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Finance (No. 2) BillPage 130

(d) an enquiry under paragraph 12 of Schedule 10 to FA 2003 (enquiries
into SDLT returns),

(e) an enquiry under paragraph 8 of Schedule 33 to FA 2013 (enquiries into
annual tax for enveloped dwellings returns), or

(f) 5a deemed enquiry under subsection (6).

(3) The period during which an enquiry is in progress—

(a) begins with the day on which notice of enquiry is given, and

(b) ends with the day on which the enquiry is completed.

(4) Subsection (3) is subject to subsection (6).

(5) 10In the case of inheritance tax, each of the following is to be treated as a return—

(a) an account delivered by a person under section 216 or 217 of IHTA 1984
(including an account delivered in accordance with regulations under
section 256 of that Act);

(b) a statement or declaration which amends or is otherwise connected
15with such an account produced by the person who delivered the
account;

(c) information or a document provided by a person in accordance with
regulations under section 256 of that Act;

and such a return is to be treated as made by the person in question.

(6) 20An enquiry is deemed to be in progress, in relation to a return to which
subsection (5) applies, during the period which—

(a) begins with the time the account is delivered or (as the case may be) the
statement, declaration, information or document is produced, and

(b) ends when the person is issued with a certificate of discharge under
25section 239 of that Act, or is discharged by virtue of section 256(1)(b) of
that Act, in respect of the return (at which point the enquiry is to be
treated as completed).

196 “Tax appeal”

In this Part “tax appeal” means—

(a) 30an appeal under section 31 of TMA 1970 (income tax: appeals against
amendments of self-assessment, amendments made by closure notices
under section 28A or 28B of that Act, etc), including an appeal under
that section by virtue of regulations under Part 11 of ITEPA 2003
(PAYE),

(b) 35an appeal under paragraph 9 of Schedule 1A to TMA 1970 (income tax:
appeals against amendments made by closure notices under paragraph
7(2) of that Schedule, etc),

(c) an appeal under section 705 of ITA 2007 (income tax: appeals against
counteraction notices),

(d) 40an appeal under paragraph 34(3) or 48 of Schedule 18 to FA 1998
(corporation tax: appeals against amendment of a company’s return
made by closure notice, assessments other than self-assessments, etc),

(e) an appeal under section 750 of CTA 2010 (corporation tax: appeals
against counteraction notices),

(f) 45an appeal under section 222 of IHTA 1984 (appeals against HMRC
determinations) other than an appeal made by a person against a
determination in respect of a transfer of value at a time when a tax

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enquiry is in progress in respect of a return made by that person in
respect of that transfer,

(g) an appeal under paragraph 35 of Schedule 10 to FA 2003 (stamp duty
land tax: appeals against amendment of self-assessment, discovery
assessments, etc),

(h) 5an appeal under paragraph 35 of Schedule 33 to FA 2013 (annual tax on
enveloped dwellings: appeals against amendment of self-assessment,
discovery assessments, etc), or

(i) an appeal against any determination of—

(i) an appeal within paragraphs (a) to (h), or

(ii) 10an appeal within this paragraph.

CHAPTER 2 Follower notices

Giving of follower notices

197 Circumstances in which a follower notice may be given

(1) HMRC may give a notice (a “follower notice”) to a person (“P”) if Conditions
15A to D are met.

(2) Condition A is that—

(a) a tax enquiry is in progress into a return or claim made by P in relation
to a relevant tax, or

(b) P has made a tax appeal (by notifying HMRC or otherwise) in relation
20to a relevant tax, but that appeal has not yet been—

(i) determined by the tribunal or court to which it is addressed, or

(ii) abandoned or otherwise disposed of.

(3) Condition B is that the return or claim or, as the case may be, appeal is made
on the basis that a particular tax advantage (“the asserted advantage”) results
25from particular tax arrangements (“the chosen arrangements”).

(4) Condition C is that HMRC is of the opinion that there is a judicial ruling which
is relevant to the chosen arrangements.

