Resident or what?
3 Nov 08
A consultation on HMRC guidance about resident or non-resident tax status is part of the continuing uncertainty on the subject
HM Revenue & Customs (HMRC) formally launched a consultation on a replacement for IR20, the HMRC booklet which gives guidance on liability to tax in the UK for residents and non-residents, writes Valerie Smart.
An updated version of IR20 was published in July with amendments covering changes to the residence and domicile rules made in the Finance Act 2008. It was stressed that the July version was interim guidance only, and the consultation is on the full replacement guidance.
IR20 is significant because for many years it represented what was a generally accepted rulebook for determining residence. There are only limited statutory rules relating to residence status and these are augmented by case law decisions, many of which go back to the beginning of the last century. IR20 sets out HMRC’s interpretation of the rules though it is not bound by them.
That rulebook has been becoming ever more out of date. A series of decisions has cast doubt on some of the interpretation culminating in the case of Robert Gaines-Cooper v HMRC in October 2006. HMRC explained its interpretation of the case in Appendix 1 to IR20 but the case went to a two day hearing in the High Court in October. At the time of writing the judge, Mr Justice Lloyd Jones, has reserved judgment. The taxpayer argues that by spending no more than an average of 91 days per tax year in the UK he/she is non-resident while HMRC claims that their UK connections are such they have never left for tax purposes.
Irrespective of the outcome of this case, the non-binding nature of IR20 guidance has been called into question in R (on the application of) (1) Davies and (2) James v Revenue and Customs Commissioners.
In this case reported in July the Court of Appeal looked at a judicial review application which if successful would require HMRC to treat the taxpayer as non-resident based on the published guidance in IR20 even if on the facts the Special Commissioners might find him resident. The Court of Appeal required the High Court either to refuse leave for judicial review or to have a substantial hearing. The effect of this case could be that any taxpayer could seek judicial review in any case where HMRC appears not to be following its own published guidance.
All this makes it imperative IR20 is revised and updated urgently and the consultation states that the plan is to publish new guidance by March. This may be precipitate as the Government is considering introducing a statutory residence test and is consulting with professional bodies. Such a test could feature in next year’s finance act.
Meanwhile HMRC has made it clear that it is not inviting comments on the legislation, HMRC policy or practice on residence and domicile issues, or on individual cases. The consultation is confined to the scope of the guidance, whether any areas or issues are not covered, whether any of the content is unnecessary or irrelevant and whether clearer guidance is required on particular issues. Views on the proposed structure of the guidance are also invited.
Comments are required by 15 December by email at residency guidance.consultation@hmrc.gsi.gov.uk or by post to Residency Guidance – Invitation to Comment, HMRC, Charity Assets and Residence, St John’s House, Merton Road, Liverpool L75 1BB.