Must HMRC Follow Their Own Guidance Supreme Court to Rule

The Supreme Court’s decision in the Gaines-Cooper case is eagerly awaited for more than one reason. Firstly, the outcome in this case will affect hundreds of people who may well find that their residence status for UK tax purposes has changed. Secondly, it marks a new type of approach by HM Revenue and Customs (HMRC), whereby they are seeking to charge tax in circumstances in which their own guidance says they will not do so. In other words, if HMRC are successful, it will become dangerous to rely upon codes of practice in tax that are not based on a strict interpretation of statute.

In this case, the issue hinges on the guidance in HMRC’s leaflet IR20, which appears (to everyone but HMRC) to state that a non-resident who returns to the UK for fewer than 91 days in a tax year will not normally be considered to be resident in that year. In 2009, new guidance was issued in the form of leaflet HMRC6, which tightened the rules somewhat. Robert Gaines-Cooper had lived abroad for more than 30 years by the time the revised guidance was issued and, in any event, complied with the new guidance.

However, HMRC decided, on the basis that he had not severed his ties with the UK and had made regular visits here, that Mr Gaines-Cooper had been UK resident (and thus taxable in the UK) throughout.

The flood of controversy that has resulted from this and other similarly contentious cases has led to a proposal to establish a set of clearly defined rules on which to assess a person’s residence status, which will make it straightforward for most people.

However, even these rules contain a set of tests which apply when a person cannot be said to be conclusively resident or conclusively non-resident. Some of these (for example, the test of whether a person has done ‘substantive’ work in the UK or the definition in one test of ‘use of accessible accommodation’) would seem to be ripe for future argument.

The decision of the Supreme Court is expected soon and will be a valuable pointer towards the future thrust of tax policy.

Click here for further information on HMRC's approach to tax residence.

Published: 1st November 2011