R (Davies) v. Revenue and Customs Commissioners, [2012] 1 All ER 1048, [2011] UKSC 47

The taxpayers submitted that the court should give effect to their legitimate expectation that the test as to individual residency contained in an Inland Revenue booklet, which was more favourable than that in the ordinary law, should be applied to them. This submission was rejected on the ground that the booklet communicated a requirement for "a distinct break" from the UK (para. 45), which the taxpayers had not satisfied. Before so concluding , Lord Wilson SCJ discussed the power of the Commissioners to make administrative concessions, stating (at para. 26):

The primary duty of the Revenue is to collect taxes which are properly payable in accordance with current legislation but it is also responsible for managing the tax system: see s 1 of the Taxes Management Act 1970. Inherent in the duty of management is a wide discretion. Although the discretion is bound by the primary duty, ... it is lawful for the Revenue to make concessions in relation to individual cases or types of case which will, or may, result in the non-collection of tax lawfully due provided that they are made with a view to obtaining overall for the national exchequer the highest net practicable return: see IRC v National Federation of Self-Employed and Small Businesses Ltd. [1981] 2 All ER 93 at 101, [1982] AC 617 at 636 per Lord Diplock.

The first group of taxpayers (Davies and others) were successful English property developers who decided to extend their property development activities to Belgium, which they began to conduct through a newly-incorporated Belgian company of which they were equal shareholders. Although they began to work full-time for the Belgian company and resided at furnished apartments in Brussels, they did not sell their homes in England where their wives (and, in one case, daughter) continued to stay, they returned to England frequently and they continued their duties as non-administrative directors of their English property development company and with the Swansea Rugby Football Club. The residency facts respecting the second taxpayer (Gaines-Cooper) were different but raised the same issues.

The taxpayers' primary submission was that the Inland Revenue administrative position on individual residence (contained in booklet IR20) contained a more favourable interpretation of the test of when an individual ceases to be resident and ordinarily resident in the UK than was reflected in the ordinary law, and that the court should give effect to their legitimate expectation that this more favourable interpretation should be applied to them.

The taxpayers' submissions were rejected, on the grounds that the booklet communicated a requirement for "a distinct break" from the UK (para. 45), which the taxpayers had not satisfied. Before so concluding, Lord Wilson SCJ discussed whether the taxpayers had ceased to be ordinarily resident in the UK under the ordinary law - or, to be more precise, whether they had ceased to be resident in the UK and, if so, whether they were deemed to continue to be resident in the UK under a statutory provision that applied when a taxpayer, who had been ordinarily resident in the UK, has left the UK for the purpose only of occasional residence abroad. After considering the "settled or usual abode" test in Levene, he stated (at para. 20) that although the ordinary law required that, in order to become non-resident in the UK or, at any rate, to avoid being deemed by the statutory provision to still be resident in the UK, "the ordinary law requires the United Kingdom resident to effect a distinct break in the pattern of his life in the United Kingdom." However, a reference in the decision under appeal

to the need in law for 'severance of social and family ties' pitch[ed] the requirement, at any rate by implication, at too high a level.

He then stated (at para. 21):

It became clear from decisions like IRC v. Combe [(1932) 17 TC 405] that, if a taxpayer left the United Kingdom in order to pursue employment abroad which was full-time, it was likely not only that he would cease to be a United Kingdom resident but also that he would escape being deemed still to be a United Kingdom resident under the statutory provision. For, from the fact that the employment was full-time, it was likely to follow that he had made a distinct break in the pattern of his life in the United Kingdom.