First-tier Tribunal (Tax)

[2010] UKFTT 543 (TC)

TC00796

Appeal number: TC/2010/00243

Seafarers Earnings Deduction and Foreign Earnings Deduction for Seafarers – Whether Appellant became resident and ordinarily resident in the United Kingdom in May 2001 or February 2002 – February 2002  – appeal dismissed

FIRST-TIER TRIBUNAL

TAX

SAMUEL MEGWA Appellant

- and -

THE COMMISSIONERS FOR HER MAJESTY’S

REVENUE AND CUSTOMS Respondents

TRIBUNAL: JOHN BROOKS (TRIBUNAL JUDGE)

SIMON BIRD (MEMBER)

Sitting in public at Eastgate House, Cardiff on 7 October 2010

Mr W J McBride of Marine Tax Services (Cardiff) Limited for the Appellant

Mr P Massey of HM Revenue and Customs, for the Respondents

© CROWN COPYRIGHT 2010

DECISION

1.       Mr Samuel Megwa, who is employed as a mariner, appeals against an income tax assessments in the sum of £2,126.64 for 2001-02 and £3,784.38 for 2002-03 and an amendment to his 2003-04 self assessment in the sum of £3,481.26 all of which were made as a result of the rejection of his claims for the Foreign Earnings Deductions for Seafarers (“FED”) in 2001-02 and 2002-03 and the Seafarer’s Earnings Deduction (“SED”) which had replaced the FED in 2003-04.

Evidence

2.       In addition to hearing from Mr Megwa were heard from Mrs Susan Holland, an officer of HM Revenue and Customs (“HMRC”), who had compiled various tables indicating whether Mr Megwa would qualify for FED and SED depending on the date that he became resident and ordinarily resident in the United Kingdom (“UK”).  We were also provided with copies of the records that Mrs Holland had used to prepare these tables which included Mr Megwa’s Discharge Book, Ships logs, and print outs of vessel movements provided to HMRC by the shipowners showing when the ship was in UK waters.

Facts

3.       Although there was no statement of agreed facts it was clear, having heard the evidence, that the following relevant facts were not disputed.

4.       Mr Megwa, who is originally from Nigeria, went to Ireland in 1999 to study. Whilst there he met and married his wife, Christine, and they started a family. On qualifying as an officer in the Merchant Navy Mr Megwa obtained work with Bue Marine in May 2001. This involved working on ships sailing in and out of Aberdeen. He told us, and we accept, that it was always his intention to live in the UK from the time he first arrived as there was no suitable employment in Ireland but that he did not move his wife and family to the UK immediately after obtaining this work as they had a baby and young children.

5.       During the time his family were in Ireland Mr Megwa would fly to Aberdeen to join his ship and fly to Ireland to be with his wife and family when the ship returned to port, occasionally staying overnight in a hotel either before or after a flight to or from Ireland.

6.       On 22 February 2002 Mr Megwa was able to move his wife and family to Aberdeen and it was accepted by Mr Massey, for HMRC, that he was resident and ordinarily resident from that date onwards.

Law

7.       For 2001-02 and 2002-03 a mariner would qualify for FED from his income tax if his duties of employment of as a seafarer were performed wholly or partly outside the UK and any of those duties were performed in the course of a “qualifying period” which fell wholly or partly in that year and consists of at least 365 days (s 192A Income and Corporation Taxes Act 1988 (“ICTA”)).

8.       A “qualifying period” is defined by paragraph 3, schedule 12 ICTA as “a period of consecutive days which either (a) consists entirely of days of absence from the UK; or (b) consists partly of such days and partly of days included by virtue of sub-paragraph (2)”. Sub-paragraph 2 provides:

Where in the case of any person, a period consisting entirely of days of absence from the UK (the “relevant period”) comes to an end and there has previously been one or more qualifying periods, the relevant period shall be treated as a single qualifying period provided that-

(a) there are no more than 183 intervening days, and

(b)the number of days in the resulting period which are not days of absence from the UK does not exceed one-half of the total number of days in that period.

9.       It is clear from the decision of Hart J in Carstairs (HM Inspector of Taxes) v Sykes [2000] STC 1103 that days of absence when a taxpayer is not resident and ordinarily resident do not fall to be taken into account for the purposes paragraph 3, schedule 12 ICTA.

10.    For 2003-04 the FED was replaced by the SED under which a deduction is allowed from the earnings of employment as a seafarer if the earnings are taxable earnings, the employee concerned is resident and ordinarily resident in the UK and the duties of employment are performed wholly or partly outside the UK and the duties are performed in the course of an eligible period (s 378(1) Income Tax (Earnings and Pensions Act 2003 (“ITEPA”)).  An “eligible period” means a period of at least 365 consecutive days absence from the UK or a period in which at least half the days are days of absence from the UK and which consists of three consecutive periods of which the first and last period is of consecutive days absence from the UK and the middle period is not more than 183 days (s 378(2) & (3) ITEPA).

