Findings of fact are stubborn things: A Taxpayer v HMRC

A Taxpayer v HMRC [2025] EWCA Civ 106 is the latest chapter in the litigation between an anonymous taxpayer and HMRC, concerning the issue of whether she was non-UK resident in a particular tax year by virtue of the statutory residence test (SRT) provisions dealing with exceptional circumstances. The Court of Appeal has restored sanity regarding the scope of these provisions, overturning the austere and unnatural interpretation of the statutory language which had been adopted by the Upper Tribunal. The Court of Appeal’s judgment is valuable not only from this perspective but also regarding a much wider point, namely the limited scope for appellate bodies to challenge first-instance findings of fact. As the judgment makes clear, the scope of this principle is broader than might be assumed.

A Taxpayer v HMRC concerns the taxpayer’s residence status in 2015/16. In order to be non-UK resident for that year under the SRT, the default position was that she could not spend more than 45 midnights in the UK, over the course of the tax year. As a matter of fact, she was in the UK at midnight on around 50 days; so by default, she was UK resident. However, the taxpayer took the position that the excess days should be disregarded, by virtue of the exceptional circumstances relief in the SRT (FA 2013, Sch 45, para 22(4-6)). If that position was substantiated, her days in the UK over the course of the tax year would not exceed the 45 day threshold, and she would be non-UK resident in the tax year.

The exceptional circumstances relief applies to days on which:

• the individual is in the UK at midnight due to exceptional circumstances beyond his/her control;
• those circumstances prevent the individual from leaving the UK; and
• the individual intends to leave the UK as soon as those circumstances permit.  

Up to 60 such days in the relevant tax year can be left out of account by virtue of this relief.  

The appellant argued that the relief did indeed apply to circa five of the midnights she had spent in the UK in 2015/16, due to sad developments in the life of her twin sister, who was living in the UK. The sister had for some time been suffering from alcoholism and mental health issues. These issues came to a head in the course of 2015/16, in which she was drinking heavily, behaving erratically, and subjecting her own young children to serious neglect.  

The appellant’s evidence was that the sister was at risk of suicide and her children were at risk of being subject to a care order under the Children Act 1989.  She was concerned that there was no-one else able to look after her sister or her children, and on several occasions flew to the UK to stay with the sister for a number of days, to watch over her and care for the children.  

Decisions in the FTT and the UT

The FTT found in the appellant’s favour, holding that ‘the combination of the need for the Taxpayer to care for her twin sister and, particularly, for her minor children at a time of crisis caused by the twin sister’s alcoholism’ (para 182) constituted exceptional circumstances, beyond her control, which prevented her from leaving the UK.

The FTT accepted that an ‘obligation of conscience’ can qualify as exceptional circumstances which are capable of preventing an individual from leaving the UK, and indicated that whether an individual is prevented from leaving the UK may to some degree be a subjective question (paras 150 and 181). While it would have theoretically been possible for the taxpayer to make day trips to visit her sister, the FTT found that the severe impracticality of this option meant that, in practice, she was prevented from leaving the UK (para 160).

The UT disagreed, finding that the circumstances were not exceptional. Nor, in its assessment, did those circumstances prevent the taxpayer from leaving the UK. The UT held that:

• Exceptional circumstances only prevent an individual from leaving the UK if those circumstances make it impossible for the individual to leave, rather than merely causing an obstacle or hindrance (para 68).
• The concept of exceptional circumstances should be narrowly construed. In particular, ‘Serious illness and death are, themselves, not “exceptional”; the former is commonplace and the latter universal […] Objectively commonplace circumstances, such as serious illness, cannot be converted into exceptional circumstances by adding a moral obligation’ (para 73).

Court of Appeal decision

The UT decision could be criticised not only for its lack of compassion but also for its lack of common sense, because the SRT makes clear that an illness may, depending on the facts, constitute exceptional circumstances (FA 2013, Sch 45, para 22(5)(b)).

Now, the Court of Appeal has restored sanity with a careful and magisterial judgment, accepting all the appellant’s grounds of appeal. The following points may be highlighted:

• An individual can be prevented from leaving the UK for various reasons, including a sufficiently compelling moral obligation (para 49). There is no requirement for departure to be a legal, physical or medical impossibility (para 46). In determining whether a moral obligation prevents departure, a degree of subjectivity may be required; the individual’s perception of whether he/she is required to remain in the UK is part of the analysis (paras 51-54).
• This is not to say that the issue is purely subjective. An individual’s perception that he/she is required to stay in the UK due to a moral obligation must be a reasonably held one, taking account of societal norms. A perceived moral obligation to stay in the UK may, depending on the facts, not qualify if it is eccentric (para 53).
• For the relief to apply, the circumstances do not need to be rare within the context of human society as a whole. They merely need to be exceptional within the context of the individual’s own life. The statute clearly anticipates serious illness and death as potential exceptional circumstances (para 60).
• To determine whether circumstances experienced by an individual are exceptional, those circumstances must be looked at in the round. In particular, ‘the moral or societal obligations which the illness of a relative – or any other situation – imposes on [the individual] form part of the overall circumstances, and can and should be taken account of in considering whether the circumstances as a whole qualify as exceptional’ (para 63).

