Businessman UK Resident Despite HMRC Guidance

The Supreme Court recently handed down its judgment in the case of Gaines-Cooper v Revenue and Customs. In what will be a suprising decision to many, the Court has ruled in favour of HM Revenue & Customs (HMRC), who argued that businessman Robert Gaines-Cooper was resident in the UK for tax purposes over a number of years, despite the fact that he had complied with HMRC’s own guidance on non-residence throughout this time.

While living abroad, Mr Gaines-Cooper organised his affairs so that he was not UK resident for tax purposes according to HMRC’s leaflet IR20, which stated 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, by which time Mr Gaines-Cooper had lived abroad for over 30 years, HMRC replaced IR20 with new guidance entitled HMRC6, which tightened the rules somewhat. Nonetheless, Mr Gaines-Cooper met the requirements for non-residence under the new guidance.

However, HMRC contended that, as Mr Gaines-Cooper had not severed his ties with the UK and had made regular visits here, he had in fact been UK resident while abroad, and was thus assessable to UK tax throughout this period. It contended that the guidance contained in IR20 – the latest guidance at the time the case commenced – was incorrect.

The Supreme Court upheld HMRC's argument.

This decision will cause concern to anybody who has relied on HMRC’s guidance to conclude that they are not resident here for tax purposes. It also poses questions for anyone whose tax affairs are affected by non-statutory guidance or concessions from HMRC, as this case leaves the door open for HMRC to decide that guidance it provides in other areas is incorrect.

As a result of the controversy surrounding this issue, the Government is now considering proposals for 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.

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