Pepper (Inspector of Taxes) v Hart

The House of Lords addressed two linked issues: the correct method of valuing in-house benefits in kind under s.61 and s.63 of the Finance Act 1976 and the circumstances in which courts may consult Parliamentary materials (Hansard) when construing ambiguous legislation. The court held that where statutory language is ambiguous, obscure or would produce a manifest absurdity, and where ministerial statements in Parliament give a clear indication of the legislative intention on the point, Hansard may be consulted as an aid to interpretation. Applying that limited rule, the House concluded that s.63 should be read to value in-house benefits by reference to the additional or marginal cost to the employer rather than by an average or open-market cost, so allowing the taxpayers' appeals.

Background and facts:

• The appellants were teachers and a bursar at Malvern College whose children attended the school on concessionary terms. The school had surplus capacity and the concessionary fees paid by the staff covered the additional marginal costs of educating those children.
• The Revenue assessed a tax charge under s.61(1) of the Finance Act 1976 and the definition of "cash equivalent" in s.63, treating the relevant cost as a proportion of the school's total running costs (an average cost), rather than the marginal cost.

Procedural posture:

• The special commissioner decided for the taxpayers. Vinelott J. and the Court of Appeal took the opposite view. The case reached the House of Lords on appeal.

Nature of the application and issues:

• (i) Whether s.63(1)–(2) of the Finance Act 1976 requires valuation of in-house benefits by reference to the marginal (additional) cost to the employer or to a proportion of total running costs (an average cost).
• (ii) Whether the courts may consult Parliamentary materials (Hansard) when construing legislation, and whether doing so would infringe article 9 of the Bill of Rights 1689 or Parliamentary privilege.

Court's reasoning and outcome:

• The majority concluded that the words of s.63(2) are ambiguous as between the marginal and average cost constructions. On the narrow question whether Hansard may be used, the House relaxed the previous exclusionary rule but only in limited circumstances: where the legislation is ambiguous or obscure or the literal meaning leads to an absurdity, and where ministerial statements (or other promoter statements) plainly disclose the legislative intention on the specific issue.
• The House held that ministerial assurances given during the passage of the Finance Act 1976 showed Parliament intended in-house benefits to be assessed by reference to the marginal cost to the employer. Article 9 did not prevent the court from using such ministerial statements for interpretation. Applying that construction, the taxpayers' benefit amounted to no taxable cash equivalent in the circumstances and the appeals were allowed.

Appeal allowed. The House held (1) that, in a limited class of cases where statutory language is ambiguous, obscure or would lead to a manifest absurdity, courts may consult Parliamentary materials, but only where those materials contain clear statements by the Minister or promoter directed to the precise question; (2) applying that principle to s.61 and s.63 of the Finance Act 1976, the legislation should be construed to tax in-house benefits by reference to the marginal cost to the employer rather than an average or open-market cost; accordingly the tax assessments were not justified on the facts.

Special Commissioner decided for the taxpayers ([1990] S.T.C. 6). Vinelott J. for the Crown at first instance ([1990] 1 W.L.R. 204). Court of Appeal affirmed the Crown ([1991] Ch. 203). Appeal to the House of Lords ([1992] UKHL 3) where the appeals were allowed.