on the penalty for failure to take the necessary corrective action
If the taxpayer takes this option they will also be issued with an accelerated payment notice, which requires that the understated tax be paid within 90 days, although HMRC practice is to issue an APN alongside a follower notice as a matter of course. See the Accelerated payment
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