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You are here: BAILII >> Databases >> England and Wales Court of Appeal (Civil Division) Decisions >> Davies & Anor, R (on the application of) v HM Revenue & Customs [2010] EWCA Civ 83 (16 February 2010) URL: https://www.bailii.org/ew/cases/EWCA/Civ/2010/83.html Cite as: [2010] STI 485, [2010] WTLR 681, [2010] EWCA Civ 83, [2010] STC 860, [2010] BTC 198 |
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COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM THE ADMINISTRATIVE COURT, QUEEN'S BENCH DIVISION
Mr Justice Lloyd Jones
Mr Justice Wilkie
Strand, London, WC2A 2LL |
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B e f o r e :
LORD JUSTICE DYSON
and
LORD JUSTICE MOSES
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The Queen on the Application of Robert John Davies and Michael John James The Queen on the Application of Robert ![]() | 1st Appellants 2nd Appellant |
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- and - |
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The Commissioners for Her Majesty's Revenue & Customs |
Respondent |
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Mr David Milne QC and Miss Nicola Shaw (instructed by Messrs Squire, Sanders & Dempsey) for the 2nd Appellants
Ms Ingrid Simler QC, Mr Akash Nawbatt and Mr Christopher Stone (instructed by H.M. Revenue & Customs) for the Respondent
Hearing dates: 4th -6th November, 2009
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Crown Copyright ©
Lord Justice Moses:
The Status of IR20
"No doubt a statement formally published by the Inland Revenue to the world might safely be regarded as binding, subject to its terms, in any case falling clearly within them" (per Bingham LJ 1569C).
"The notes in this booklet reflect the law in practice at October 1999. They are not binding in law and do not affect rights of appeal about your own tax.
You should bear in mind that the booklet 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. If you have any difficulty in applying the rules in your own case you should consult an Inland Revenue Tax Office ... Some practices explained in this booklet are concessions made by the Inland Revenue. A concession will not be given in any case where an attempt is made to use it for tax avoidance."
Paragraph 1.1 provides:
"The terms 'residence' and 'ordinary residence' are not defined in the Taxes Acts. The guidelines to their meaning in this Chapter and Chapters 2 (resident status of those leaving the UK) and 3 (those coming to the UK) are largely based on rulings of the Courts. This booklet sets out the main factors that are taken into account, but we can only make a decision on your residence status on the facts in your particular case.
As mentioned in paragraph 1.4, even if you are resident (or ordinarily resident) in the UK under these rules, the terms of a double taxation agreement with another country might affect your final tax position if, for example, you are resident in both that country and the UK."
"If you leave the United Kingdom to work full-time abroad under a contract of employment, you are treated as not resident and not ordinarily resident if you meet all the following conditions:
Your absence from the UK and your employment abroad both last for at least a whole tax year;
During your absence any visits you make to the UK:
Total less than 183 days in any tax year, and
Average less than 91 days per tax year ... "
2.3 provides:
"If you meet all the conditions in paragraph 2.2, you are treated as not resident and not ordinarily resident in the UK from the day after you leave the UK to the day before you return to the UK at the end of your employment abroad ...
If there is a break in full-time employment, or some other change in your circumstances during the period you are overseas, we would have to review the position to decide whether you still meet the conditions in paragraph 2.2. If at the end of one employment you returned temporarily to the UK, planning to go abroad again after a very short stay in this country, we may review your residence status in the light of all your circumstances of your employment abroad and your return to the UK."
Interpretation of 2.2
"Your absence from the UK and your employment abroad both last for at least a whole tax year;
"Strictly, you are taxed as a UK resident for the whole of a tax year if you are resident here for any part of it. But if you leave or come to the UK part way through a tax year, the year may, by concession...be split. Where this applies, your tax liabilities on income which are affected by tax residence will be calculated on the basis of the period of your actual residence here during the year...this has the same effect as splitting the tax year into resident and non-resident periods."
"Based on the facts of the matter it has not been established that your clients' employment was full time employment throughout the tax year to satisfy a claim to be non-resident under paragraph 2.2 of IR2O."
Interpretation of 2.7-2.9
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..."
2.8 "If you claim that you are no longer resident and ordinarily resident, we may ask you to give some evidence that you have left the UK permanently, or to live outside the UK for three years or more. This evidence might be, for example, that you have taken steps to acquire accommodation abroad to live in as a permanent home, and if you continue to have property in the UK for your use, the reason is consistent with your stated aim of living abroad permanently or for three years or more. If you have left the UK permanently or for at least three years, you will be treated as resident and not ordinarily resident from the day after the date of your departure providing:
a) Your absence from the UK has covered at least a whole tax year, and;
b) 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."
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:
a) Your absence from the UK has covered at least a whole tax year and;
b) 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...
c) Your absence actually covers three years from your departure, or;
d) Evidence becomes available to show that you have left the UK permanently;
e) 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."
"You are resident and ordinarily resident in the UK if you usually live in this country and only go abroad for short periods - for example, on holiday or on business trips".