(5) Condition D is that no previous follower notice has been given to the same
person (and not withdrawn) by reference to the same tax advantage, tax
30arrangements, judicial ruling and tax period.

(6) A follower notice may not be given after the end of the period of 12 months
beginning with the later of—

(a) the day on which the judicial ruling mentioned in Condition C is made,
and

(b) 35the day the return or claim to which subsection (2)(a) refers was
received by HMRC or (as the case may be) the day the tax appeal to
which subsection (2)(b) refers was made.

198 “Judicial ruling” and circumstances in which a ruling is “relevant”

(1) This section applies for the purposes of this Chapter.

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(2) “Judicial ruling” means a ruling of a court or tribunal on one or more issues.

(3) A judicial ruling is “relevant” to the chosen arrangements if—

(a) it relates to tax arrangements,

(b) the principles laid down, or reasoning given, in the ruling would, if
5applied to the chosen arrangements, deny the asserted advantage or a
part of that advantage, and

(c) it is a final ruling.

(4) A judicial ruling is a “final ruling” if it is—

(a) a ruling of the Supreme Court, or

(b) 10a ruling of any other court or tribunal in circumstances where—

(i) no appeal may be made against the ruling,

(ii) if an appeal may be made against the ruling with permission,
the time limit for applications has expired and either no
application has been made or permission has been refused,

(iii) 15if such permission to appeal against the ruling has been granted
or is not required, no appeal has been made within the time
limit for appeals, or

(iv) if an appeal was made, it was abandoned or otherwise disposed
of before it was determined by the court or tribunal to which it
20was addressed.

(5) Where a judicial ruling is final by virtue of sub-paragraph (ii), (iii) or (iv) of
subsection (4)(b), the ruling is treated as made at the time when the sub-
paragraph in question is first satisfied.

199 Content of a follower notice

25A follower notice must—

(a) identify the judicial ruling in respect of which Condition C in section
197 is met,

(b) explain why HMRC considers that the ruling meets the requirements of
section 198(3), and

(c) 30explain the effects of sections 200 to 203.

Representations

200 Representations about a follower notice

(1) Where a follower notice is given under section 197, P has 90 days beginning
with the day that notice is given to send written representations to HMRC
35objecting to the notice on the grounds that—

(a) Condition A, B or D in section 197 was not met,

(b) the judicial ruling specified in the notice is not one which is relevant to
the chosen arrangements, or

(c) the notice was not given within the period specified in subsection (6) of
40that section.

(2) HMRC must consider any representations made in accordance with subsection
(1).

(3) Having considered the representations, HMRC must determine whether to—

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(a) confirm the follower notice (with or without amendment), or

(b) withdraw the follower notice,

and notify P accordingly.

Penalties

201 5Penalty if corrective action not taken in response to follower notice

(1) This section applies where a follower notice is given to P (and not withdrawn).

(2) P is liable to pay a penalty if the necessary corrective action is not taken in
respect of the denied advantage (if any) before the specified time.

(3) In this Chapter “the denied advantage” means so much of the asserted
10advantage (see section 197(3)) as is denied by the application of the principles
laid down, or reasoning given, in the judicial ruling identified in the follower
notice under section 199(a).

(4) The necessary corrective action is taken in respect of the denied advantage if
(and only if) P takes the steps set out in subsections (5) and (6).

(5) 15The first step is that—

(a) in the case of a follower notice given by virtue of section 197(2)(a), P
amends a return or claim to counteract the denied advantage;

(b) in the case of a follower notice given by virtue of section 197(2)(b), P
takes all necessary action to enter into an agreement with HMRC (in
20writing) for the purpose of relinquishing the denied advantage.

(6) The second step is that P notifies HMRC

(a) that P has taken the first step, and

(b) of the denied advantage and (where different) the additional amount
which has or will become due and payable in respect of tax by reason
25of the first step being taken.

(7) In determining the additional amount which has or will become due and
payable in respect of tax for the purposes of subsection (6)(b), it is to be
assumed that, where P takes the necessary action as mentioned in subsection
(5)(b), the agreement is then entered into.