Matters of fact and law

Arguably the most interesting aspect of the Court of Appeal judgment is its discussion of the distinction between findings of fact and findings of law (para 64-79). It is well known that a factual determination made by a fact-finding tribunal can only be disturbed by an appellate body if the original determination was unreasonable, in the sense that no tribunal could reasonably have made that determination. In other words, a factual determination can only be challenged if it was outside the bounds of reasonable judgement. The authorities for this include Edwards v Bairstow [1956] AC 14, Cozens v Brutus [1973] AC 854 and Moyna v Secretary of State for Work and Pensions [2003] UKHL 44, [2003] 1 WLR 1929. Conversely, a finding of law made by any judicial body can be challenged by any higher judicial body, provided that normal principles of legal precedent are observed.

This point is widely known, but the issue of what counts as a factual finding is, perhaps, less well understood. A fact-finding tribunal is required to find what might be termed first-level facts, such as (in this case) the condition of the taxpayer’s sister and her children and household, and the taxpayer’s reaction to that condition. But often, a fact-finding tribunal will be required to make a further determination, which is whether those first-level facts correspond to a word or phrase used in the relevant statute – such as (in this case) whether the situation amounted to exceptional circumstances, within the meaning of the exceptional circumstances relief. The proper interpretation of a statute is always a question of law, not fact. But if on its true construction a word or phrase used in a statute is intended to have its ordinary meaning, then it is a question of fact, not law, whether the facts as found do or do not come within the words of the statute as a matter of ordinary usage of the English language (Cozens v Brutus at 861D).

The consequence is that where a fact-finding tribunal is confronted with the need to determine whether particular first-level facts correspond to a word or phrase used in the relevant statute, and its determination (as a question of law) is that the word or phrase is intended to have its ordinary meaning, the issue of whether the first-level facts do indeed correspond to that word or phrase is itself a finding of fact, not law. This might be termed a second-level fact. A finding of a second-level fact is resistant to being challenged by an appellate body, in just the same way as a finding of first-level facts is. Unless the fact-finding tribunal was wrong in concluding that the word or phrase was one which Parliament intended to have its ordinary meaning, the finding can only be disturbed if, based on the first-level facts, the finding of the second-level fact was one which no tribunal could reasonably have made.

This point represented a second basis for overturning the UT decision in A Taxpayer v HMRC. The Court of Appeal determined that there is no reason to think that the phrase ‘exceptional circumstances’ in FA 2013, Sch 45, para 22 has any special meaning. It was a matter for the FTT as the fact-finding tribunal to consider whether the circumstances which it found, as first-level facts, were exceptional. This was a question of second-level fact. The UT was only entitled to disturb the FTT’s conclusion on this if it involved an error of law.

Equally, having settled on an interpretation of ‘prevent’ which the Upper Tribunal considered to be correct (para 46), it was open to the FTT to find, as it did, that the taxpayer was prevented from leaving the UK by those circumstances. The FTT was placed in a somewhat difficult position, as there were gaps and inconsistencies in the taxpayer’s evidence and the FTT did not accept everything she said. Nevertheless, in the Court of Appeal’s view, the FTT’s finding of second-level fact that the taxpayer was prevented from leaving the UK on the relevant days was not a manifestly unreasonable one. It was perhaps a generous conclusion, but the assessment of whether the circumstances prevented the taxpayer from leaving on each of the days in question, and whether each of the other statutory conditions was fulfilled on each day, was a matter for the FTT. The UT was wrong in concluding that the FTT had no material on which to reach conclusions in the taxpayer’s favour (para 99).

Last words

As the above has (we hope) conveyed, the Court of Appeal judgement in A Taxpayer v HMRC is eminently worth reading. For many practitioners, the most important ‘takeaway’ will not concern the correct interpretation of the exceptional days relief, significant though that is, but will instead be the salutary reminder of the slippery facts/law distinction, and its practical impact in tax litigation. The fact that the principle in Edwards v Bairstow applies not only to first-level factual findings but also to second-level ones, such as whether circumstances were exceptional, makes it crucial in any tax litigation to try to ensure that the FTT’s findings on any such matters are the ones desired by the taxpayer. An adverse finding of second-level fact may be very difficult to overturn.

In the 1770s, John Adams said that ‘facts are stubborn things; and whatever may be our wishes, our inclinations, or the dictates of our passions, they cannot alter the states of facts and evidence’. This remains true, even in an age of so-called alternative facts. But A Taxpayer v HMRC contains a further lesson – judicial findings of fact, including second-level facts, are themselves stubborn things, which may be hard to dislodge on appeal.

This article was originally published in Tax Journal.