"This evidence might be, for example, that you have taken steps to acquire accommodation abroad to live in as a permanent home, and if you continue to have property in the UK for your use, the reason is consistent with your stated aim of living abroad permanently or for three years or more." (my emphasis).
That example of evidence which may be required is an example which would demonstrate the severance of social and family ties hitherto maintained within the UK.
"It is possible to be resident (or ordinarily resident) in both the UK and some other country...at the same time. If you are resident...in another country, this does not mean you cannot also be resident...in the UK. Where, however, you are resident both in the UK and a country with which the UK has a double taxation agreement, there may be special provisions in the agreement for treating you as resident of only one of the countries for the purposes of the agreement."
Change of Policy
"The point of IR20 is that it is supposed to prevent the sort of thing that has happened in this case from happening: if it does not do that it is not giving general guidance, which is what HMRC say they are doing in the preface, but setting a trap and misleading those who rely on it.
Secondly, although I have been in practice for 25 years and have advised very many taxpayers who have left the UK relying on IR20, I have never known HMRC raise the sort of issues they have raised in this case before now, nor have I seen them adopt so many different arguments, one after another, none of which have any merit.
Lastly, the point which most concerns me is that HMRC now seem to be putting emphasis on the words "leave the UK", "go abroad" and "gone abroad" which appear, respectively, in the opening sentences of paragraphs 2.2, 2.7 and 2.9 of IR20…I believe that the emphasis on the phrases to which I have referred is novel and represents a most significant change of practice by HMRC which undermines - and I assume is intended to undermine - the whole purpose of IR20. It does not seem to me to put it too highly to say that HMRC's conduct involves a breach of trust" (1st statement 39-41).
"whose job it is to travel abroad (for example, ferry or airline crew)…the individual will continue to be resident in the UK….The fact that they spend days partly in and partly outside the UK does not affect their residence position (as they do not count as days of "arrival" or "departure" in the context of 1.2 of IR20." (See to similar effect the standard letter dated 20 February 2000, which spoke of a temporary concession to ameliorate the effect of the erroneous advice previously given to mobile workers.)
"mobile workers who usually live in the UK and have not genuinely left this country. Different considerations apply to those who have left the UK to live abroad permanently. Paragraphs 2.7-2.9 of booklet IR20 explain the circumstance in which such individuals may be treated as not resident and not ordinarily resident." (paragraph 8).
But the Bulletin did refer to 2.2 ( at paragraph 5) :
"The treatment under paragraph 2.2 is aimed at individuals who leave the UK for a complete tax year to live and work on assignments abroad…In the case of individuals living in the UK but making regular short trips abroad, it is questionable whether they have genuinely left the UK in a residence sense, or can be said to be working full time abroad; and they could not satisfy the condition that their absence and the employment abroad lasted a whole tax year. They have not in our view made the clear break with the UK that the practice in paragraph 2.2 requires." (my emphasis in italics)
"It was certainly not the intention that individuals going to work abroad could never qualify as not resident within the terms of paragraph 2.2 unless they severed every link with the UK."
"They recognised the problems of deciding whether someone had 'left' the UK, but apart from that they found paragraph 2.2…straightforward. If an individual had full-time employment abroad, it was not necessary to look at the wider factors in paragraph 2.7 about personal circumstances such as accommodation, family life etc." (my emphasis)
That passage demonstrates unequivocal recognition of the distinction the Revenue and IR20 draw between 2.2 and 2.7-2.9. Even Mr Glyn Davies has, on occasion, accepted the relevance of links retained with the UK:
"…what IR20 does (according to the understanding I have always had as a practitioner) is to set out certain factors which will be taken into account. Some of these factors relate to the quality of the links which the taxpayer has with another country (e.g. full-time employment for at least a whole tax year, settled purpose)…. And some of the factors relate to the extent of the links retained by the taxpayer with the UK (e.g. the number of days spent here, retaining a property in the UK). It follows from that that HMRC have set out their view of the quality of the links with another country and the extent of the remaining links with the UK which should together be taken into account in determining whether someone has ceased to be resident." ( my emphasis.) (2nd statement §15)
I do not believe the Revenue would quarrel with any of that understanding; they may argue only with the following sentence :
"The quality of the links with the other country are relevant insofar as they help to determine the extent to which the taxpayer has removed himself from the UK".
They do help, but are not determinative, since the extent of ties retained is also relevant.
"...I'm writing to confirm the way we approach the residence status of individuals who leave the UK for purported permanent residence but who cannot produce the sort of evidence mentioned in paragraph 2.9 of IR20.
Subject only to the caveat that the following guidance is general and particular cases will always need to be decided on their own specific facts, I can say that provided such an individual
- lives outside the UK for 3 years or more from the date of departure, and
- after departure has not visited the UK for as much as 183 complete days in any one tax year or 91 or more days a year on average
then we will, after the three years has elapsed, accept the claim to have become not resident and not ordinarily resident.
