A brief look at HMRC v A Taxpayer [2023] UKUT 00182 (TCC)

The Upper Tribunal judgment in HMRC v A Taxpayer [2023] UKUT 00182 (TCC) has recently been published. This is a new episode in what seems likely to become a long-running soap opera, featuring private jets, alcohol abuse and headlice.

The case concerns when an individual is considered to be resident in the UK in a tax year. This issue is determined by the statutory residence test (SRT).

Day-counting is central to the SRT. Under the SRT, the general rule is that an individual is treated as being in the UK on a particular day if he/she is in the UK on that day at midnight. However, there are several reliefs under which presence in the UK at midnight can be disregarded.

One such relief applies to presence in the UK due to exceptional circumstances beyond the individual’s control, which prevented the individual from leaving the UK. Up to 60 days in the relevant tax year can be left out of account by virtue of this relief, where the applicable conditions are met.

This relief has been the subject of recent litigation between HMRC and a taxpayer whose identity has not been disclosed in the judgments. The taxpayer won her case against HMRC at first instance. However, the Upper Tribunal has overturned the first instance decision, holding that on the facts, the conditions of the relief were not satisfied.

The taxpayer exceeded her normal allowance of days in the UK because her sister was suffering from alcoholism and depression, and was neglecting her young children. The taxpayer’s case was that she was under a moral duty to fly into the UK to look after her sister, and to take care of the children, who were living in squalor. However, there seems to have been a degree of flakiness in the taxpayer’s evidence as to what she was doing in the UK on the relevant days, which has undoubtedly coloured the Upper Tribunal’s decision. The tribunal may also have been unsympathetic because the taxpayer was formerly UK resident and had received shares from her still UK resident husband, presumably to secure a tax saving on dividends which were paid on those shares.

Other individuals who may wish to rely on the exceptional circumstances relief will be concerned by three features of the Upper Tribunal's decision:

(1) Its narrow interpretation of what circumstances count as exceptional;

(2) The view that circumstances which would otherwise not be exceptional cannot become exceptional due to the addition of a moral obligation; and

(3) Its narrow interpretation of ‘prevent’. In the Upper Tribunal’s view, an individual is only prevented from leaving the UK, for the purposes of the relief, if he/she is completely unable to leave. A mere impediment to the individual leaving, or pressure on him/her not to leave, do not count.

Taken individually, none of these points is obviously wrong. However, their cumulative effect is to give the exceptional circumstances relief a very narrow ambit.

The First-tier Tribunal had said in its judgment that the relief should not be construed more narrowly than the statutory wording requires, and should be interpreted in a manner which gives effect to Parliament’s intention when the relief was built into the SRT. However, determining Parliament’s intention is a notoriously difficult exercise, into which subjectivity inevitably intrudes. The Upper Tribunal’s reading is based on an assumption that Parliament would have wanted to take a tough line on individuals who ‘overstay’, except where such individuals have a cast iron excuse that they were compelled to do so, by circumstances which were exceptional and outside their control.

This is a potentially very important case for individuals who may find themselves in predicaments of this kind. For a more detailed discussion, please see here.