We need clarity, we need fairness. The taxman has a case to answer

It is time for an inquiry into HMRC’s competence, policy, decision-making processes and duty to provide transparency

Thomas Paine’s observation that what first was plunder later assumed the name of revenue is well-understood by those who have chosen to make their living abroad.

Individuals move for various reasons: career development, a desire for warmer climes, or a desire to avoid high – sometimes crippling – taxation.

Some went overseas decades ago.

It was not until 1979 that Mrs Thatcher reduced the top rate. Until then, 750,000 people in the UK were liable to 98pc tax on investment income.

Whether a person is considered domiciled or resident in the UK directly affects the amount of tax they have to pay in this country. A person who is resident, ordinarily resident or domiciled here is generally taxed on worldwide income and capital gains.

A person who is non-resident or non-domiciled in the UK, even though possessing a residence here, is only taxed on foreign income and/or gains to the extent they are remitted into the UK.

Until 1973 tax payers had to turn to case law to decipher where they stood. Then the Revenue published the notorious IR20. Put simply, it led to the assumption that an individual who had gone abroad permanently and could subsequently show that they had spent less than 91 days per tax year in the UK, would be regarded as non-resident.

Its consequence was to enable many thousands of people, by no means deserving of being called “super-rich,” to balance their lives between the UK and abroad and deploy their investments accordingly.

However, in the 2002 Budget, the government declared its intention to review the residence and domicile rules to ensure that they were “fair, clear, easy to operate, and support the competitiveness of the British economy”.

What resulted was the reverse – a disreputable, dramatic and retrospective abandonment of the understood interpretation of IR20. Arbitrarily, dire consequences followed, including an abandonment of the “exceptional circumstances” rule, which had allowed a certain amount of discretion.

In one case, a man who lived and worked in Jersey spent more than the permitted 91 days in Britain because his son, who later died, was admitted into a UK hospital for a heart and lung transplant. The abandonment of IR20 and an insistence on strict statutory interpretation meant he lost his case and significant sums of money.

Another contentious change related to the concept of leaving the UK “permanently”, and the Revenue’s strict interpretations of this concept.

The case of Seychelles resident and entrepreneur Robert Gaines-Cooper, highlighted this. He moved to the Seychelles many years ago, married his Seychelloise wife, and built a successful industrial and commercial life there. He retained an interest in property in the UK, and his son was educated here.

Though he lost his case in the Supreme Court on a 4-1 majority, the dissenting judge, Lord Mance observed that the Revenue’s interpretation of IR20 ran “contrary not only to the wording and sense of the document itself but also to its genesis and purpose”.

IR20 was replaced in 2009 by HMRC6 and then in April 2013 by the statutory residence test (SRT).

Taxpayers now have to consider the “automatic UK test”, the “automatic overseas test”, and the “sufficient ties test”, together with the meaning of “leaver” and “arrive” to ascertain whether they will be regarded as resident.

The SRT seems without coherent genesis or purpose, guaranteed to prolong, indeed intensify, uncertainty.

The Revenue is obliged to ensure the efficient and equitable collection of taxes for the benefit of all. But it is essential it is seen to act with fairness, predictability, transparency and without any suggestion of retrospective or arbitrary reinterpretation of the rules.

Far more scrutiny of HMRC process and behaviour is required.

The taxman himself now has a case to answer.

Has he become overly powerful, private, unaccountable and inclined to arbitrary behaviour? It is time for an inquiry into HMRC’s competence, policy, decision-making processes and duty to provide transparency.

A sea change in attitude is the very least of what is required.