HMRC issued a new version of HMRC 6 on 31 December 2010. HMRC say that this new version has not altered the position “in most cases”. Actually, the redline version shows thousands of changes with substantial passages being completely rewritten. One wonders why they went to all this effort – but maybe it is just improving the drafting so that it is clearer for everybody. Maybe.
Let me highlight a few of the changes.
Extra-statutory concession A11 (the split-year concession for income tax) will no longer apply where a taxpayer leaves the UK and returns in successive years. That is fair enough. It may be new, but it is clear and HMRC are quite entitled to revise their concessions any way they choose.
Everybody knows the long-standing test that if you come to the UK for 91 days or more on average for four years, you will be resident from the beginning of the fifth tax year. That has been the practice for decades. Not any more. This four-year test has now become a three-year test, and such a person becomes resident from the beginning of the fourth year.
The original HMRC 6 contained some significant variations to IR20 – one of which related to the acquisition of ordinary residence. IR20 said that a person would be treated as ordinarily resident from the tax year after the third anniversary of his arrival if he had not originally intended to stay for at least three years. (An interesting reference to intention, which we know is specifically irrelevant for the purposes of determination of ordinary residence – but never mind). When the first version of HMRC 6 came out, this was revised to say that you become ordinarily resident from the beginning of the tax year before the third anniversary of your arrival. This subsequently (and conveniently) ended up being supported by the case of Genovese – or at least it did until the Tribunal later said that they had decided Genovese wrongly. So where are we on this point? Not a clue, I am afraid.
HMRC argued in Tuczka that if a person comes to the UK to work for less than three years, he will be regarded as resident and ordinarily resident pretty much from the date of his arrival. They say that he will be here for a settled purpose (his work) whether or not he buys or rents accommodation for his occupation. However, if he sells the property and leaves the UK within three years, he will not be ordinarily resident after all. Either there is a three-year test or there isn’t. It is hoped that after the Upper Tribunal in Tuczka, this absurdity (and overwhelming deterrent for people to come and work in the UK) will be rectified.
There is a new guidance relating to the UK day count. We have the new statutory test that a day of presence in the UK is one in which you are present in the UK at midnight. However, HMRC say that “this is the general practice but it would not necessarily be appropriate in all cases”. What?! This is a statutory test – not one which HMRC can choose not to apply if they do not think it is appropriate. (Imagine what they would say to a taxpayer who argued that a statutory test should be disregarded because in his view it was inappropriate.) However, the statutory rules apply only to the 183-day test and not to the 91-day test – although HMRC did say that they would apply the legislation consistently in respect of the 91-day test. Not any more. For the 91-day test, they are going to have a new approach. They will count every day in which a person spends any time at all in the UK and use that information to decide whether they are resident. Indeed, this is borne out by recent practice which indicates that they are now using this approach for years long before 2008 as well.
I think all this has gotten seriously out of hand. We used to have a settled practice relating to residence which everybody knew, could understand and could rely on. Now we have chaos. Nobody can advise sensibly, or with any assurance, regarding whether a person is resident or ordinarily resident. Taxpayers are entitled to better than this. It is to be hoped that the significant cases which are listed to be heard by the courts at every level during 2011 will provide some certainty on this important subject.