Expatriate taxation - CIOT - The Chartered Institute of Taxation

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CIOT RESEARCH PROJECT ON EXPATRIATE TAXATION 11 Issue 11: Judicial approach to IR20 11.1 The issue here is the lack of statutory definition combined with the fact that HMRC guidance, which is to be found in IR20, is not binding in law, ie the Courts are not required to apply IR20. 11.2 None Applicable law Current practice 11.3 The fact that “experts” still write long and detailed books on this topic shows that the issue of determining residence (along with ordinary residence and domicile) is far too complex for the expatriate taxpayer to determine in many situations. Whilst the majority can make a determination relatively easily, there are still very many taxpayers who cannot determine their residence status, let alone their domicile or ordinary residence status, without guidance from a tax expert. 11.4 The only guidance available from HMRC is the booklet IR20. The wording in the Preface to IR20 is most illuminating. It states that, “the notes in IR20 reflect the law as it stood in 1999”. However, it follows up with, “They are not binding in law and do not affect rights of appeal about your own tax.” 11.5 If you have difficulty in understanding the details within IR20, help is at hand, as the Preface states that, “If you have any difficulty in applying the rules in your own case, you should consult an Inland Revenue Tax Office.” 11.6 The problems with this are many and obvious: • IR20 is out of date, and does not provide guidance in all cases, in particular - • It does not provide a guide for the taxpayer to overcome the lack of statutory definition of the terms residence, ordinary residence and domicile. • It also does not address the issues listed in this paper. • Its legal status is shown in the preface to be invalid, so whatever guidance it does give is not binding. • The staff at the local offices often cannot help as they do not have the relevant experience or expertise. 11.7 The case of R v Inspector of Taxes (ex parte Fulford-Dobson) (60TC168) made it clear that the Courts would pay heed to the wording on the cover of the booklet IR1, which made it clear that the Inland Revenue had the right not to apply an ESC where the circumstances did not meet the ESC exactly. However, the judges did not feel constrained to apply the wording of the booklet as it was not the law. 11.8 The corollary established for expatriates is that the law is as it is written and the taxpayer cannot rely upon non-statutory provisions, such as booklet IR20. Peter Ashby 44 6.2.07
CIOT RESEARCH PROJECT ON EXPATRIATE TAXATION 11.9 Given that the wording in the preface also has the comment that, “whether the guidance is relevant in any case will depend on the facts,” is effectively saying that IR20 will not be binding in any case, unless the facts fit the guidance, in the view of the Inspector of Taxes. In effect, the Inspector’s view will usually be binding, as the only recourse is to appeal to the Courts. 11.10 Going through the Courts to understand what the legislation is driving at will only be possible where the tax at stake is sufficiently large to make it worthwhile either for the single taxpayer, or if the issue is sufficiently common so that that taxpayers’ agents club together to bring the case to Court, for the good of taxpayers as a whole. Proposal 11.11 The call for a rewrite of IR20 has been coming from many quarters for a long while. The booklet is relatively old, and has dated. More importantly, it has never been accepted as being the provider of the bulk of the answers that expatriate advisers look for, other than some basics on residence and ordinary residence. 11.12 Although expatriates are a small population compared to the 37 million taxpayers estimated for the UK, they are an important part of that population, as increasing numbers of taxpayers are not domiciled in the UK, and expatriates do pay significantly more tax, on average, than the 37 million nonexpatriates. 11.13 The logical conclusion would be for HMRC to rewrite the booklet IR20, having first consulted widely with the professional bodies that represent expatriate taxpayers. The new IR20 needs to be publicised with a guidance note that has numerous examples that clarify all current unresolved issues within expatriate tax. Such a note should be designed to ensure a taxpayer can complete his SA return based upon this guidance, which should therefore: a) represent the current accepted view of the law as it is applied to expatriates; b) be followed by “all” HMRC offices; and c) be accepted by HMRC as binding if a taxpayer has made full disclosure of all the relevant facts in his return and has followed the guidance note. 11.14 For the last two years, HMRC have said they are unable and/or unwilling to make any changes, whilst HM Treasury is reviewing the issue of residence and domicile. This ignores the issues facing expatriates, which is that they cannot complete their tax return accurately unless they have better guidance on these terms. That should be sufficient reason for HMRC to act and revise IR20. ADDENDUM 11.15 Since this report was finalised, the Special Commissioners’ case relating to residence (SpC 0568) has confirmed that the Courts will ignore IR20 as it has no place in the law. In the interests of certainty, both HMRC and taxpayers could do with some statutory intervention in this area. Peter Ashby 45 6.2.07
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Expatriate taxation - CIOT - The Chartered Institute of Taxation

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