Leaving on a jet plane
Residence status is an extremely important concept in personal taxation and underpins an individual's liability to income and capital gains tax. The Court of Appeal's judgment in the joined judicial review applications of Gaines- Cooper v HRMC; Davis & James v HMRC [2010] EWCA Civ 83 will have practical application for thousands of people seeking non-resident status. In a decision on the status and application of IR20, HMRC'S guidance leaflet on residence, the court upheld the department's interpretation of chapter 2, confirming that HMRC had not applied the guidance unfairly in these cases and the appellants had no legitimate expectation caused by a change of practice. This article explains the court's decision and sets out the practical implications of the judgment for those advising clients on their residence status. All chapter and paragraph references are to the IR20 leaflet (www.lexisurl.com/ir20 ) unless specified otherwise.
What is IR20?
IR20 ('Residents and non-residents liability to tax in the UK') will be familiar to many practitioners as it has been in circulation, with several revisions, since 1973. It was published by HMRC as a booklet to guide taxpayers through the 19th and early 20th century case law on the thorny issue of residence. The version considered by the Court of Appeal was the 1999 update and specifically chapter 2 entitled 'Leaving the UK'. IR20 has now been replaced with HMRC6 (see below for more detail), but the Court of Appeal's decision on its correct interpretation will still be of direct relevance for taxpayers seeking to determine their residence status before 5 April 2009. As Moses LJ (who delivered the main judgment) stated, the case also went to 'the heart of the relationship between the Revenue and the taxpayer'.
KEY POINTS
A brief summary of the two cases. IR20 and leaving the UK to work full-time abroad. Determining whether a taxpayer has left the UK in other circumstances. Has there been a distinct break with the UK? The importance of other factors in residence status. The status and purpose of the guidance was much in debate before the Court of Appeal. The preface to IR20 states that it reflects the law and 'offers general guidance on how the rules apply, but whether the guidance is appropriate in a particular case will depend on all the facts of that case'. However, the appellants contended that rather than providing general guidance the booklet contained 'bright-line' tests which HMRC had to apply, so that if a taxpayer came within those parameters HMRC had no discretion but to treat him as non-resident.
By the end of the hearing, the two parties were not, in fact, far apart on the need to apply IR20. HMRC confirmed that they did consider themselves bound by IR20 and if, in fact, a taxpayer did satisfy the conditions for non-residence, he would be treated as such. However, HMRC highlighted the fact-specific nature of each of the tests in chapter 2 and argued that although they were bound to apply IR20, they were not bound to accept a taxpayer's assertion that he satisfied the tests. Moses LJ recognised that IR20 is full of 'value judgments' that are fact-specific and that paragraphs 2.2 and 2.7 to 2.9 do not contain any bright-line tests.
As an example of this, paragraph 2.2 deals with working full-time abroad under a contract of employment. A taxpayer may state that he has worked full-time abroad for a year...
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