In Michael Bentley v HMRC [2021] TC7989, an IT consultant failed to persuade the First Tier Tax Tribunal (FTT) that he was incapable of understanding the consequences of failing to act on a Follower Notice (FN). He was a literate thinking man and HMRC had told him in clear and categorical terms what was required of him following service of the FNs.

The taxpayer engaged a new firm of tax consultants and Appealed against the penalties: claiming a Reasonable Excuses for his failure to take corrective action to pay the tax due:

  • His tax consultants, Montpelier, had said that no tax was due and should not worry and that the FNs would be withdrawn following a successful human rights or judicial review challenge.
  • He had written to his MP Dominic Raab several times on the issue and was going to have to pay between 20% and 70% more tax due to the scheme failure: this was unfair.
  • He had complaints about HMRC’s case management and explanations of the tax charge.

The FTT did not accept any of the excuses:

  • Mr Bentley’s protests to his MP were made after the date on which he should have taken action against the FNs. All the evidence in relation to the MP’s correspondence was not relevant to the penalty appeal.
  • Mr Bentley was a literate thinking man and capable of understanding the contents of the FNs and APNs and HMRC's covering letter which explained was meant by taking corrective action and the consequences of failing to do so.
  • It is one thing to rely entirely on a tax advisor when there is no indication that HMRC would take a contrary view to the advice of that adviser. But here, Mr Bentley had been told in clear and categorical terms what was required of him following service of the FNs.
  • In light of the rock of Montpelier’s advice and the hard place of HMRC’s reflection of the position in the FNs, the appellant should have sought independent advice.
  • It did not see the interpretation of the FNs as being the exclusive province of a tax expert. They are couched in plain English; they set out precisely what is required of a taxpayer and the consequences of failure
  • The judge added, "I strongly suspect that the Scheme was mis-sold to the appellant. But having engaged with the tax system by entering into the Scheme, he should have continued to engage with it following service of the FNs."

The FTT did though use their powers to reduce the tax penalties. The taxpayer received no discount for failing to take corrective action but allowed a reduction in terms of co-operation, leaving a penalty of 24% of the denied tax advantage.

Useful guides on this topic

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Grounds for appeal: Reasonable excuse
What is considered to be a 'reasonable excuse' when a taxpayer makes an appeal against a tax compliance failure?

Grounds for appeal: Reliance on a third party
When it is possible to claim reliance on an adviser as a reasonable excuse or, as an example of taking reasonable care?

How to appeal a tax penalty?
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External link

Michael Bentley v HMRC [2021] TC7989

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