[2010] All ER (D) 197 (Feb)

R v HMRC (on the application of Davies and another)and

R v HMRC (on the application of Gaines-Cooper)


In this case, the appellants were applying for a judicial review of HMRC’s ruling on their residence status. The taxpayers had left the UK and claimed to be not resident and not ordinarily resident in the UK. HMRC had determined that the taxpayers were ordinary resident in the UK as they had not sufficiently severed all ties with the UK. The taxpayers had not exceeded the relevant number of days to be regarded as UK resident but the main issue at stake was whether they had made a sufficient “break” from the UK to be regarded as not ordinarily resident.


It was held that since the taxpayers retained strong family and social connections as well as property in the UK at which they stayed when they visited, that they had not made a sufficient “break” from the UK to be regarded as not ordinarily resident. The taxpayers sought a judicial review of HMRC’s interpretation of IR20, claiming that they had changed their interpretation of the guidance in 2004/05, although this was held not to be the case.


It has long been considered that the tests for residence and ordinarily residence, which are largely based on case law, are not fit for purpose in the modern business world and widely open to interpretation. As long ago as 1936, the Income Tax Codification Committee complained that the absence of guidance as to whether or not a taxpayer was resident in the United Kingdom was intolerable. In 1973, the Revenue issued the first version of IR20, a booklet designed to provide what it described as general guidance in relation to the residence and ordinary residence of individuals. In 2008, IR20 was superseded by updated guidance, in the form of HMRC6, which places greater emphasis on “patterns of lifestyle”.

This case, together with HMRC v Tuczka, is a very important case, which causes uncertainty in the area of residence and ordinary residence and will increase calls for the introduction of a statutory-based residence test to bring some much-needed clarity to UK business on residency issues.