Those who deal regularly with matters of domicile and residence know that HMRC routinely requests large shopping lists of information from taxpayers in the course of its enquiries often where it has no sufficient reason to suspect that the taxpayer’s assertions as to his residence or domicile status are incorrect. A letter which it takes an HMRC officer five minutes to draft can involve a taxpayer in extended historical enquiries which consume substantial amounts of the taxpayer’s time and require him to engage very expensive professional advice.
This nuisance is often increased by HMRC asking, before it has come to a conclusion on the taxpayer’s residence and domicile status, for equally burdensome information about his overseas income and gains which will only prove to be relevant if the taxpayer’s residence or domicile status is not as he has said it is. It would seem reasonable that before it exercises its power to require the provision of this latter class of information, HMRC should be required first to come to a conclusion on the antecedent questions of the taxpayer’s residence and domicile status.
The FtT case of Robert Perlman v. HMRC  concerned a taxpayer who claimed not to be domiciled in the UK with the result that he was eligible to claim the Remittance Basis. HMRC raised information notices under FA 2008 Sch. 36 para. 1 (‘Para. 1 Notices’) requiring the provision of information about, inter alia, Mr Perlman’s worldwide income and gains much of which would be irrelevant if his assertion that he was domiciled outside the UK proved to be correct.
An HMRC officer may only require a taxpayer to provide information and, or, documents under a Para. 1 Notice:
‘ … if the information or document is reasonably required by the officer for the purpose of checking the taxpayer’s tax position’.
Mr Perlman appealed against the Para. 1 Notice (a ‘Para. 1 Notice Appeal’):
‘ … on the ground that the information was not “reasonably required” because he was not domiciled in the UK. In his submission, the information would only be reasonably required if HMRC had first proved he was not so domiciled. In other words, he asked for his domicile dispute with HMRC to be decided as part of the hearing against the Sch 36 Notices.’ (Case Report para. 4)
The Tribunal Judge, Anne Redston, concluded that:
‘ … the Tribunal does not have the jurisdiction to decide Mr Perlman’s domicile as part of a hearing against Sch 36 Notices [the ‘First Issue’], but that if I were wrong in that conclusion, the Tribunal should decline to exercise the jurisdiction [the ‘Second Issue’].’ (Case Report para. 6)
As Judge Redston explained:
‘Two previous Tribunal decisions have considered the same issue. In Executors of Levy v HMRC  UKFTT 418 (TC) (“Levy”), a decision of Judge Andrew Scott, the Tribunal decided it did not have the jurisdiction to decide Mr Levy’s domicile. In Henkes v HMRC  UKFTT 159 (TC) (“Henkes”), Judge Beare found that the Tribunal did have the jurisdiction to decide the appellant’s domicile, and went on to find that Mr Henkes was UK domiciled. As already noted, there was no right of appeal against either decision.’ (Case Report para. 42)
Judge Redston in finding for HMRC chose to follow the decision in Levy rather than the decision in Henkes and what she admitted to be dicta in two judicial review applications heard in the High Court concerning appeals against notices issued to third parties under FA 2008 Sch. 36 paras. 2 and 3 (being Derrin Brothers Properties Ltd and others v. HMRC and others  and Kotton v. HMRC and others  (Case Report paras. 42 and 43)).
She also took a particularly restricted view (Case Report para. 7) of the implications of the decision in HMRC v. Vodafone 2  in which the Court of Appeal had held that the Tribunal had the jurisdiction to decide incidental points of law when deciding upon an application by a taxpayer to close an enquiry. Judge Redston found both that the Tribunal does not have the same jurisdiction when deciding Para 1 Notice Appeals and that the Tribunal’s jurisdiction under the principle in Vodafone in deciding applications to close an enquiry did not, in any event, extend to mixed questions of fact and law such as are at issue in deciding issues of domicile and residence. (Case Report paras. 5, 6, 84 and 85)
In reaching this conclusion she was strongly influenced by the consideration that there is no mechanism for an appeal against the decision of the Tribunal in respect of a Para. 1 Notice Appeal (Case Report paras. 3 and 4).
In deciding, in respect of the Second Issue, that, even if the Tribunal had the jurisdiction to decide the question of domicile, it should not do so as a matter of case management discretion, Judge Redston explained that she considered that the argument of Counsel for Mr Perlman that it would be:
‘ … unfair and unjust to refuse to exercise the jurisdiction because it would prevent Mr Perlman from putting forward his key argument as to why the Sch 36 Notices are not reasonably required, fundamentally misunderstands the purpose and scope of those provisions, as set out earlier in this decision. It would, however, be unfair and unjust to decide Mr Perlman’s domicile by exercising a jurisdiction which gave the losing party no appeal rights, so that his only route of challenge would be by way of judicial review, a much higher hurdle than obtaining permission to appeal on a point of law to the UT.’ (Case Report para. 102)
This comment itself ignores the substantial injustice which is done to a taxpayer who is forced to spend thousands, sometimes tens of thousands, of pounds to identify and provide information and documents which are entirely irrelevant to his tax affairs.
The binary way in which Mr Perlman’s Counsel argued the matter, however, may provide an explanation as to why, in deciding between two apparently unpalatable alternatives, Judge Redston chose to risk imposing immediate and substantial costs on the taxpayer rather than to risk HMRC, or the taxpayer, being denied rights of appeal against a decision on the substantive issue of the taxpayer’s domicile. Mr Perlman’s Counsel’s argument that the Tribunal had the jurisdiction to determine, in hearing a Para. 1 Notice Appeal, Mr Perlman’s domicile status and ought to do so had the result that in such an appeal the Tribunal must hear and decide upon complex matters of fact in an appellate procedure which did not seem to be designed to facilitate that process and which provided no further right of appeal.
