A UK taxpayer has won his case at the Supreme Court (SC) that he had also won at the Court of Appeal (CoA). The taxpayer had received follower and accelerated payment notices from HMRC relating to capital gains that were due, in HMRC’s opinion, on the disposal of shares. At the time of the disposal, the shares were held by a Mauritius trust and under the terms of the UK/Mauritius tax treaty no UK capital gains tax was due where it was determined that the place of effective management (PoEM) of the trust was Mauritius.
An earlier similar case (Smallwood) had been decided by the CoA and it had found that the PoEM was not Mauritius but the UK and therefore the tax treaty didn’t apply and the tax payable. HMRC had issued the follower notice and accelerated payment notice to the taxpayer stating that principles decided in Smallwood would apply to his circumstances. The taxpayer disagreed and launched a judicial review who sided with HMRC. The taxpayer appealed and the CoA quashed the notices and HMRC then took the case to the SC.
Where a taxpayer challenges follower and accelerated payment notices the penalties that can be incurred where a case is subsequently lost can be substantial. The SC said that this is a restriction on the constitutional right to justice so when considering whether the facts of a case would cause a legal challenge to fail then a restrictive definition of “would” is necessary. The SC said that “would” in the statutory language means “no scope for a reasonable person to disagree that the earlier ruling denies the taxpayer the advantage”.
In this case HMRC had not amassed enough evidence that the Smallwood case would deny the taxpayer his advantage and HMRC could only come to the opinion that it “might” render the taxpayer’s advantage void.
The bar for issuing follower notices and accelerated payment notices is high, very high.
The decision can be found at: R (on the application of Haworth) (Respondent) v Commissioners for Her Majesty’s Revenue & Customs (Appellant) – The Supreme Court
If you have used a tax avoidance scheme and have received follower and accelerated payment notices and are uncertain how to proceed, please contact us. This is a subject matter we are experienced with.
