An unwelcome Notice
The regime has often been described as draconian, as there are limited options for contesting the assessment. Whatever your view, it is undeniably a powerful tool in HMRC’s armoury, one which should (in theory) be handled with the utmost care. But what happens if you put this tool in the hands of an inexperienced inspector?
Haworth v HMRC
We explore the recent ruling in Haworth v HMRC [2021] UKSC 25, where the Supreme Court found that HMRC issued a follower notice unlawfully. The case demonstrates that HMRC’s interpretation and operation of the legislation were not correct and brings into question the validity of many other notices which HMRC may have issued.
In broad summary, HMRC considered the decision of the Court of Appeal in Smallwood regarding the tax residency of a trust that had apparently relocated to Mauritius and applied it to Mr Haworth’s circumstances. Mr Haworth’s tax arrangements also used the relocation of the trust to Mauritius to avoid UK CGT liability, but the determination of tax residency is heavily fact-dependent. In essence, the Supreme Court agreed with the Court of Appeal that HMRC did not have a sufficient degree of certainty to form an opinion that the decision in Smallwood could also be applied to Mr Haworth’s situation.
Outcome
As a result of this, HMRC will need to consider more carefully if a judicial decision can be applied to another taxpayer's arrangements before notice is issued. If HMRC is unable to meet the conditions for issuing a follower notice, they will need to progress their enquiries to the stage where they can issue an assessment if they still want to collect the disputed tax. So while the immediate payment issue for affected taxpayers may have been ameliorated by the Haworth decision, there may still be further action required to settle the position.
An article looking at the Supreme Court decision in Haworth in more detail can be found here.
How we can help
Those taxpayers who have already received follower notices and have paid on the basis of that Notice should consider the precise relevance of the judicial decision in their cases and the potential relevance of the Haworth decision may have. For a further discussion of your particular situation as a result of this case, please get in touch with a member of the Mazars Tax Investigation Team.
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