Can you rely on what the Taxman says?

Gaines loses

30 years is a long time to discover that, despite living abroad for much of this period, you’re still resident for UK tax purposes. That’s the fate of billionaire Mr Gaines Cooper (GC) in his long- running battle with HMRC over his claim to be outside the UK tax regime. Although this case was about tax residency status, it raised an important question for all taxpayers. Can you rely on information given by the Taxman in his various publications?

By the book

This case actually involved three taxpayers and although their circumstances were different each had relied on guidance produced by HMRC in its IR20 booklet (now Booklet 6). All claimed to have satisfied the conditions to qualify as not UK tax resident, which meant they would escape tax on income generated outside the UK. The trouble is, there’s no statutory definition of tax residency. So, enticed by the huge amounts of tax at stake, the Taxman argued against his own published guidance and claimed the taxpayers were UK resident. Trap. Some media reports have said that as a result of the GC judgment the advice in HMRC’s publications isn’t worth the paper it’s written on. But actually that’s not true, you just need to take certain precautions before following it.

Be reasonable

The Supreme Court judges took the view that HMRC’s guidance and publications are a vital part of the relationship with the taxpayer. They said that HMRC was bound by what it said in its publications. The unfortunate GC and others lost because they had incorrectly interpreted the guidance published. However, it was accepted that IR20 wasn’t sufficiently clear, and the Taxman should provide unambiguous information in all his public notices. One judge remarked that ordinary taxpayers shouldn’t need to read beyond the advice published by the Taxman. HMRC will no doubt take their time to upgrade their publications to meet this target, so where do you stand now.

Public or internal guidance

Booklets, notices and HMRC statements of practice aimed at the public can be relied on and tribunals and courts will back you up if the Taxman decides to change his mind. But this is not true for HMRC’s staff instruction manuals, which are found on its website. Although these will mostly tie up with their booklets etc., where there’s a difference you should only rely on what’s written for the taxpayer. Even then you need to take care.

Trap. Don’tcherry pick the bits of advice you like and ignore the bits you don’t. This can mean you won’t achieve the tax effect you anticipated. Follow the guidance on the particular topic in full.

Contemporaneous records

The Taxman’s advice is continually changing. Online publications may alter by the time you next refer to them. This might prove awkward if you’re arguing against the Taxman’s updated view. Tip. Keep a PDF or hard copy of HMRC webpages and public notices you referred to in making a particular decision. If you seek advice from the Taxman by phone, ask him which public notice or instruction he is basing his view on.