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HMRC required to litigate domicile status prior to quantifying tax

03 June 2019

The First-tier Tribunal’s (FTT) recent decision in TC07083: Embiricos v HMRC [2019] UKFTT 236 (TC) that HMRC must issue a partial closure notice concluding its enquiries into Mr Embiricos’ domicile status, may prove to be a watershed moment in the conduct of domicile enquiries.  HMRC must now issue that PCN within 30 days (unless it appeals this decision), following which the taxpayer may appeal against HMRC’s decision on his domicile status.

This was the first case to be heard by the FTT involving domicile and PCNs.  HMRC believed that it was entitled to receive information and documents so that it could calculate Mr Embiricos’ UK tax liabilities that would arise from HMRC’s conclusion that he was UK domiciled before issuing a PCN.  The FTT decided that this is simply not the case. The PCN need not state his revised tax liabilities and that calculation is a separate exercise.  The computational exercise is likely to take months if not years to complete due to the complexities and uncertainties of the legislation relating to taxing offshore income, gains and structures, at considerable cost to both Mr Embiricos and HMRC.  

The FTT went further and cancelled the information notice that HMRC issued to Mr Embiricos requesting voluminous information about his offshore financial position, concluding that the information was not reasonably required.  If HMRC ultimately wins any subsequent litigation on Mr Embiricos’ domicile status then it will be reasonable for it to require him to provide the information and documents for the computational exercise at that stage.  Whilst the passage of time may make it harder for HMRC to obtain the documents then, HMRC retains the ability to issue a further closure notice for such additional tax as it considers is due.  The taxpayer would then need to produce the evidence to discharge the burden of proof if he considers the tax bill excessive.  Consequently, it is in the taxpayer’s interests for evidence needed for the quantification exercise to be obtained and securely stored now, if it’s not been done already.  However, that information remains private to him until such time as his domicile is conclusively determined.

HMRC’s domicile enquiries are often lengthy and intrusive as HMRC must consider factors such as why a person moved to the UK, their family background and whether they have an intention to stay or leave in future. This necessarily involves questions and evidence being sought covering long periods of time. It is therefore welcome that the FTT considers that HMRC can issue a PCN now, before moving on to the complex quantification exercise which will only be necessary if the taxpayer is ultimately found to be UK domiciled.