R (on the application of Haworth) v HMRC: The Supreme Court on When a Follower Notice Is Lawful

Key Takeaways

1. An HMRC follower notice is a formal notice from HMRC requiring you to concede a tax advantage if a previous court or tribunal case “would” deny your arrangements that same advantage.
2. The Supreme Court’s decision in R (on the application of Haworth) v HMRC [2021] UKSC 25 confirms that HMRC can only issue a follower notice if there is no real scope for reasonable disagreement that the earlier ruling applies.
3. You have a strict 90-day deadline to take corrective action or make representations to HMRC after receiving a follower notice.
4. Ignoring a follower notice can lead to a penalty of up to 50% of the disputed tax, and HMRC may require you to pay the tax upfront through an accelerated payment notice.
5. If the notice was issued without the correct degree of certainty or does not properly explain why the earlier ruling is relevant, you may be able to challenge it by making representations or through judicial review.
6. The earlier ruling must cover your specific legal and factual circumstances for a follower notice to be valid.
7. Responding without proper advice could lead to you conceding tax unnecessarily or missing valid grounds to fight HMRC’s action.
8. If you lose your appeal after refusing to take corrective action, you may be liable for both the tax and a significant penalty.
9. Our solicitors at Go Legal help clients review their HMRC follower notice, identify challenge grounds, manage response deadlines and represent them in judicial review or penalty appeals.

If you have received a follower notice and need urgent, technical advice, you can book a free consultation with our HMRC disputes lawyers.

What is a follower notice?

You have filed your tax return claiming a relief or exemption. Years later, HMRC writes to tell you that a court has already decided that arrangements “like yours” do not work. Unless you concede and pay the disputed tax within 90 days, you could face a penalty of up to 50% of the tax at stake. Can HMRC really do this?

The follower notice regime, under the Finance Act 2014 (Part 4), allows HMRC to stop taxpayers relitigating tax issues already decided in similar cases. If HMRC believes a previous court or tribunal ruling covers your tax arrangements, they can issue a follower notice that requires you to take corrective action (such as amending your return) or face a substantial penalty if you lose your case later.

Follower notices have been described as “draconian” because they pressure taxpayers to abandon their claims, even if their facts or legal arguments differ. The Supreme Court case R (on the application of Haworth) v Commissioners for Her Majesty’s Revenue and Customs [2021] UKSC 25 is the leading authority on when HMRC can lawfully issue a follower notice—and when they cannot.

The decision is critical. HMRC must have a high degree of certainty that the earlier ruling determines your case—”likely” is not sufficient. This ruling clarifies the threshold for follower notices, your rights to challenge HMRC by judicial review, and helps protect access to justice in disputed tax cases.

The follower notice regime (Finance Act 2014, Part 4)

Purpose:

• Introduced in 2014 to raise the stakes on tax avoidance.
• Designed to deter taxpayers from relitigating tax issues that HMRC believes have already been decided by a court or tribunal in a previous case.
• Aims to reduce the burden of defending the same arguments repeatedly for HMRC and the courts.

How it works:

1. You claim a tax advantage in your tax return or appeal (such as a relief or exemption) based on particular “tax arrangements.”
2. HMRC opens an enquiry (or you appeal an assessment).
3. HMRC forms the opinion that a previous court or tribunal ruling has already decided that arrangements like yours don’t work—the ruling would deny you the tax advantage you claim.
4. HMRC serves a follower notice, telling you:
   • The earlier ruling determines your case.
   • You must take “corrective action” (amend your return or settle your appeal) within 90 days.
   • If you do not take corrective action and later lose your case, you’ll be liable for a penalty of up to 50% of the disputed tax (minimum 10%).

Consequences:

• Take corrective action: Concede the tax, pay what HMRC says you owe, and avoid the penalty.
• Do not take corrective action:
  • Continue your appeal to the tribunal.
  • If you lose, you pay the tax plus the penalty (up to 50%).
  • HMRC may also issue an accelerated payment notice (APN), requiring you to pay the disputed tax upfront while your appeal is ongoing.

