Upper Tribunal Upholds Follower Notice Regime in Tax Penalty Appeal: Relevance of Prior Judicial Ruling Analyzed

Citation: [2024] UKUT 21 (TCC)
Judgment on

Introduction

In the case of Kevin John Pitt v The Commissioners For HMRC ([2024] UKUT 21 (TCC)), the Upper Tribunal (Tax and Chancery Chamber) addressed an appeal concerning a penalty imposed under the follower notice regime in the Finance Act 2014. The appellant, Mr. Pitt, challenged the relevance of a prior judicial ruling (Audley v HMRC) in relation to his tax arrangements. This article outlines the key topics discussed and analyzes the legal principles and interpretations applied by the Tribunal.

Key Facts

Mr. Pitt entered into certain arrangements involving the purchase and disposal of loan notes, categorized as “relevant discounted securities,” and claimed the transactions resulted in a tax loss. HMRC disputed this and issued a closure notice stating no such loss occurred. Additionally, Mr. Pitt received a follower notice followed by a penalty, which he challenged, stating that the judicial ruling specified in the notice, Audley v HMRC, was not relevant to his case.

The First-tier Tribunal (FTT) agreed with HMRC’s position, aligning with the principles and reasoning in Audley, leading to the dismissal of Mr. Pitt’s appeal. Mr. Pitt then appealed to the Upper Tribunal, arguing that the FTT erred by comparing not only primary facts but also subsequent evaluative conclusions derived from those facts, termed post-Ramsay analysis.

The central legal principle examined in this case pertains to the application of the follower notice regime under the Finance Act 2014 (sections 204, 205, 208, 209, 210, and 214), particularly whether the judicial ruling in Audley could be deemed “relevant” to Mr. Pitt’s arrangement. The key points involved:

  1. Follower Notice Regime: A punitive measure intended to deter litigation on matters already decided by the courts.

  2. Relevance of Judicial Ruling: The Supreme Court in Haworth ([2021] UKSC 25) clarified that a “relevant” judicial ruling under section 205(3)(b) of FA 2014 is one where “the principles laid down, or the reasoning given,” would deny the taxpayer’s claimed tax advantage.

  3. Ramsay Principle: The tribunal must take a purposive approach to legislation and view transactions realistically in light of this purpose, a principle that originates from the case of WT Ramsay Ltd v IR Commrs [1981] AC 300.

  4. Factual Comparisons: Understanding the factual relevance in light of statutory provisions and the threshold of certainty required when applying an earlier ruling to a new set of arrangements.

The Tribunal emphasized that the follower notice regime can encompass not only identical mass-marketed schemes but also different variations of such schemes. The principles laid down in a ruling and the reasoning may have broader applications beyond the specifics of a particular case.

Outcomes

The Upper Tribunal dismissed Mr. Pitt’s appeal, finding that:

  1. The FTT’s approach—to consider “post-Ramsay” facts, which are facts viewed realistically following a purposive interpretation of relevant legislation, when assessing the relevance of Audley—was correct.

  2. The factual differences between Audley and Mr. Pitt’s case were not materially substantial to deviate from the principles and reasoning of the former case.

  3. Mr. Pitt’s argument that the FTT should have been restricted to primary facts only was rejected, maintaining that the process requires the analysis of facts in light of the statutory provisions they pertain to.

Conclusion

In conclusion, the Upper Tribunal’s decision in Kevin John Pitt v The Commissioners For HMRC reaffirms the broad scope of the follower notice regime. The decision clarifies that the definition of “relevant” judicial rulings encompasses not only primary facts but also evaluative conclusions that are intrinsic to a purposive interpretation of tax legislation. The analysis further underscores the role of factual relevance in deriving the principles and reasoning of such rulings and their application to individual tax arrangements, upholding the legislative intention to prevent unnecessary litigation by adhering to judicial precedents laid down in previous decisions.

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