HMRC Disputes

Questions of “residence” and “domicile” have considerable effects on the UK taxes due and payable by taxpayers, whether they are individuals or, for residence, companies.  Additionally, with penalties of up to 200% for “offshore errors” the cost of successful challenge by HMRC can be high.

Whilst sometimes confused “residence” is very different to “domicile”, with “non-doms” (ie someone who is not UK domiciled) having attracted much media attention over the last 2 or 3 years.

Residence

In the UK, an individual is broadly considered “resident” in the country in which they live or spend substantial amounts of their time. In considering “tax residence”, HMRC will routinely begin by considering each tax year, meaning the tax residence status of that person can, effectively, change across tax years.

This is often a detailed and very intrusive type of investigation, with HMRC regularly seeking large amounts of private information to bolster their case.

Domicile

“Domicile” is not the same as “residence” although the two are often confused.

An individual is generally domiciled to their country or place of domicile at birth and HMRC view this as difficult to change unless certain clear and conscious things are done. The position is further complicated by the general concept that an individual usually acquires the domicile status and location of their father.

For UK resident taxpayers with domicile abroad, there can be advantages to that non-domicile status and, where there are tax advantages, there is the risk of HMRC investigation.

Investigations

When HMRC are reviewing the residence or domicile status of an individual highly trained members of HMRC are often focussing on income or assets abroad which could give rise to a UK tax liability if that income or those assets were within the UK or owned by an individual who was UK resident and domiciled.

For companies, the position is a little different as there is no concept of “domicile” status that can affect a company’s tax liability. However, a company can also be “non-resident” which can have a considerable effect on the tax payable by that company.

Again, and as with individuals, as a company being “non-resident” can reduce or extinguish that company’s tax liability, this is an area of active HMRC investigation with ever developing scenarios.

As these areas are complex, we would advise early consultation with a specialist should you face an investigation of or challenge to either your residence or domicile, or both, status.