Davies & Anor, R (on the application of) v HM Revenue & Customs

Published administrative guidance can create a lawful public-law assurance. Where a taxpayer falls within a specified IR20 circumstance, HMRC must apply the stated treatment unless it announces a prospective change. The assurance remains fact-sensitive and does not create bright-line tests where the guidance requires value judgments.

Under paragraph 2.2, non-resident treatment for a claimed tax year requires departure to full-time employment abroad by the beginning of that year, with the employment and absence lasting throughout the relevant year. Paragraphs 2.7–2.9 are different. A claim based on permanent or indefinite departure, settled purpose or three years’ absence requires a distinct break from former UK social and family ties. Visit limits preserve or prevent loss of status; they do not alone confer non-residence. Increased scrutiny is not an unlawful change of policy.

Robert Davies and Michael James left the UK for work in Belgium in March 2001 and claimed non-resident and not ordinarily resident treatment under IR20. They relied principally on paragraph 2.2 and alternatively on paragraphs 2.7–2.9. Robert Gaines-Cooper claimed the same status from 1976 under the permanent, indefinite or settled-purpose provisions. The Special Commissioners had found against him for 1993/4–2003/4.

Wilkie J refused permission in the Davies and James application ([2008] EWHC 1218 (Admin)); Lloyd Jones J refused permission in Gaines-Cooper’s application ([2008] EWHC 2608 (Admin)). The Court of Appeal allowed appeals from those refusals and heard the substantive judicial review applications together. The central issues were whether IR20 gave binding assurances, how paragraphs 2.2 and 2.7–2.9 should be construed, and whether HMRC had retrospectively changed its practice.

Appeals dismissed. Moses LJ delivered the leading judgment, Dyson LJ agreed, and Ward LJ agreed in the result, although with greater hesitation. The applications for judicial review were refused.

1. IR20 could constitute a statement of practice and a lawful assurance. Where a taxpayer fell within its specified circumstances, HMRC was obliged to apply the stated residence treatment unless it announced a change for the future. This was consistent with the public-law principles in MFK and Unilever. The assurance did not require HMRC to ignore statutory residence law or factual findings.
2. Paragraph 2.2 had to be read with IR20 as a whole, including paragraph 1.5. For capital gains tax purposes, a taxpayer claiming non-residence for a particular tax year had to leave the UK to work full-time abroad by the beginning of that tax year and remain in such employment, and absent from the UK, throughout the relevant year. Later employment could not alter the date on which non-resident status was first acquired.
3. Paragraphs 2.7–2.9 concerned permanent or indefinite departure and imposed a different test. The taxpayer had to demonstrate a distinct break from former social and family ties in the UK. The settled-purpose and three-year alternatives in paragraph 2.9 did not impose a lower threshold. The court’s construction was supported by the residence principles discussed in Grace v HMRC [2009] EWCA Civ 1082, Levene v CIR [1928] 13 TC 486, IRC v Combe [1932] 17 TC 405 and Reed v Clark [1985] STC 323.
4. The return-visit limits in IR20 were safeguards concerning the retention or loss of non-resident status. Staying within those limits did not itself confer non-residence. The substantive requirements of paragraph 2.2 or paragraphs 2.7–2.9 still had to be met.
5. Fairness did not prevent HMRC from subjecting claims to more intensive scrutiny without prior warning. The evidence did not establish an unannounced change in HMRC’s interpretation or application of IR20. Davies and James had not shown that HMRC had misinterpreted paragraph 2.2 or retrospectively altered its approach to paragraphs 2.7–2.9.
6. Gaines-Cooper’s case was defeated by the Special Commissioners’ factual findings that England remained the centre of gravity of his life and interests, that his chief residence was in the UK, and that he retained numerous UK ties. Those findings supported the conclusion that he had not made the required distinct break. The Court did not re-determine the factual residence question or need to decide the separate issues concerning return visits and the effect of the Special Commissioners’ determination.

Ward LJ additionally emphasised that ordinary residence could exist abroad for a settled purpose while UK residence continued, so that a clear break remained necessary for non-residence. Moses LJ’s observations about the CPR Part 54 permission procedure and contradictory evidence in judicial review were incidental to the disposition.

1. Court of Appeal (Civil Division) — The court heard the substantive judicial review applications together, dismissed both appeals and refused relief: [2010] EWCA Civ 83.
2. Administrative Court, Queen’s Bench Division — Wilkie J refused permission in the Davies and James application: [2008] EWHC 1218 (Admin). Lloyd Jones J refused permission in Gaines-Cooper’s application: [2008] EWHC 2608 (Admin).
3. Earlier Court of Appeal procedural stage — The court set aside a stay and identified a real risk that a Special Commissioners’ determination could pre-empt a legitimate-expectation claim: [2008] EWCA Civ 933.