Harmish Mehta recently featured in [2024] British Tax Review Issue 3 for his article, “Pitt v HMRC: follower notices, precedent and the ‘reasonable person’”.

HMRC may issue a follower notice where they consider that an earlier judicial ruling is “relevant”, meaning that it would deny a tax advantage asserted by a taxpayer. The taxpayer may then be penalised for continuing to assert the advantage.

Follower notices were considered by the Supreme Court in R. (on the application of Haworth) v Revenue and Customs Commissioners. The court held that, to issue a follower notice, HMRC must form the opinion that there is no scope for a reasonable person to disagree that the earlier ruling denies the asserted advantage.

In Pitt v Revenue and Customs Commissioners, HMRC had issued a follower notice, relying on Audley v Revenue and Customs Commissioners as the earlier ruling. The First-tier Tribunal (FTT) had dismissed the resulting appeals. On appeal to the Upper Tribunal (UT), the taxpayer argued that the FTT erred in comparing the “reconstituted” facts (meaning the evaluative conclusions and inferences drawn from the facts) of Audley with those of his case, and ought to have compared only the “primary” facts (meaning the facts from which the conclusions and inferences were drawn).

It is unsurprising that the UT dismissed the appeal. But the FTT and UT decisions are instructive. They suggest a difference in approach between the assessment of whether a judicial ruling is “relevant” for the purposes of the follower notice regime and the orthodox assessment of a ruling’s precedential value. The UT also considered the use by the Supreme Court in Haworth of the phrase “reasonable person”, providing welcome, albeit abbreviated, analysis.

This material was first published by Thomson Reuters, trading as Sweet & Maxwell, 5 Canada Square, Canary Wharf, London, E14 5AQ, in the British Tax Review as “Pitt v HMRC: follower notices, precedent and the ‘reasonable person’” [2024] B.T.R. (3) 382 and is reproduced by agreement with the publishers.

Read the full article here.