(8) 30In this Chapter—

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(9) No enactment limiting the time during which amendments may be made to
returns or claims operates to prevent P taking the first step mentioned in
subsection (5)(a) before the tax enquiry is closed (whether or not before the
specified time).

(10) 5No appeal may be brought, by virtue of a provision mentioned in subsection
(11), against an amendment made by a closure notice in respect of a tax enquiry
to the extent that the amendment takes into account an amendment made by P
to a return or claim in taking the first step mentioned in subsection (5)(a)
(whether or not that amendment was made before the specified time).

(11) 10The provisions are—

(a) section 31(1)(b) or (c) of TMA 1970,

(b) paragraph 9 of Schedule 1A to TMA 1970,

(c) paragraph 34(3) of Schedule 18 to FA 1998,

(d) paragraph 35(1)(b) of Schedule 10 to FA 2003, and

(e) 15paragraph 35(1)(b) of Schedule 33 to FA 2013.

202 Amount of a section 201 penalty

(1) The penalty under section 201 is 50% of the value of the denied advantage.

(2) Schedule 26 contains provision about how the denied advantage is valued for
the purposes of calculating penalties under this section.

(3) 20Where P before the specified time—

(a) amends a return or claim to counteract part of the denied advantage
only, or

(b) takes all necessary action to enter into an agreement with HMRC (in
writing) for the purposes of relinquishing part of the denied advantage
25only,

in subsections (1) and (2) the references to the denied advantage are to be read
as references to the remainder of the denied advantage.

203 Reduction of a section 201 penalty for co-operation

(1) Where—

(a) 30P is liable to pay a penalty under section 201 of the amount specified in
section 202(1),

(b) the penalty has not yet been assessed, and

(c) P has co-operated with HMRC,

HMRC may reduce the amount of that penalty to reflect the quality of that co-
35operation.

(2) In relation to co-operation, “quality” includes timing, nature and extent.

(3) P has co-operated with HMRC only if P has done one or more of the
following—

(a) provided reasonable assistance to HMRC in quantifying the tax
40advantage;

(b) counteracted the denied advantage;

(c) provided HMRC with information enabling corrective action to be
taken by HMRC;

Finance (No. 2) BillPage 135

(d) provided HMRC with information enabling HMRC to enter an
agreement with P for the purpose of counteracting the denied
advantage;

(e) allowed HMRC to access tax records for the purpose of ensuring that
5the denied advantage is fully counteracted.

(4) But nothing in this section permits HMRC to reduce a penalty to less than 10%
of the value of the denied advantage.

204 Assessment of a section 201 penalty

(1) Where a person is liable for a penalty under section 201, HMRC may assess the
10penalty.

(2) Where HMRC assess the penalty, HMRC must—

(a) notify the person who is liable for the penalty, and

(b) state in the notice a tax period in respect of which the penalty is
assessed.

(3) 15A penalty under section 201 must be paid before the end of the period of 30
days beginning with the day on which the person is notified of the penalty
under subsection (2).

(4) An assessment—

(a) is to be treated for procedural purposes in the same way as an
20assessment to tax (except in respect of a matter expressly provided for
by this Chapter),

(b) may be enforced as if it were an assessment to tax, and

(c) may be combined with an assessment to tax.

(5) No penalty under section 201 may be notified under subsection (2) later than—

(a) 25in the case of a follower notice given by virtue of section 197(2)(a) (tax
enquiry in progress), the end of the period of 90 days beginning with
the day the tax enquiry is completed, and

(b) in the case of a follower notice given by virtue of section 197(2)(b) (tax
appeal pending), the end of the period of 90 days beginning with the
30earliest of—

(i) the day on which P takes the necessary corrective action (within
the meaning of section 201(4)),

(ii) the day on which a ruling is made on the tax appeal by P, or any
further appeal in that case, which is a final ruling (see section
35198(4)), and

(iii) the day on which that appeal, or any further appeal, is
abandoned or otherwise disposed of before it is determined by
the court or tribunal to which it is addressed.

