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Matthew Hutton MA, CTA (fellow), AIIT, TEP comments on HM Revenue & Customs' guidance in Booklet IR20 following the decision in Gaines-Cooper v HMRC.

Context

Following the decision in Gaines-Cooper v HMRC (see MTR 12/06 Item 4.2), HMRC have published their response to the decision, broadly confirming that, so far as HMRC are concerned, it is ‘business as usual’, certainly so far as concerns the application of the principles set out in the long-established IR20.  I set out the text of HMRC Brief 01/07 followed by one or two comments on the relationship to IR20.

HMRC Brief 01/07

The recently published decision of the Special Commissioners in Robert Gaines-Cooper v HMRC (SpC 568) has attracted some attention from tax practitioners and their clients. In particular, some commentators have suggested that the decision in Gaines-Cooper means that HMRC has changed the basis on which it calculates the ‘91-day test’. This is incorrect.

The ‘91-day test’ is set out in Chapters 2 & 3 (‘Leaving the UK’ and ‘Coming to the UK – Short term visitors’) of the booklet IR20: Residents and non-residents. This guidance is clear that the ‘91-day test’ applies only to individuals who have either left the UK and live elsewhere or who visit the UK on a regular basis. Where an individual has lived in the UK, the question of whether he has left the UK has to be decided first. Individuals who have left the UK will continue to be regarded as UK-resident if their visits to the UK average 91 days or more a tax year, taken over a maximum of up to 4 tax years. HMRC’s normal practice, as set out in booklet IR20, is to disregard days of arrival and departure in calculating days under the ‘91-day test’.

In considering the issues of residence, ordinary residence and domicile in the Gaines-Cooper case, the Commissioners needed to build up a full picture of Mr Gaines-Cooper’s life. A very important element of the picture was the pattern of his presence in the UK compared to the pattern of his presence overseas. The Commissioners decided that, in looking at these patterns, it would be misleading to wholly disregard days of arrival and departure. They used Mr Gaines-Cooper’s patterns of presence in the UK as part of the evidence of his lifestyle and habits during the years in question. Based on this, and a wide range of other evidence, the Commissioners found that he had been continuously resident in the UK. From HMRC’s perspective, therefore, the ‘91-day test’ was not relevant to the Gaines-Cooper case since Mr Gaines-Cooper did not leave the UK.

HMRC can confirm that there has been no change to its practice in relation to residence and the ‘91-day test’. HMRC will continue to:

• follow its published guidance on residence issues, and apply this guidance fairly and consistently; 
  
• treat an individual who has not left the UK as remaining resident here; 
  
• consider all the relevant evidence, including the pattern of presence in the UK and elsewhere, in deciding whether or not an individual has left the UK; 
  
• apply the ‘91-day test’ (where HMRC is satisfied that an individual has actually left the UK) as outlined in booklet IR20, normally disregarding days of arrival and departure in calculating days under this ‘test’.

The guidance provided by booklet IR20 is general in nature. If, on the facts of the matter, a dispute arises over the application of this general guidance and the parties cannot resolve their dispute by agreement, the Commissioners will determine any appeals. The Commissioners are bound to decide the legal issues by reference to statute and case law principles rather than HMRC guidance. Where a dispute relates to particular facts the Commissioners will consider the evidence and make findings of fact to which they will apply the law.

(HMRC Brief 01/07 4.1.07)

Comment

IR20 states inter alia the following:

‘1.2…The normal rule is that days of arrival in and departure from the UK are ignored in counting the days spent in the UK, in all the various cases where calculations have to be made to determine your residence position - see for example paragraphs 2.2, 3.3 and 3.4 and the examples in 2.10 and 3.6. (This rule is not relevant to the concessionary split year treatment described in paragraphs 1.5 -1.6, where a person coming to or leaving the UK part way through a tax year is resident from the date of arrival or to the date of departure.)’

What is interesting about the above is that the reference to para 2.2 explicitly brings in section 2 which is concerned with leaving the UK, even though ‘the example’ of 2.2 itself deals with working abroad.  Line 3 of the above extract refers to ‘all’ the various cases.

‘Leaving the UK permanently or indefinitely

2.7 If you go abroad permanently, you will be treated as remaining resident and ordinarily resident if your visits to the UK average 91 days or more a year - see paragraph 2.10. Any days spent in the UK because of exceptional circumstances beyond your control, for example the illness of yourself or your immediate family, are not normally counted for the purposes of averaging your visits.

2.9 If you do not have this evidence, but you have gone abroad for a settled purpose (this would include a fixed object or intention in which you are going to be engaged for an extended period of time), you will be treated as not resident and not ordinarily resident from the day after the date of your departure providing 
your absence from the UK has covered at least a whole tax year, and
• your visits to the UK since leaving
- have totalled less than 183 days in any tax year, and
-   have averaged less than 91 days a  tax year.

If you have not gone abroad for a settled purpose, you will be treated as remaining resident and ordinarily resident in the UK, but your status can be reviewed if
• your absence actually covers three years from your departure, or
• evidence becomes available to show that you have left the UK permanently
providing in either case your visits to the UK since leaving have totalled less than 183 days in any tax year and have averaged less than 91 days a tax year.’

Therefore, although the 90-day test is mentioned as relevant in testing departure from the UK, the key thing, as mentioned both by Dr Brice in Shepherd and by Dr Brice and Charles Hellier in Gaines-Cooper, is whether the going abroad is ‘for a settled purpose’ or, if not, then permanent.  There is therefore something of a conflict in HMRC’s views, though they do seem to stick in IR20 to the ‘days of arrival and departure’ principle in deciding whether a person has left the UK (see last paragraph of 2.9).

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