Even the most lazily complacent amongst us; even he who has happily waved through the GAAR and Direct Recovery of Tax Debts and Accelerated Payment Notices; even, well, me, has baulked at Follower Notices. I’ve never understood the intellectual case for them; I’ve always regarded them as unfairly loading the dice in favour of HMRC, and in a way likely to breach the Human Rights Act right to a fair trial.

Albeit belatedly, so, it would seem, does Government. In proposed changes to the Follower Notice provisions announced today, the Government has announced one sensible clarification of the Follower Notices regime and one equally sensible, but rather more fundamental, change to it.

The sensible clarification is this. As I have written elsewhere, the Follower Notices regime contains provision for an appeal to be made against a penalty under a Follower Notice albeit that, rather unsatisfactorily, that appeal will likely be decided at a point in time too late to provide the taxpayer with the clarity he needs. It was (in particular) that feature of the regime that I have focused on as a very real substantive defect. However, there was also a technical defect. Clause 207 Finance Bill 2014-15 (which specifies the appeals jurisdiction) did not state what jurisdiction the Tribunal hearing the appeal against the imposition of a penalty exercised. Did it exercise a supervisory regime? An appellate regime? Did it, in effect, make the decision to issue the Follower Notice anew?

That question has now been answered by new sub-clause 207(2A)(b). The test for the Tribunal is whether “the judicial ruling which is specified in the notice is… one which is relevant to the chosen arrangements.” This looks to me like an appellate regime: the Tribunal will have to ask and answer the question discussed in this blog post. That is a helpful, welcome and unsurprisingly clarification.

The fundamental change comes in new sub-clause 207(2A)(d). You may appeal against a decision that a penalty is payable under a Follower Notice on the grounds that “it was reasonable in all the circumstances” for you, when confronted with a Follower Notice, to decide to fight on. If it was reasonable the Tribunal must cancel the penalty. 

The main constituent elements of the reasonableness test are, it seems to me, two in number. First, do you have reasonable grounds for thinking that if you continue with your substantive appeal you could win? Second, do you have reasonable grounds for thinking that either (a) there is no relevant Judicial ruling or (b) if there is such a ruling, that it will not be decisive of your substantive appeal?

None but the most sophisticated of taxpayers is likely to be able to assess these factors for herself. Indeed, even the most sophisticated taxpayer is likely to want to be able to rely (a polite way of saying ‘transfer responsibility’) on the assessment of her professional advisers. However, where that assessment is carried out, and the conclusion is that it is reasonable to continue with the substantive appeal, the taxpayer should have good ground for resisting a penalty even if she then goes on to lose the substantive appeal.

There is a narrow sense in which this is a positive development. It provides a powerful safeguard against HMRC’s otherwise untrammelled power to put pressure on taxpayers to settle. I do not think it is an exaggeration to say that it restricts the likely ambit of Follower Notices to all but a narrow class of cases. As I put the matter in my blog post of several days ago:

That (narrow) class of case is, in my opinion, that class of tax avoidance scheme where one taxpayer has fought and lost. In those circumstances, others entering into that scheme, if they fail to fold, face the likelihood of FNs, and of courts upholding them.

However, approached from a technocratic perspective, this is bad legislation. It drives taxpayers into the arms of their professional advisers (good for me, less so for them) whilst still leaving them with a degree of doubt about whether they face a penalty. It would, in my view at least, have been better for Government simply to have tightened up and clarified the unsatisfactorily vague definition of “relevant” Judicial rulings.

The title of this blog post is ‘Follower Notices – and a Government that Listens.’ These changes will be welcomed by those facing the prospect of Follower Notices. But is it them to whom Government has listened? No, and nor the technocrats (like me) who will see this as poor legislation. Those to whom Government has listened are its legal advisers. They will have expressed to Government a genuine concern that this regime might not survive judicial review challenge. This change reads to me like an attempt to shore up the defences in anticipation of such a challenge. But shore them up enough? Now there’s a question.