11.    The terms “residence” and “ordinary residence” have been the subject of much judicial consideration over the years. The following summary of relevant factors in considering residence and ordinary residence was given by Lewison J in HMRC v Grace [2009] STC 213 at [3], and was adopted by Lloyd LJ, who gave the agreed judgment in that case in the Court of Appeal [2009] STC 2707 at [6]:

i) The word ‘reside’ is a familiar English word which means ‘to dwell permanently or for a considerable time, to have one’s settled or usual abode, to live in or at a particular place’: Levene v IRC (1928) 13 TC 486 at 505, [1928] AC 217 at 222. This is the definition taken from the Oxford English Dictionary in 1928, and is still the definition in the current online edition;

ii) Physical presence in a particular place does not necessarily amount to residence in that place where, for example, a person’s physical presence there is no more than a stop-gap measure: Goodwin v Curtis (Inspector of Taxes)[1998] STC 475 at 480, 70 TC 478 at 510;

iii) In considering whether a person’s presence in a particular place amounts to residence there, one must consider the amount of time that he spends in that place, the nature of his   presence there and his connection with that place: IRC v Zorab (1926) 11 TC 289 at 291;

iv) Residence in a place connotes some degree of permanence, some degree of continuity or some expectation of continuity: Fox v Stirk; Ricketts v Registration Officer for the City of Cambridge [1970] 3 All ER 7 at 13, [1970] 2 QB 463 at 477; Goodwin v Curtis (Inspector of Taxes) [1998] STC 475 at 481, 70 TC 478 at 510;

v) However, short but regular periods of physical presence may amount to residence, especially if they stem from performance of a continuous obligation (such as business obligations) and the sequence of visits excludes the elements of chance and of occasion: Lysaght v IRC (1928) 13 TC 511 at 529, [1928] AC 234 at 245;

vi) Although a person can have only one domicile at a time, he may simultaneously reside in more than one place, or in more than one country: Levene v IRC (1928) 13 TC 486 at 505, [1928] AC 217 at 223;

vii) ‘Ordinarily resident’ refers to a person's abode in a particular place or country which he has adopted voluntarily and for settled purposes as part of the regular order of his life, whether of short or long duration: Shah v Barnet London Borough Council [1983] 1 All ER 226 at 235, [1983] 2 AC 309 at 343;

viii) Just as a person may be resident in two countries at the same time, he may be ordinarily resident in two countries at the same time: Re Norris, ex p Reynolds (1888) 5 Morr 111, 4 TLR 452; Shah v Barnet London Borough Council [1983] 1 All ER 226 at 235, [1983] 2 AC 309 at 342;

ix) It is wrong to conduct a search for the place where a person has his permanent base or centre adopted for general purposes; or, in other words to look for his ‘real home’: Shah v Barnet London Borough Council [1983] 1 All ER 226 at 236 and 239, [1983] 2 AC 309, 345 and 348;

x) There are only two respects in which a person’s state of mind is relevant in determining ordinary residence. First, the residence must be voluntarily adopted; and second, there must be a degree of settled purpose: Shah v Barnet London Borough Council [1983] 1 All ER 226 at 235, [1983] 2 AC 309 at 344;

xi) Although residence must be voluntarily adopted, a residence dictated by the exigencies of business will count as voluntary residence: Lysaght v IRC (1928) 13 TC 511 at 535, [1928] AC 234 at 248;

xii) The purpose, while settled, may be for a limited period; and the relevant purposes may include education, business or profession as well as a love of a place: Shah v Barnet London Borough Council [1983] 1 All ER 226 at 235, [1983] 2 AC 309 at 344;

xiii) Where a person has had his sole residence in the United Kingdom he is unlikely to be held to have ceased to reside in the United Kingdom (or to have ‘left’ the United Kingdom) unless there has been a definite break in his pattern of life: IRC v Combe (1932) 17 TC 405 at 411.”

Discussion and Conclusion

12.    Mr McBride, for Mr Megwa, accepted the tables compiled by Mrs Holland were correct. It is clear from these tables that if we were to find that Mr Megwa became resident and ordinarily resident from 22 February 2002, when he moved to Aberdeen with his family, he would not qualify for FED and SED as he would not have been resident or ordinarily resident in the UK during to a period of absence and, as such, his appeal could not succeed.

13.    However, he contended that Mr Megwa became resident and ordinarily resident from May 2001 when he arrived in the United Kingdom to join his ship with the intention of permanently residing here relying on paragraph 3.1 of the Inland Revenue booklet IR20 which, under the heading Coming to the UK permanently or indefinitely, provides:

You are treated as resident and ordinarily resident from the date you arrive if your home has been abroad and you intend

·        To come to the UK to live here permanently, or

·        To come here and remain here for three years or more.

You ‘remain in the UK if you are here on a continuing basis and any departures are for holidays or short business trips.

14.    Mr Massey, for HMRC contended, due to limited time Mr Megwa spent in the UK as a result of his employment as a mariner and the fact that until he moved to Aberdeen in 2002 his home was in Ireland where he lived with his wife and family, that he was not resident and ordinarily resident in the UK until 22 February 2002 and therefore did not meet the conditions to be entitled to SED and FED for the years under appeal.

15.    Therefore the issue for us to determine is when Mr Megwa became resident and ordinarily resident in the UK. Was it in May 2001 or February 2002?

16.    Having carefully considered the evidence and taken into account Lewison J’s relevant factors in considering residence and ordinary residence, particularly that Mr Megwa did not dwell permanently in the UK between May 2001 and February 2002 but returned to Ireland when on leave from his ship to be with his wife and family we find that, although he always intended to make the UK his home, he did not do so until 22 February 2002 when he moved his family to Aberdeen and find that he became resident and ordinarily resident in the UK from that date.

17.    The appeal is therefore dismissed.

18.    This document contains full findings of fact and reasons for the decision. Any party dissatisfied with this decision has a right to apply for permission to appeal against it pursuant to Rule 39 of the Tribunal Procedure (First-tier Tribunal) (Tax Chamber) Rules 2009. The application must be received by this Tribunal not later than 56 days after this decision is sent to that party.  The parties are referred to “Guidance to accompany a Decision from the First-tier Tribunal (Tax Chamber)” which accompanies and forms part of this decision notice.

JOHN BROOKS

TRIBUNAL JUDGE

RELEASE DATE:  19 October 2010