(6) In this section a reference to an assessment to tax, in relation to inheritance tax,
40is to a determination.

205 Aggregate penalties

(1) Subsection (2) applies where—

(a) two or more penalties are incurred by the same person and fall to be
determined by reference to an amount of tax to which that person is
45chargeable,

Finance (No. 2) BillPage 136

(b) one of those penalties is incurred under section 201, and

(c) one or more of the other penalties are incurred under a relevant penalty
provision.

(2) The aggregate of the amounts of the penalties mentioned in subsection (1)(b)
5and (c), so far as determined by reference to that amount of tax, must not
exceed—

(a) the relevant percentage of that amount, or

(b) in a case where at least one of the penalties is under paragraph 5(2)(b)
or 6(3)(b), (4)(b) or (5)(b) of Schedule 55 to FA 2009, £300 (if greater).

(3) 10In the application of section 97A of TMA 1970 (multiple penalties), no account
is to be taken of a penalty under section 201.

(4) “Relevant penalty provision” means—

(a) Schedule 24 to FA 2007 (penalties for errors),

(b) Schedule 41 to FA 2008 (penalties: failure to notify etc), or

(c) 15Schedule 55 to FA 2009 (penalties for failure to make returns etc).

(5) “The relevant percentage” means—

(a) 200% in a case where at least one of the penalties is determined by
reference to the percentage in—

(i) paragraph 4(4)(c) of Schedule 24 to FA 2007,

(ii) 20paragraph 6(4)(a) of Schedule 41 to FA 2008, or

(iii) paragraph 6(3A)(c) of Schedule 55 to FA 2009,

(b) 150% in a case where paragraph (a) does not apply and at least one of
the penalties is determined by reference to the percentage in—

(i) paragraph 4(3)(c) of Schedule 24 to FA 2007,

(ii) 25paragraph 6(3)(a) of Schedule 41 to FA 2008, or

(iii) paragraph 6(3A)(b) of Schedule 55 to FA 2009,

(c) 140% in a case where neither paragraph (a) nor paragraph (b) applies
and at least one the penalties is determined by reference to the
percentage in—

(i) 30paragraph 4(4)(b) of Schedule 24 to FA 2007,

(ii) paragraph 6(4)(b) of Schedule 41 to FA 2008,

(iii) paragraph 6(4A)(c) of Schedule 55 to FA 2009,

(d) 105% in a case where none of paragraphs (a), (b) and (c) applies and at
least one of the penalties is determined by reference to the percentage
35in—

(i) paragraph 4(3)(b) of Schedule 24 to FA 2007,

(ii) paragraph 6(3)(b) of Schedule 41 to FA 2008,

(iii) paragraph 6(4A)(b) of Schedule 55 to FA 2009, and

(e) in any other case, 100%.

206 40Alteration of assessment of a section 201 penalty

(1) After notification of an assessment has been given to a person under section
204(2), the assessment may not be altered except in accordance with this
section or on appeal.

(2) A supplementary assessment may be made in respect of a penalty if an earlier
45assessment operated by reference to an underestimate of the value of the
denied advantage.

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(3) An assessment or supplementary assessment may be revised as necessary if it
operated by reference to an overestimate of the denied advantage; and, where
more than the resulting assessed penalty has already been paid by the person
to HMRC, the excess must be repaid.

207 5Appeal against a section 201 penalty

(1) P may appeal against a decision of HMRC that a penalty is payable by P under
section 201.

(2) P may appeal against a decision of HMRC as to the amount of a penalty
payable by P under section 201.

(3) 10An appeal under this section must be made within the period of 30 days
beginning with the day on which notification of the penalty is given under
section 204.

(4) An appeal under this section is to be treated in the same way as an appeal
against an assessment to the tax concerned (including by the application of any
15provision about bringing the appeal by notice to HMRC, about HMRC’s
review of the decision or about determination of the appeal by the First-tier
Tribunal or Upper Tribunal).