No direct appeal:

• You cannot appeal a follower notice itself (only the penalty).
• The main route to challenge a notice is judicial review (as Mr Haworth did).

If you receive a follower notice or expect one, contact one of our solicitors at Go Legal to assess your position and protect your rights.

R (on the application of Haworth) v HMRC

The parties

• Mr Haworth: Taxpayer, settlor of a trust that disposed of shares in 2000/2001, realising a substantial capital gain.
• HMRC: Issued a follower notice in June 2016, relying on the Court of Appeal decision in Smallwood v Revenue and Customs Comrs [2010] EWCA Civ 778.

Mr Haworth’s tax arrangements

• The plan was to avoid capital gains tax on the disposal of trust shares.
• The trust was initially overseen by Jersey trustees. These resigned, and were replaced by Mauritius-resident trustees before the sale. After the shares were sold (realising a gain of around £22 million), the Mauritius trustees resigned, and UK-resident trustees took over within the same fiscal year.
• Mr Haworth argued that, because the trust was Mauritius-resident at the date of the disposal (and Mauritius does not charge CGT), the UK/Mauritius Double Taxation Convention meant only Mauritius could tax the gain.

HMRC’s position: Smallwood already decided this

• In Smallwood, the Court of Appeal had considered arrangements that were almost identical. The critical issue was the trust’s “place of effective management” (POEM).
• The majority held that the POEM was the UK, since the scheme was orchestrated from the UK and the overseas trustee step was only temporary, leading the gain to be taxable in the UK.

HMRC’s follower notice to Mr Haworth

• HMRC opened an enquiry into Mr Haworth’s 2000/01 return in January 2003.
• By 2016, after considering factors derived from the Smallwood decision, HMRC decided to issue a follower notice, claiming that because all seven Smallwood pointers were present, it was “likely” the previous decision denied Haworth’s tax advantage.
• HMRC served the notice in June 2016, setting out the prior case, requiring corrective action, and also issued an APN for over £8.7 million.
• Mr Haworth made representations objecting to the notice, which HMRC rejected on review. He did not take corrective action and did not pay the APN.
• HMRC issued a closure notice assessing nearly £8.8 million additional tax. Mr Haworth appealed this assessment—the appeal was ongoing when the Supreme Court gave its judgment.
• Mr Haworth brought judicial review proceedings to quash the follower notice. The High Court refused his challenge but the Court of Appeal allowed his appeal and quashed the notice. HMRC appealed to the Supreme Court.

The legal question

Can HMRC lawfully issue a follower notice based on an earlier ruling if their opinion is only that the ruling is “likely” to deny the taxpayer’s advantage, or must they have a higher degree of certainty?

The legal issues

The Supreme Court identified four main legal issues.

Issue 1: The threshold test—”would” deny the advantage

The statutory test (Finance Act 2014 s.205(3)(b)) says a ruling is relevant if “the principles laid down, or reasoning given, in the ruling would, if applied to the chosen arrangements, deny the asserted advantage.”

HMRC argued “would” means “more likely than not”. Mr Haworth argued it means “will definitely,” requiring HMRC to have a high degree of certainty—mere likelihood is not enough.

The core question: What degree of certainty must HMRC have before lawfully issuing a follower notice?

Issue 2: Did HMRC misdirect themselves about Smallwood?

Mr Haworth argued that HMRC’s internal documents overstated what Smallwood decided—suggesting the UK POEM was an inevitable conclusion from a checklist of pointers, when the court actually said all circumstances must be examined.

Does a misdirection like this mean the follower notice is invalid?

Issue 3: Can factual findings be part of the “reasoning given” in a ruling?

Mr Haworth said Smallwood’s factual finding (that the trust’s POEM was in the UK) was not part of the “reasoning given” for the statutory test. HMRC argued that factual findings applying a legal test can be “reasoning”.

Can HMRC rely on factual findings from earlier cases in a follower notice?

