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We were all mistaken – official

The Court of Appeal has handed down its decision in the Gaines Cooper case. In a nutshell, the issue was this: Mr Gaines Cooper had claimed to have ceased to be resident in the UK, relying on the wording of HMRC's published guidance IR20. HMRC rejected the claim arguing that he had not cut his social and family ties with the UK to the extent necessary to cease to be resident here. Mr Gaines Cooper applied for judicial review (which is, very broadly, the constitutional process by which the courts can review the way in which a public body has acted and rein in behaviour which is so unreasonable as to be perverse). His case was essentially three-fold: first, HMRC could not be permitted to ignore IR20 altogether in assessing a taxpayer's liability; second, the wording of IR20, properly construed, contained no implication that continuing social or family ties were relevant; third, that even if it could bear that interpretation HMRC had never previously suggested that it did and had therefore created a "legitimate expectation" that they would not change their view retrospectively and without due warning.

Mr Gaines Cooper lost; and the case has wide repercussions.

First the good news: any suggestion that HMRC can simply ignore its own guidance was very firmly refuted by the Court: where HMRC gives an assurance that a taxpayer meeting certain criteria will be taxed in a particular way, it is not entitled to resile from that assurance unless and until it announces for the future a proposal to alter it.

However, that is the only good news. On the second point, the Court, examining IR20 in detail, concluded that it did require a "clean break". And it must be conceded that that is without doubt a possible reading of IR20. But it is the third point which is surprising. It is our understanding that the large majority of tax professionals believe that HMRC changed its interpretation of IR20. But don't take our word for it: in the Court of Appeal a "formidable array of respected specialist advisers in the field of residence" said so. Ranged against them were... er... three HMRC officers. While the civil servants were no doubt of impeccable integrity and entirely unmindful of the potential effect upon their future careers should they give evidence contradicting the case put forward by their employer, one nonetheless wonders if HMRC might have been a little fortunate to have won on the point, particularly as there was before the Court a letter from HMRC directly contradicting their case.

But there we are: the tax profession was mistaken. What we all thought was an unannounced change in policy turns out to have been nothing of the sort: it was merely "the effect of a closer and more rigorous scrutiny and policing of the growing number of claims".

So what now? IR20 has of course now been withdrawn and replaced by the anodyne HMRC6 which gives little or no practical guidance. Probably the best summary of the current law is in Court of Appeal in Grace v CIR [2009] EWCA Civ 1082 - don't leave home without reading it. And above all remember that residence or non-residence is a question of fact, determined by fact, built upon a foundation of fact.

For more on facts and their place in life, see Dickens' Hard Times, Chapter 1. For advice on residence and non-residence try help@bkltax.co.uk