Houldsworth v HMRC: High Court grants permission despite delay in legitimate expectation challenge

The High Court has granted permission for judicial review in a case examining whether HMRC's published guidance created a legitimate expectation regarding tax residence status, despite proceedings being commenced years after the relevant closure notice.

Robin Houldsworth left the UK in April 2004 to work full-time in Switzerland, returning permanently in April 2005. He claimed to have spent fewer than 91 days in the UK during the 2004/2005 tax year. HMRC issued a closure notice on 8 June 2018 assessing him for income tax of £323,528.32, determining he was UK resident for that year.

Mr Houldsworth appealed to the First Tier Tribunal on multiple grounds, including that HMRC's published IR20 guidance created a legitimate expectation he would be treated as non-resident. Paragraph 2.2 of IR20 stated that individuals leaving the UK for full-time employment abroad would be treated as non-resident if specific conditions were met, including the 91-day test.

HMRC successfully argued before the FTT that legitimate expectation claims fell outside the tribunal's jurisdiction and could only be pursued through judicial review. The FTT struck out that ground in March 2024, leading to the present application commenced in June 2024.

Mr Justice Foxton first addressed whether the application for an extension of time had been properly formulated. HMRC contended it should have appeared in section 9 of the claim form itself. The court held that Practice Direction 54A permits such applications to be "included in or contained in a document that accompanies the Claim Form", finding the application was properly brought.

On the substantive question of whether to grant an extension, the court applied the principle from Maharaj v National Energy Corporation that the test is not simply good reason for delay, but good reason for extending time—a broader enquiry encompassing the importance of issues, prospects of success, and prejudice.

Mr Justice Foxton accepted that pursuing the FTT appeal was a reasonable explanation for delay. Once HMRC raised the jurisdiction point in March 2022, protective judicial review proceedings could have been issued, but would likely have been stayed pending the tribunal's decision. The court noted that the FTT itself found certain jurisdictional arguments "less straightforward to resolve", taking six months to deliver a reserved judgement.

On substantive grounds, the court found the legitimate expectation argument sufficiently arguable. Mr Justice Foxton referenced Lord Wilson's observations in Gaines-Cooper v HMRC regarding paragraph 2.2 of IR20, which suggested the Revenue intended to eliminate doubt about full-time employees abroad by providing they would "definitely" be treated as non-resident if conditions were met, thus dispensing with multifactorial inquiry.

The key question identified was whether paragraph 2.2 required an independent "distinct break" with the UK, or whether compliance with its specified requirements was itself sufficient. HMRC's reliance on paragraph 1.1's general reservation that decisions must be made "on the facts of your particular case" was not considered determinative at the permission stage.

Alternative grounds based on Wednesbury unreasonableness and abuse of power, whilst described as "alternative means of making the same point", were also permitted to preserve the full scope of challenge.

The decision emphasises the courts' pragmatic approach to time limits where alternative statutory remedies have been pursued, particularly where the jurisdictional question was genuinely arguable and no prejudice to good administration would result from extension.