Issue 4: Was the follower notice invalid for lack of explanation?

Section 206(b) of the Finance Act 2014 requires the notice to “explain why” HMRC considers the ruling is relevant. Mr Haworth claimed the notice gave no explanation—just stating the previous reasoning “applies” to his arrangements.

Was the notice invalid for failing to give enough reasons?

The Supreme Court’s decision

Unanimous decision

Lady Rose delivered the leading judgment. The Supreme Court dismissed HMRC’s appeal, quashed the follower notice, and allowed Mr Haworth’s challenge.

The threshold: “Likely” is NOT enough

The Supreme Court held that “would” in s.205(3)(b) requires HMRC to be sure—there must be no scope for a reasonable person to disagree that the earlier ruling denies the advantage.

HMRC’s position that “would” means “more likely than not” was rejected. Parliament used “would” (not “likely”, “might”, or “may”) to require certainty, not probability. This interpretation protects access to justice and respects that follower notices carry severe consequences—penalties of up to 50% of the tax and APN demands.

Misdirection: Overstating Smallwood

HMRC’s internal submissions wrongly treated the seven Smallwood pointers as a definitive checklist. Lady Rose found that Hughes LJ in Smallwood did not decide similar pointers would always lead to a UK POEM. Each case depends on all relevant facts and circumstances.

As it was not self–evident HMRC would have reached the same conclusion without the misdirection, the notice was quashed.

Factual findings as “reasoning”

The Supreme Court confirmed that factual findings applying a legal test (such as determining the POEM) are part of the “reasoning given” in a judgment, provided the cases are materially indistinguishable. However, HMRC must still form a certain opinion that the reasoning would deny the taxpayer’s advantage in their specific case.

Explanation in the notice

The Court criticised HMRC’s notice for failing to adequately explain why Smallwood applied to Mr Haworth’s arrangements. Although this defect does not automatically invalidate a notice under s.206, it may reinforce other grounds for challenge.

What this means in practice

For taxpayers who receive a follower notice

You have clear rights to challenge a follower notice.

Main routes:

1. Make representations to HMRC (s.207 Finance Act 2014)
2. Apply for judicial review of HMRC’s decision
3. Appeal any penalty imposed if you do not take corrective action (s.214 Finance Act 2014)

Grounds to challenge a follower notice under Haworth

• HMRC did not have the required degree of certainty—they thought it was only “likely” the earlier ruling applied.
• HMRC misdirected themselves about what the earlier case meant, such as applying a checklist or universal rule.
• The cited ruling does not cover your case: it dealt with a different provision, issue, or was fact–sensitive and your facts differ.
• The notice fails to explain why the earlier case is relevant—while not always invalid, it strengthens your argument.

Actions if you receive a follower notice:

• Take advice immediately. You generally have 90 days to act.
• Review the earlier ruling. Identify the test and facts, and spot any factual or legal differences.
• Submit representations in writing to HMRC. Explain why the ruling does not apply.
• Consider judicial review if representations fail.
• Decide whether to concede or continue your appeal, taking into account the risk of penalty if you lose.

For HMRC and tax authorities

Haworth means HMRC must:

• Be confident there is no reasonable disagreement that the earlier decision applies.
• Avoid simply treating feature checklists as universal rules.
• Explain in the notice why arrangements match the earlier case.
• Consider all facts, differences, and new arguments.
• Collect better evidence before issuing a follower notice.

For tax advisers

Tax advisers should:

• React quickly—90 days is a hard deadline.
• Read the earlier ruling and Haworth closely to look for distinctions.
• Gather evidence and prepare detailed representations.
• Advise on risk, prospects, and tribunal strategy.
• Use Haworth to challenge weak notices, but be realistic if facts are identical.

For the tribunal and courts

Where the penalty is appealed (s.214 Finance Act 2014), the First-tier Tribunal must itself decide if the earlier ruling “would” deny the taxpayer’s advantage, using the same high–certainty threshold—not just whether HMRC’s decision was reasonable.