Was it necessary for the taxpayer’s argument to be framed in that way? As we have seen what the Tribunal had to decide was whether the information or documents required to be provided under the notice were ‘reasonably required by the officer for the purpose of checking the taxpayer’s tax position’. Judge Redston characterised the Tribunal’s role in such an appeal as:
‘ … supervisory in the sense that the Tribunal’s role was to consider the reasonableness of HMRC’s information requests, and not whether the underlying enquiry, or their conclusions so far, were correct.’
Even if one assumes that Judge Redston was correct in taking this view of the Tribunal’s role in a Para. 1 Notice Appeal the question of the reasonableness of the information request must surely not take place in a vacuum but take account of the context of the request in respect of HMRC’s enquiries and, in particular, of the stage which those enquiries have reached when the request is made.
It is surely reasonable for HMRC to be expected to organise its work in a way which does not impose a substantial burden on taxpayers to provide information which may subsequently prove to be unnecessary if it can do so without unreasonably restricting its enquiries or imposing undue burdens on itself. Requests which are made before HMRC has gathered the information necessary to come to a conclusion on antecedent matters which may make the requests irrelevant and unnecessary must surely be unreasonable even though a similar request made later might be reasonable if made when HMRC had formulated a considered view on the antecedent matters in the light of the detailed information it had received in response to its prior request for information on those matters.
Such an argument in a Para. 1 Notice Appeal would not require the taxpayer’s domicile or residence status to be decided by the Tribunal in the appeal. All that the Tribunal would need to decide was whether HMRC had yet come to a final conclusion on those antecedent matters, had concluded that it disagreed with the taxpayer and had, indicated its willingness to join with the taxpayer in a joint referral under TMA 1970 s. 28ZA. Only then would it be reasonable for HMRC to risk placing on a taxpayer who considers that the information is irrelevant because he is not domiciled or not resident in the UK what might prove to be the wholly unnecessary and onerous burden of providing information about his overseas income and gains.
This argument has indeed been considered by the Tribunal; by the FTT in HMRC v. Epaminondas Embiricos. In that case, however, the taxpayer’s main contention was that a partial closure notice should be issued and, in finding for the taxpayer on that issue, the Tribunal gave only rather cursory attention to the s.28ZA argument. In respect of that argument it said:
‘Mr Purnell’s [Counsel for HMRC] main point however is not whether or not it is right for the domicile issue to be heard as a preliminary issue. It is that it is an abuse of process for Mr Embiricos to use the appeal against the information notice was [sic] a way of, in effect, forcing HMRC to make a joint referral under s 28ZA TMA.
The reason for this is that HMRC has complete discretion as to whether or not to agree to a joint referral under s 28ZA TMA. The taxpayer has no right of appeal to the Tribunal should HMRC decline to agree to a joint referral. HMRC’s decision could potentially be challenged in judicial review proceedings but that is a separate matter outside the authority of the Tribunal.
We agree with Mr Purnell that a taxpayer cannot use an appeal to the Tribunal against an information notice to effectively force HMRC to agree to a joint referral under s 28ZA TMA. We think that this would be manifestly unfair to HMRC and is therefore an abuse of process. If Mr Embiricos wishes to challenge HMRC’s refusal to make a joint referral, he should bring an action for judicial review.
The question therefore as to whether or not HMRC should agree to a joint referral and what factors should be taken into account in deciding whether a particular point should be heard as a preliminary issue do not therefore arise.
We would however observe that it is not at all clear to us why HMRC consider that the question of domicile should not be determined as a preliminary issue before the quantification of the tax liabilities is addressed. It seems to us that this would be a much more efficient and cost effective way of proceeding for both parties.
Whilst Mr Purnell stated in argument that he was not aware that HMRC had ever made a joint referral in a domicile case previously, we do note that in one of the most well-known cases on residence and domicile, Gaines-Cooper v Revenue and Customs Comrs  STC (SCD) 23, (2006) 81 TC 61, the question of Mr Gaines-Cooper’s domicile and residence status was heard as a preliminary issue (although not, it appears, under the joint referral procedure in s 28ZA TMA). This does however demonstrate that issues of domicile and residence are perhaps in a special category and that determining those questions as a preliminary issue may well be appropriate, even taking into account the principles set out by the Upper Tribunal in Wrottesley.
Having said this, our conclusion is that if HMRC are only able to give a partial closure notice which states the amount of tax due assuming they are right in their conclusion that Mr Embiricos was domiciled in the UK during the relevant period, the information set out in the information notice is reasonably required and Mr Embiricos’s appeal against the information notices would fail.’
The FtT’s approach to this question is surely back to front. Judicial review is a discretionary remedy applying when the Subject has exhausted all specific remedies and applies only to manifest failures of duty by government and its officials. The conditions for raising Para. 1 Notices specifically include the requirement that the information under the notice should be ‘reasonably required by the officer’ concerned. Far from its being manifestly unfair, in deciding this question of the reasonableness of the officer’s decision to issue the Para 1 Notice, to take into account whether the officer has joined with the taxpayer in a s.28ZA referral, because the officer’s decision in respect of s.28ZA might have been the subject of judicial review it seems to us manifestly unfair to artificially restrict the scope of the Tribunal’s enquiry as to reasonableness in an appeal against a Para. 1 Notice and to force the taxpayer to bear the costs and uncertainty of judicial review.
The FtT’s decision in favour of the taxpayer on the main issue in Embiricos was reversed on appeal by the Upper Tribunal where the alternative argument in respect of the Para. 1 Notice and s.28ZA was not put for reasons which do not emerge from the case report. It is to be hoped that the argument will be given further consideration in a future case.