Judgment summary
Conor Maguire appealed against a penalty issued under section 208 Finance Act 2014 in respect of follower notices concerning tax arrangements he had participated in that were marketed by Montpelier and routed earnings through Isle of Man partnerships and a trust (paragraphs 1, 9).
The Tribunal found that it was reasonable in all the circumstances for Mr Maguire not to have taken the necessary corrective action, and accordingly cancelled the penalty payable under section 208 FA 2014 (paragraph 3, 70).
Background
Mr Maguire participated in tax arrangements marketed by Montpelier which sought to exploit double taxation arrangements between the UK and the Isle of Man by routing earnings through Isle of Man partnerships and a trust. These arrangements were notified under the DOTAS regime (paragraph 9).
In his self-assessment tax return for the year ended April 2008, Mr Maguire returned income from the offshore trust and claimed an equivalent amount of double taxation relief (paragraph 10).
HMRC opened an enquiry in January 2010 and issued a closure notice on 26 July 2011 under section 28A Taxes Management Act 1970. The appeal against that closure notice was struck out in June 2021 (paragraph 11).
On 2 April 2015, Mr Maguire received an accelerated payment notice for £10,114.50, which he paid; this APN was later withdrawn as the arrangements were not in fact disclosable (paragraph 12).
On 3 September 2015, the First-tier Tribunal decided Huitson v The Commissioners for HM Revenue & Customs [2015] UKFTT 448 (TC), concerning the same Montpelier arrangements, concluding they were not effective and that Mr Huitson was liable to income tax and NICs (paragraphs 13-14).
Following Huitson, HMRC issued two further APNs (income tax of £10,114 and Class 4 NICs of £2,053) and follower notices for the 2008 tax year, requiring corrective action (paragraph 15).
Mr Maguire made representations on 6 February 2017 but did not take corrective action by the original deadline, having decided, on Montpelier's advice, to continue his appeal (paragraph 16). HMRC upheld the FNs on 29 March 2017 and extended the deadline to 4 May 2017 (paragraph 17). On 26 April 2017 Mr Maguire wrote to HMRC stating he would not take corrective action by the deadline (paragraph 18).
HMRC issued a penalty notice explanation of £5,057.21 on 12 February 2018, later revising this to £6,083.89 (issued 2 September 2019) after deciding the penalty should be charged by reference to both income tax and Class 4 NICs. On 4 August 2022 HMRC reduced the penalty to £4,248.06, reflecting the maximum cooperation reduction for Mr Maguire's assistance in quantifying the tax advantage (paragraphs 19-22).
Core dispute
Mr Maguire appealed against the imposition of the section 208 FA 2014 penalty and, in the alternative, its amount (paragraph 2).
The primary issue was whether it was reasonable in all the circumstances for Mr Maguire not to have taken the necessary corrective action before the specified deadline, within the meaning of section 214 FA 2014 (paragraph 38-39).
The alternative issue was whether the penalty should have been further reduced under section 210 FA 2014 on the basis that, by paying the disputed tax, Mr Maguire had counteracted the denied advantage and so provided co-operation falling within section 210(3)(b) (paragraph 42, 66).
Court findings
The Tribunal applied the objective test for 'reasonable in all the circumstances' as set out by the Upper Tribunal in Comtek Network Solutions [2021] UKUT 81 (TCC), considering the taxpayer's thought processes, the statutory context and the purpose of the follower notice regime, assessed without hindsight by reference to what was known at the relevant time (paragraphs 45-46).
The Tribunal found that the relevant period for assessment was up to the 4 May 2017 deadline, and identified no post-deadline circumstances bearing on the reasonableness question (paragraphs 49-51).
The Tribunal found Mr Maguire to be a straightforward, honest and reliable witness, and accepted that he did not take corrective action because he relied on advice from Montpelier not to withdraw or compromise his appeal (paragraphs 24, 52).
The Tribunal held that the follower notice regime does not require a taxpayer to automatically disregard advice solely because it comes from a promoter of the arrangements. Given that Mr Maguire was not a tax expert, the advice disclosed no obvious deficiencies, the amount at stake was relatively modest, and HMRC's correspondence (including the withdrawal of the first APN) could reasonably have been interpreted as supporting the viability of his appeal, his reliance on that advice was objectively reasonable (paragraphs 55-59).
On the alternative issue of penalty reduction, the Tribunal considered this for completeness only, given its primary finding. Following the Upper Tribunal's approach in Comtek, the Tribunal held that mere payment of the disputed tax does not amount to 'counteraction' of the denied advantage within section 210(3)(b) FA 2014, particularly as Mr Maguire did not believe that paying the tax compromised his underlying dispute, but rather continued his appeal on Montpelier's advice (paragraphs 67-69).
Outcome
The appeal was allowed. The Tribunal found that Mr Maguire's failure to take the necessary corrective action was reasonable in all the circumstances, and the penalty issued under section 208 FA 2014 was cancelled (paragraphs 60, 70).
The Tribunal's obiter conclusion on the alternative penalty reduction ground was that, had the penalty not been cancelled, no further reduction would have been due for co-operation under section 210(3)(b) FA 2014 (paragraph 69).
Major issues / areas of contention
- Whether it was reasonable in all the circumstances for Mr Maguire not to have taken the necessary corrective action under section 214 FA 2014
- Whether reliance on advice from Montpelier, the promoter of the arrangements, could be objectively reasonable for a non-expert taxpayer
- Whether HMRC's evolving correspondence, including the issue and withdrawal of the first APN, affected the reasonableness of Mr Maguire's decision
- Whether events after the 4 May 2017 corrective action deadline were relevant to the reasonableness assessment
- Whether payment of the disputed tax amounted to 'counteraction' of the denied advantage for the purposes of a penalty reduction under section 210(3)(b) FA 2014