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Gaines-Cooper judgment makes the case for statutory residence test

Peter Ashby, who is leading the CIOT’s input to the Government’s consultations on residence and domicile, gives his initial thoughts on yesterday’s Supreme Court verdict (reported here) rejecting the appeal of businessman Robert Gaines-Cooper against HMRC deeming him UK-resident

So, the Supreme Court has rejected Mr Gaines-Cooper’s appeal. But what does this mean for questions of residence more widely?

In a nutshell I believe it makes the case for a statutory test for whether someone is UK resident even more compelling.

Having had a first read through the 53 pages of the judgment, here are a few observations:

1) It's pretty difficult for some people to determine whether you are resident and ordinarily resident, and so have to pay UK tax, based upon the existing law and guidance. HMRC only won 4-1 at the Supreme Court so even the Supreme Court was not crystal clear on this.

2) Everyone seems to agree that when HMRC give guidance, you can rely upon it provided your facts and circumstances fit the examples given in the guidance. However, if you are not covered by the examples, you cannot rely upon it.

3) Despite HMRC's insistence that you must self assess your residence and ordinary residence status, you should go to them when your circumstances do not fit into IR20 or HMRC6 (the Revenue’s guidance booklets).

As things stand, even after getting advice from a lawyer and a tax adviser, there will be many occasions when it is not possible to get a clear determination and the taxpayer will need to go to HMRC.

It is therefore in HMRC's interests to have a statutory residence test to avoid them having to look at all the cases that fall outside the clear guidelines of the law or the guidance.

The need for a simple and certain test of residence could not be made clearer than the time and expense that Messrs Gaines-Cooper, Davies and James have incurred in trying to establish their residence (or non-residence) status. They have had to do this because the current state of play was unclear and it was certainly not clear enough to the advisers of the appellants, who thought they had a good case. As Lord Hope said at para 63 of the judgment, there is an obvious attraction in keeping the test (of residence) as simple as possible. The fact that IR20 did not give all the answers means that it was therefore not always relevant to all taxpayers and in the present cases, it was not relevant to them.

Thus we conclude:

1) The law is complex, needs more guidance and of course simplification.

2) The guidance does not cover all cases and so more guidance and examples are needed.

3) If you do fall within the terms of the guidance, then you can rely on it, even if the law would give a different result ie the guidance over-rides the law, BUT

4) You can only rely on the guidance if it is within the power of HMRC to disapply the law and forego its statutory obligation to collect tax.

Satisfactory? Not to me.

The CIOT’s comments in support of the introduction of a statutory residence test can be read here.

Peter Ashby CTA
Thursday 20 October 2011


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