Residence and domicile in the firing line. Tax case report. By Nichola Ross Martin

My comments on this, as submitted to the Treasury are available on line through this link:

http://www.taxresearch.org.uk/Blog/2006/07/11/oxford-centre-for-business-taxation-and-the-monaco-boys/

this reinterpretation shoul only apply from the date of the case

I don't find this case remarkable in the slightest other than for confirming what I thought was more or less settled law. Is it so outrageous that an individual who's family live in the UK and who spends more time in the UK than in any other country (and significant amounts of time not just two or three weeks a year) is considered to be tax resident here?

I don't even think that on the domicile point we are learning anything new. In fact, this case is likely to be helpful to long term UK resident non-UK domiciliaires as it shows just how adhesive a domicile of origin is.

I was on a course last week on offshore tax matters, and the speaker highlighted the fact that the key word in the Revenue guidance booklet IR20 was "normal", ie "The normal rule is that days of arrival in and departure from the UK are ignored in counting the days spent in the UK..."

As a result, he felt the Revenue could challenge someone's residency position even if they strictly met the 91 day criteria by ignoring days of arrival and departure. It would therefore be necessary to consider the whole facts of the case.

Therefore, to my mind, it seems this case changes nothing.

It does, however, highlight inconsistencies within our profession as tax advisers. On the one hand, when it comes to something like status issues and IR35, we say this can't be determined just by looking at various elements of a checklist, but that we have to look at the whole picture.

Yet here, we seem to be saying that this client ticked all the right boxes on the IR20 checklist and is therefore non resident, but when looking at the whole picture, the Special Commissioner determined he was resident and we're up in arms.

If we as a profession are confused, what chance has the poor taxpayer got?

Residence and domicile? I must admit, this is an area I try to avoid - but recently a company I look after the PAYE, has asked if can put all their Polish staff members who live and work in the UK, onto a BR tax code for December!

They tell me as they have family in Poland, they are required to complete tax returns there (December year end) and will be taxed additionally on their UK income. Because of the double taxation agreement, they will claim the higher tax paid in the UK against the even higher tax due in Poland.

Then they want me to give them back their tax codes in January or if I refuse, they will complete tax returns in April and reclaim the tax then.

I shall put this question on Any answers, but I would be interested in what others think , would do - or even if they have come across this?

http://www.thesipps.org.uk

Contrary to popular belief, IR20 does not say that if you limit your UK visits to 91 days or less, you will be UK resident. It says the converse - that if your visits exceed this number, you will be. Not the same thing at all, if you think about it.

There has always been a 'weasel' word provision in IR 20 to protect the Revenue, and it should be no surprise that its significance had been buried for years.

IR20 in the second paragraph of answer 1.3 says:-

'The NORMAL [not emphasised in the original] rule is that days of arrival in and departure from the UK are IGNORED[original emphasis ]'

The implication is , and has been well known by specialist practitioners, that if abused the 'rule' was meaningless.

For support, see for example the comments of James Kessler QC in 'Taxation of Foreign Domiciliaries' 5th Edition at paragraph 4.17.2 where he predicted precisely what has happened here -and the same comment has been in earlier editions of the superb book.

With a large portfolio of clients working overseas, who retain family and homes in UK, the Revenue confirms in writing their non-residency status (based on under 91 UK days amongst other things). This latest decision is very worrying as most workers with a base in UK depend on the travel days counting as overseas days.

For people going abroad for say 9 weeks then back for 3 the position for tax credits is absolutely unworkable. Joint claims are made, then once abroad for 7 weeks the partner at home claims on a single basis, followed by a joint claim once the overseas worker arrives back, and so on. I have lobbied Treasury without success to have the residency rules for credits match those for tax.

I suppose this is the very rare occasion that I agree with Richard.

Perhaps a US style taxation based on Citizenship would make more sense in this globalised world. After all, holder of British Passport is benefting from the protection of the British Government and have access to facilities provided by the government no matter where they resides.

I would also like to note further that such tax rates differentation longer limits to overseas location, with the proposal of introduction of special CT rate for Northern Ireland (awaiting details), things can be come interesting. An internet business can very well locate itself in NI with the boss lives in London...

It was interesting to see that HMRC produced in evidence British Airways passenger lists going back to the early 1990s. So even though the Monaco millionaires come and go without getting their passports stamped, they can't hide!