19 December 2017

HMRC powers stop at the border

The UK tax authorities have limited powers once an individual leaves the UK, a landmark ruling has found.

The powers of HMRC are legendary. But a recent High Court ruling has limited its investigative powers beyond the UK after someone permanently leaves the jurisdiction. The judgment came in a judicial review: Michael Jimenez -v- HM Revenue & Customs and Other, handed down on 20th October. Jimenez was represented by Steve Thomas of Excello Law, Rory Mullan of Counsel and Gary Brothers of Independent Tax.

Game changer

It is a landmark ruling, clarifying how HMRC should conduct itself in matters relating to non-UK individuals and recognising that once they leave the UK, how far HMRC can enquire into their tax affairs is much reduced.  A game changer for the powers vested in HMRC, it will also greatly interest non-domiciled residents who have made their permanent domicile outside the UK. HMRC will no longer be able to examine their UK tax affairs. 

Production notice

The claimant, Mr Jimenez, is a past co-owner of Charlton Athletic Football Club. After leaving the UK in 2002, he lived in Cyprus and then in Dubai. Events relating to HMRC culminated in the 2012 launch of an investigation into his tax affairs. 

Mr Jimenez continued to cooperate with HMRC about questions relating to his residence status. But despite this cooperation, HMRC still tried to force matters by issuing a production notice to him at his Dubai residence. As a non-UK taxpayer, who lives outside UK and has done for many years after cutting his ties with the UK, he challenged HMRC’s right to do this. Eventually, he decided to bring the case for judicial review in London. 

No extra territorial effect

The key dispute was the degree to which HMRC can exercise its powers outside the UK.  Mr Jimenez’s case centred on these powers, especially that of issuing notices under Schedule 36 to the Finance Act 2008 (Schedule 36) which do not extend to subvert the sovereignty of foreign states. The argument continued that it has no extra territorial effect, and that HMRC therefore had no power to issue a notice against him when he was resident in Dubai. HMRC asserted that Mr Jimenez is a taxpayer for the purposes of Schedule 36 and it does therefore have the power to give a notice to such taxpayers outside the UK to help establish that taxpayer’s tax position. As a general rule, countries will not assist other countries to collect tax unless they have a reciprocal arrangement.

Unlawful and unreasonable

Mr Justice Charles agreed that HMRC’s approach was both unlawful and unreasonable. He held that ‘Schedule 36 does not provide a power to give the taxpayer notice that was given to the Claimant in Dubai and so the Revenue should not have given it.’ He added that ‘the taxpayer notice given to him was not lawfully given and should be quashed.’  So HMRC did not have power to insist that UK citizens based in another sovereign country comply with their orders. The judge ruled that the correct approach in that situation is to make a request of the appropriate tax authority abroad under a reciprocal arrangement. He ordered HMRC to pay Mr Jimenez’s costs.


This important judgment has provided a clear safeguard to former UK-resident taxpayers who have moved permanently from the UK once they leave, then HMRC’s capacity to enquire into their tax affairs is much reduced. In the case of Mr Jimenez, it was many years before HMRC asked to review matters. There was no lack of cooperation by Mr Jimenez, nor was there any an attempt by him to engage in tax evasion or avoidance, rather he openly and voluntarily cooperated with HMRC. Nevertheless, HMRC still elected to try to force a man to answer their questions despite his voluntary attempts at helping them many years after he had left the UK. 


Mr Jimenez said afterwards: "For a long time HMRC have held the view that distance was no object to their powers meaning any ex-pats outside of the UK were in their sights long after they had left the UK. Young or old, rich or poor, retired or not or simply wanting to move to warmer climates and having made the decision to no longer be a resident of the UK, made no difference the attitude that HMRC adopted towards these ex-pats. This ruling shows that this is fundamentally not the case and that HMRC's powers actually stop at the UK border.”

Steve Thomas is a solicitor and commercial mediator specialising in advising high net worth individuals and corporates, in respect of all financial disputes and dealings with HMRC.

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