Relationship to other HMRC powers

Criticism and commentary

The Haworth ruling was welcomed by taxpayers and advisers for protecting access to justice and setting a clear, high threshold for follower notices. HMRC and some commentators, however, view it as limiting HMRC’s powers and making it harder to resolve serial tax avoidance.

Praise:

• Upholds the right to challenge unclear or novel points of law.
• Demands a high certainty threshold before HMRC issues such powerful notices.
• Removes mechanistic “checklist” approaches in favour of full consideration of all facts.

Criticisms:

• HMRC must do more work before issuing a notice, potentially slowing down avoidance clampdowns.
• Taxpayers may bring more judicial reviews and penalty appeals, leading to increased litigation.
• Proving HMRC’s internal opinion may be practically difficult (evidence from files and staff will be needed).

Key takeaways

• HMRC can only issue a follower notice if a previous ruling “would” deny your tax advantage—high certainty, not just likelihood.
• You have 90 days to act or make representations, and risk up to a 50 percent penalty for non-compliance.
• Follower notices do not prevent you appealing the main issue, but make fighting much riskier.
• Judicial review and penalty appeals are key routes to challenge defective notices.
• After Haworth, strong grounds for a challenge include lack of certainty, factual or legal differences, over-reliance on checklists, and inadequate explanation in the notice.

For advice on challenging an HMRC follower notice, you can book a free consultation with our team.

Conclusion

R (on the application of Haworth) v Commissioners for Her Majesty’s Revenue and Customs [2021] UKSC 25 is the Supreme Court’s leading case on follower notices. The decision deals a significant check to HMRC’s powers, requiring absolute certainty before a follower notice can be validly issued—”likely” is not enough.

For taxpayers, Haworth provides a real opportunity to challenge follower notices where HMRC has taken a formulaic or checklist approach, or where the facts or legal issues differ. For HMRC, it means each notice must be carefully justified and reasoned.

If you have received a follower notice or an accelerated payment notice, or are facing an HMRC tax dispute, our solicitors at Go Legal can advise on your rights, grounds to challenge, and the right litigation or settlement tactics for your situation.

Frequently Asked Questions

What is a relevant judicial ruling for HMRC follower notice purposes?

A relevant judicial ruling is a final court or tribunal decision that, in HMRC’s view, “would” (not just “might”) deny the tax advantage if applied to your arrangements (s.205(3)(b) of the Finance Act 2014).

Can I ask HMRC to withdraw a follower notice if my facts are different from the earlier ruling?

Yes. If your facts or legal arguments were not addressed in the cited case, you should submit representations and ask HMRC to withdraw the notice. Haworth confirms you have this right.

How long does HMRC have to issue a follower notice after an enquiry or appeal?

The rules are found in the Finance Act 2014. Check your notice carefully for the date and act immediately if you think it is out of time.

What evidence should I gather to challenge a follower notice?

Gather your tax return, all previous HMRC correspondence, the full text of the cited case, any professional tax advice, and anything setting your case apart from the earlier ruling.

Is there any right to appeal a follower notice if I miss the initial deadline?

You cannot appeal the notice itself, but you can appeal any penalty imposed and bring a judicial review of the notice’s lawfulness.

What happens if I pay the assessed tax but later win my appeal?

If you win your appeal on the substantive tax, you may be entitled to reclaim tax and penalties paid, subject to the relevant rules.

Will receiving a follower notice affect my tax appeal to the tribunal?

Yes—it increases your risk of additional penalties if HMRC prevails, though you can still present your case in full.

Do penalties for not taking corrective action apply automatically?

Penalties are not automatic but are charged if you lose your case after refusing corrective action.

Can accountants or agents handle representations on my behalf?

Yes, both accountants and solicitors can make representations or appeals for you, but you must ensure all deadlines are met.

Does the Haworth ruling affect penalty amounts or just when a notice can be issued?

Haworth affects the legal threshold for issuing notices, not the amount of penalty. If a notice is quashed, related penalties fall away.