Tribunal upholds £1m penalty for breach of a stop notice

In Countrywide Partners Ltd v HMRC [2026] UKFTT 357 (TC), the First-tier Tribunal (FTT) dismissed an appeal by Countrywide Partners Ltd (CPL) against a £1m penalty imposed by HMRC for breach of a stop notice requiring it to stop promoting certain tax avoidance arrangements.

Background

Previously, in separate proceedings, the FTT had ruled that CPL had lawfully been allocated a scheme reference number under the disclosure of tax avoidance schemes rules, in relation to a suspected contractor loan tax avoidance scheme, in respect of which CPL had been found to be the promoter (see Countrywide Partners Ltd v HMRC [2024] UKFTT 323 (TC)).

In December 2022, HMRC issued a stop notice to CPL under section 236A, Finance Act 2014 (FA 2014), and in February 2024, HMRC determined that CPL had failed to comply with the stop notice and issued a penalty to the company in the sum of £1m (calculated as £100,000 plus £5,000 for each of the 180 users of the scheme) for failure to comply with the stop notice, under paragraph 2(1), Schedule 35, FA 2014. 

HMRC's position was that, following the issue of the stop notice, CPL continued to make the arrangements available to users of the scheme and was therefore still involved in the promotion of the arrangements which were the subject to the stop notice.  

CPL appealed the penalty to the FTT. 

FTT decision 

The appeal was dismissed. 

The FTT had to determine:

(1) whether CPL had failed to comply with the stop notice; and 

(2) if it had, whether the penalty imposed of £1m was in the correct amount.

CPL submitted that it had not failed to comply with the stop notice because it had ceased marketing the scheme and was simply ‘running off’ existing contractual arrangements. It was not therefore acting as a promoter. It argued that the purpose of the stop notice legislation is to stop the selling of the arrangements specified in the stop notice to new individuals, not to stop an existing business winding down its activities to bring them to an end in an orderly manner, in compliance with the business' pre-existing contracts which it had entered into prior to receipt of the stop notice. 

Alternatively, it contended that it had a reasonable excuse for non-compliance, as it relied on  advice from counsel who had advised it that continuing to operate arrangements already entered into did not constitute promotion, and correspondence with HMRC which it said indicated that winding down the business was acceptable.

The FTT ruled that CPL had breached the stop notice. After the stop notice had been issued, CPL was still carrying on its organisation and management activities, which was evident from the 'RTI' data, CPL's accounts and its VAT returns. This demonstrated that, until February 2024, CPL continued to take its 15% fee and received around £480,000 from doing so. 

CPL had not identified any relevant compliance obligations in statute or within its contracts that would have prevented CPL from operating a tax compliant payroll system. The FTT considered that it would have been possible for CPL to have amended its payroll functions following the receipt of the stop notice such that all earnings/gross contract values were processed through the payroll instead of being artificially separated between the payment of national minimum wage and loan payments, and CPL could have therefore managed its business in a way that did not contravene the stop notice. In the FTT's view, CPL continued to operate as before albeit that it was winding down its business.

The FTT rejected CPL's argument that a business which has acted as a promoter instantly ceases to carry on that business when it starts to effect a winding-down of the activities which comprise its business. In the FTT's view, even where a business is winding down, that does not change the essential character of its activities.

In the view of the FTT, the proposition that some form of 'run off' period should be allowed so as to enable the orderly exit of users from a tax avoidance scheme, is wholly contrary to the purpose of the legislation, which is intended to stop the promotion of specific arrangements. The FTT commented that the aim of the legislation is to protect the public purse and not to protect the administrative arrangements of promoters or users of specified arrangements. On the plain terms of section 236B, FA 2014, a stop notice takes effect upon service and requires compliance immediately, and not as CPL suggested, which would lead to the odd situation where promoters could continue to use tax avoidance schemes unchecked for those who adopt it before a stop notice is issued. 

With regard to CPL's reasonable excuse argument, the FTT concluded that it did not have a reasonable excuse for the breach of the stop notice, notwithstanding the legal advice it had obtained from counsel and the alleged ambiguous nature of HMRC's guidance.

The FTT considered that the advice was obtained approximately 9 months after the stop notice had been issued and after CPL had been informed that it was liable to pay a penalty for failing to comply with the notice. Additionally, the FTT said that it was readily apparent to a reasonable taxpayer with the attributes of CPL, as a sophisticated operator of tax avoidance schemes, that the opinion obtained from counsel was unreliable given it did not consider section 235, FA 2014, which contains the definition of 'promoter' and the concept of 'promoting'.

The FTT held that there was no ambiguity in the guidance or in any of the written information provided by HMRC. The stop notice made clear HMRC's position and reflected the legislation. Similarly, the language used in HMRC's factsheet and guidance was clear, appropriate and in line with the wording of the legislation. 

In relation to the quantum of the penalty, the FTT concluded that it was appropriate, in all the circumstances, for HMRC to charge the maximum penalty. Whilst £1m was a large amount, it was reasonable given that it represented roughly twice the amount of fees CPL realised from the scheme in the relevant period. The FTT considered that a smaller penalty of, for example, £500,000, would provide no real deterrent because that would just mean the business had not received any fees during the period when it should not have operated. The FTT accepted HMRC's position that such penalties are intended to be punitive and significant in order to act as a deterrence.

Comment

The FTT confirmed that ‘promotion’, for present purposes, includes ongoing organisation and management activities, and not just new business and therefore activities involving the ‘running off’ of existing contractual arrangements can breach a stop notice.

The decision illustrates the FTT's strict approach to any failure to comply with a stop notice and confirms that penalties for failing to comply with stop notices are intended to be punitive. Accordingly, the amount of a penalty is likely to be relatively significant in order to have a deterrent effect. 

The decision can be viewed here.