Tribunal – residency issues

A recent Tribunal decision concerned the issue of whether an airline pilot who made long haul flights between the UK and South Africa and other locations was resident in the UK or not. This case has a long history stemming from a rental and subsequent purchase of a home in South Africa by the pilot in August 1997.

The taxpayer contended that South Africa was his home, the center of his social life, the place where he intends to retire and where his parents and a brother live. However, the taxpayer retained his house in the UK which is used as a base before and after his duties as a long-haul pilot (for flights from Heathrow and Gatwick), is listed a resident on the electoral role and owns a car used for journeys to and from his work at the airport.

The taxpayer saw that there was a ‘distinct break’ with the UK and a cessation of residence from August 1997 resulting in a ‘wholesale relocation’ of life to South Africa. The taxpayer contended that the UK is no longer his settled or usual abode and he does not “live” in the UK. The taxpayer has an ex-wife and daughters in the UK but has not seen his children for over thirty years and has only seen his ex-wife twice in the last thirty years. He has no other family in the UK. HMRC disagreed and issued a notice of determination that the pilot was ordinarily resident in the UK from 1997-8 to 2002-3 inclusive.

This case was first heard in November 2008 when the Special Commissioner found in favour of the taxpayer. HMRC appealed this decision to the High Court who concluded that the Special Commissioner had made errors of law in arriving at her decision and that the taxpayer was resident in the UK. The taxpayer appealed to the Court of Appeal who agreed ultimately remitted the case to the First-Tier Tribunal to determine whether the taxpayer was resident in the UK for the relevant years of assessment.

In her conclusion the Tribunal Judge stated that she did not consider that the taxpayer has demonstrated a sufficient break from the UK. The time “spent in the UK must be a little less than half the time before September 1997 (bearing in mind that time now spent in Cape Town would before September 1997 have been spent in the UK). But I find this is not enough to amount to a definite break with the UK. He did create new ties elsewhere but he did not sever his main ties (employment and house) with the UK.”

The Tribunal found that the taxpayer went from being a person resident in one country to being a person resident in two. The appeal was dismissed, the Tribunal finding that the taxpayer was both resident and ordinarily resident in the UK for the six years in issue.

This decision illustrates some of the difficulties a UK resident faces in making a sufficent break from the UK in order to become non-resident.


Case Studies

The Tax Man

Minimise the stress of an investigation and make use of our extensive experience in securing best outcome for our clients

Business Valuation in Distress

Take advantage of our impartial and rigorous due diligence procedures

FD in The Cupboard

Our innovative ideas are here to improve your business performance and secure appropriate and cost effective funding

The Tax Man

The Tax Man

A new client was introduced to us via a recommendation with whom we arranged to meet on a regular basis in order to determine a number of changes that we felt were needed to their business structure. The client was at the time operating as a husband and wife partnership. The business was flourishing and had a number of large contracts with big organisations.

At the start of the process they were still heavily immersed in their day to day operations so we can get a full flavour for their ambitions, aspirations and growth plans. We quickly recognised there were sufficient tax savings which can be achieved by changing the structure from a partnership to a corporate entity. We carried out a business valuation and disposed of the goodwill from the old to the new business. Unfortunately, as often is the case with efficient tax planning, HMRC got involved and disputed our valuation.

An HMRC investigation can be a very stressful time for any client, even for those best prepared. However, our client had minimal input in the HMRC communication as we dealt with this professionally behind the scene. As an added benefit, our client could rest on the security that all work was covered by insurance and therefore all costs and time in dealing with this enquiry were covered by the fee protection policy we had put in place.

The initial approach taken by HMRC was very aggressive and they tried to present an argument that there was no goodwill in the business. We challenged HMRC’s view that the goodwill was worthless. After lengthy correspondence and numerous telephone calls, HMRC agreed 100% with our original valuation, which preserved our original tax saving plan for the client. Tax savings on this case where in the region of £75K at the outset, with ongoing savings of £6,000 per annum. We are pleased to add another happy client to our portfolio.

Business Valuation in Distress

Business Valuation in Distress

Selling a business is never an easy process, but when disputes arise, the need for a reliable third party due diligence process is even greater.

Tearle & Carver have extensive understanding of the requirements for remaining objective when managing a potentially difficult company buyout. In one such case, we were approached by the courts to act as independent accountant for an acrimonious business sale in which one partner was exiting the business and selling shares to the other. Given the circumstances, both sides had totally polar views of what their business was worth.

After arranging an initial meeting with the company, we were thorough in ensuring we completed due diligence, validating the figures in the accounting records, carrying out adjustments where appropriate, and drafting a set of reliable management figures within the framework required by the court.

A draft version of the report detailing our findings and conclusions was submitted to both parties, giving them the opportunity to voice any queries or concerns and ensure all relevant factors had been taken into account.

Through this process, we were able to submit a final report to the courts that was both binding and acceptable to both parties, effectively resolving what could otherwise have been a time consuming and costly process for all sides.

FD in The Cupboard

FD in The Cupboard

For smaller companies, it is often not possible or cost effective to pay for a full-time Financial Director.
Many of our clients therefore make use of Tearle & Carver’s extensive expertise to provide the services of an FD as and when required.

In this case, we were approached by the management team of an organisation looking to acquire the existing business via an MBO (Management buy out). Their business plan had proved ineffective for securing funding, and what they needed was financial expertise from someone with a developed understanding of the company’s internal workings.

Tearle & Carver helped deliver the solution our clients were looking through utilising our bank contacts in order to make the MBO viable, while also building a robust business plan and preparing our client for the rigorous vetting process. To help with cash flow issues, we introduced factoring which led to improved cash flow management.

We advised on the appropriate business valuation and structure, and continued to prepare monthly accounts to track profgress once the management were fully in command of all the information they needed to move their business forward.

In order to best assist these clients through the crucial first year of ownership, we attended board meetings on a regular basis, a service that we continue to provide to date.

With our continually developing understanding of their business, this client is able to remain confident that Tearle & Carver can provide any financial support they may need, now and in the future.