In August 2022 we reported on a case heard before the First Tier Tax Tribunal (FTT) that considered the application of the law relating to exceptional circumstances Statutory Residence Test - A recent tax case on exceptional circumstances. The ruling of the FTT suggested interpretation of that law should perhaps be wider than HMRC would wish.
The FTT decision was overturned by the Upper Tier Tax Tribunal (UTT) in July 2023. The UTT ruled that the exceptional circumstances had to make it impossible for the taxpayer to leave, not merely difficult, and that serious illness was a commonplace circumstance which could not be converted into an exceptional one by a moral obligation.
The Court of Appeal (CA) has now overturned the UTT ruling and restored the original decision made by the FTT. Unless HMRC appeals the CA decision to the Supreme Court, we now therefore have some binding case law on the interpretation of exceptional circumstances. Based on this, in looking at an individual’s circumstances, we can conclude that the following qualifies.
Although the UTT ruling was overturned, it does offer us some helpful guidance for future reference.
It makes clear that the burden of proof falls on the taxpayer and is critical of the taxpayer in this case who, despite knowing that they would be arguing that exceptional circumstances would apply, kept no record of what they had done on each day or why they concluded at the end of each day that they were prevented from leaving the UK. It is clear, therefore, that detailed real time record keeping supporting a claim for exceptional circumstances is critical.
It also provides a helpful framework in terms of the records and supporting evidence required.
If you have any questions about matters to do with UK tax residence or if you require any assistance in considering a claim for relief for exceptional circumstances, get in touch with Jennifer McNally, Mark Spalding or your usual Crowe contact.
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