Specifically, circumstances such as
- The spouse and/or children having continued to live in the UK
- A residence having been maintained here
- Duties having continued to be performed in the UK
will not prejudice the claim to non-residence".
"that (in relation to) those who are not (or who are no longer living) in the UK the other tests in IR20 will continue to apply" (letter to Mr Sawyer 8 March 2000).
Those observations show that Mr Wilks did regard "living" as relevant to the claims of those who had not gone abroad to work; it contradicts his previous letter.
"The basis for this dismissal appears to be the heading 'Leaving the UK permanently or indefinitely', but as I have explained above, I feel that the paragraphs must explain the heading rather than being limited by the heading. If what you say is correct, then there is no meaning to paragraph 2.9, and probably little meaning to paragraph 2.8. I do not think that the words 'leaving the UK' make the difference, because the words 'leave the UK' are also used at the beginning of paragraph 2.2."
"A more fundamental question might be 'When did your clients leave the UK?' It is this issue of 'leaving the UK' or 'going abroad' that causes the most controversy in that we are talking here of leaving the UK in the residence/ordinary residence sense. To illustrate this point:
IR20 Para 2.2
If you leave the UK to work full time abroad…you are treated as NR/NOR if…
An obvious test here is whether or not the employment is full time. And to a certain extent we have become bogged down at this test. But the first test is whether or not your clients have 'left the UK'. This is the fundamental R/OR test and again, on the basis of the evidence thus far, it is not at all clear that your clients have passed this test. Equally I am not suggesting that they have 'failed' any test."
He said he would discuss the matter with Mr Steve Symonds and let Mr Davies have a substantive response.
"If your clients have not 'left' the UK, they cannot be said to have left indefinitely. In my view detailed discussion on...2.7-2.9 simply confuses matters and obscures the fundamental issues.
The key question for me is whether your clients can reasonably claim to have left the UK to work full time abroad (IR202.2) without strictly having 'left' the UK for R/OR purposes. I will ask Steve Symonds, as technical lead here, for his views. Your general comments about areas of guidance possibly having very little meaning might be apposite here".
"the whole doctrine of legitimate expectation is of benefit, and only real value, where, on a true understanding of the facts and the law, the taxpayer is, or may well be, liable to tax. Despite that, however, it would be oppressive or unjust...to require him…to pay the tax because the conduct of the tax authorities, in the exercise of their management powers, has legitimately created the belief that tax would not be payable for a particular period, for a particular reason". [22].
Lord Justice Dyson:
Lord Justice Ward:
"I think that [ordinary residence] connotes residence in a place with some degree of continuity and apart from accidental or temporary absences."
Lord Warrington of Clyffe said at p. 232:
"'Ordinary residence' also seems to me to have no such technical or special meaning [for the purposes of the Income Tax Act]. In particular it is in my opinion impossible to restrict its connotation to its duration. A member of this House may well be said to be ordinarily resident in London during the Parliamentary session and in the country during the recess. If it has any definite meaning I should say it means according to the way in which a man's life is usually ordered."
In Lysaght Viscount Sumner said at p. 243:
"I should think the converse to 'ordinarily' is 'extraordinarily' and that part of the regular order of a man's life, adopted voluntarily and for settled purposes is not 'extraordinary'."
"I note that in the nineteenth century bankruptcy case In Re: Norris (1888) 4 T.L.R. 452 it was accepted that one person could be ordinarily resident in two countries at the same time. This is, I have no doubt, a significant feature of the word's ordinary meaning for it is an important factor distinguishing ordinary residence from domicile."
Thus he concluded at p. 343:
"Unless, therefore, it can be shown that the statutory framework or the legal context in which the words are used requires a different meaning, I unhesitatingly subscribe to the view that "ordinarily residence" refers to a man's abode in a particular place or country which he has adopted voluntarily and for settled purposes as part of the regular order of his life for the time being, whether of short or of long duration."
He added at p. 344:
"And there must be a degree of settled purpose. The purpose may be one; or there may be several. It may be specific or general. All that the law requires is that there is a settled purpose. This is not to say that the "propositus" intends to stay where he is indefinitely; indeed his purpose, while settled, may be for a limited period. Education, business or profession, employment, health, family or merely love of the place spring to mind as common reasons for the choice of a regular abode. And there may well be many others. All that is necessary is that the purpose of living where one does has a sufficient degree of continuity to be properly described as settled."
"But a man may reside in more than one place. Just as a man may have two homes – one in London and one in the country – so he may have a home abroad and a home in the United Kingdom and in that case is held to reside in both places and to be chargeable with tax in this country."
Thus it seems to me the Revenue were in this regard fully entitled to look for a clear break – or a clean break - with this country. Even if the appellants have established an ordinary residence abroad, the fact that they return to sleep in their own beds in their own homes on a fairly regular basis and retain a string of connections with the life they led in this country, then the Revenue are entitled to question their claim to be non-resident here.