(5) Subsection (4) does not apply—

(a) so as to require a person to pay a penalty before an appeal against the
20assessment of the penalty is determined, or

(b) in respect of any other matter expressly provided for by this Part.

(6) In this section a reference to an assessment to tax, in relation to inheritance tax,
is to a determination.

(7) On an appeal under subsection (1), the tribunal may affirm or cancel HMRC’s
25decision.

(8) On an appeal under subsection (2), the tribunal may—

(a) affirm HMRC’s decision, or

(b) substitute for HMRC’s decision another decision that HMRC had
power to make.

(9) 30In this section “tribunal” means the First-tier Tribunal or Upper Tribunal (as
appropriate by virtue of subsection (4)).

Partners and partnerships

208 Follower notices: treatment of partners and partnerships

Schedule 27 makes provision about the application of this Chapter in relation
35to partners and partnerships.

Appeals out of time

209 Late appeal against final judicial ruling

(1) This section applies where a final judicial ruling (“the original ruling”) is the
subject of an appeal by reason of a court or tribunal granting leave to appeal
40out of time.

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(2) If a follower notice has been given identifying the original ruling under section
199(a), the notice is suspended until such time as HMRC notify P that—

(a) the appeal has resulted in a judicial ruling which is a final ruling, or

(b) the appeal has been abandoned or otherwise disposed of (before it was
5determined).

(3) Accordingly the period during which the notice is suspended does not count
towards the periods mentioned in section 201(8).

(4) When a follower notice is suspended under subsection (2), HMRC must notify
P as soon as reasonably practicable.

(5) 10If the new final ruling resulting from the appeal is not a judicial ruling which
is relevant to the chosen arrangements (see section 198), the follower notice
ceases to have effect at the end of the period of suspension.

(6) In any other case, the follower notice continues to have effect after the end of
the period of suspension and, in a case within subsection (2)(a), is treated as if
15it were in respect of the new final ruling resulting from the appeal.

(7) The notice given under subsection (2) must—

(a) state whether subsection (5) or (6) applies, and

(b) where subsection (6) applies in a case within subsection (2)(a), make
any amendments to the follower notice required to reflect the new final
20ruling.

(8) No new follower notice may be given in respect of the original ruling unless
the appeal has been abandoned or otherwise disposed of before it is
determined by the court or tribunal to which it is addressed.

(9) Nothing in this section prevents a follower notice being given in respect of a
25new final ruling resulting from the appeal.

(10) Where the appeal is abandoned or otherwise disposed of before it is
determined by the court or tribunal to which it is addressed, for the purposes
of the original ruling the period beginning when leave to appeal out of time
was granted, and ending when the appeal is disposed of, does not count
30towards the period of 12 months mentioned in section 197(6).

Transitional provision

210 Transitional provision

(1) In the case of judicial rulings made before the day on which this Act is passed,
this Chapter has effect as if for section 197(6) there were substituted—

(6) 35A follower notice may not be given after—

(a) the end of the period of 24 months beginning with the day on
which this Act is passed, or

(b) the end of the period of 12 months beginning with the day the
return or claim to which subsection (2)(a) refers was received
40by HMRC or (as the case may be) with the day the tax appeal
to which subsection (2)(b) refers was made,

whichever is later.

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(2) Accordingly, the reference in section 209(10) to the period of 12 months
includes a reference to the period of 24 months mentioned in the version of
section 197(6) set out in subsection (1) above.

Defined terms

211 5Defined terms used in Chapter 2

For the purposes of this Chapter—

CHAPTER 3 Accelerated payment

Accelerated payment notices

212 Circumstances in which an accelerated payment notice may be given

(1) 30HMRC may give a notice (an “accelerated payment notice”) to a person (“P”) if
Conditions A to C are met.

(2) Condition A is that—

(a) a tax enquiry is in progress into a return or claim made by P in relation
to a relevant tax, or

(b) 35P has made a tax appeal (by notifying HMRC or otherwise) in relation
to a relevant tax but that appeal has not yet been—

(i) determined by the tribunal or court to which it is addressed, or

(ii) abandoned or otherwise disposed of.

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