Barnes (HMIT) v Hilton Main Construction

For a construction-industry tax certificate, past failures to comply with tax obligations engage two separate requirements: the failures must be minor and technical, and they must not give reason to doubt future compliance. A tribunal cannot replace that statutory scheme with a general test of proportionality based on the consequences for an individual business. The Convention assessment concerns the statutory scheme as a whole, and Parliament’s choice of solution is entitled to judicial respect where it has a reasonable foundation. A court cannot use section 3 of the Human Rights Act 1998 to tailor the legislation to a hard case. Where the statutory conditions are not met, an appeal on a point of law may result in the certificate being quashed.

The Inland Revenue appealed by way of case stated from the General Commissioners’ decision allowing Hilton Main Construction’s appeal against refusal to renew its construction-industry scheme certificate. The company had made repeated late payments of PAYE, National Insurance, CIS liabilities and corporation tax during the relevant qualifying period.

The Commissioners accepted that the defaults were not minor and technical, but allowed the appeal because refusal would allegedly close the business and put employees’ jobs at risk. The central issues were whether the statutory conditions imposed two cumulative hurdles, whether proportionality could be applied independently of the statutory scheme, and what remedy followed from the Commissioners’ error of law.

1. Appeal allowed. The General Commissioners had erred in law and the certificate was quashed.
2. Section 565(4) imposed two separate requirements where there had been past failures: the failures had to be minor and technical, and they had not to give reason to doubt future compliance with the conditions in section 565(8). Since the Commissioners accepted that the late payments were neither minor nor technical, the company could not satisfy the statutory condition.
3. The statutory scheme was Convention-compliant when considered as a whole. It pursued the objectively justifiable aim of recovering tax from construction-industry sub-contractors, while allowing exemption for those with a sufficiently good compliance record. The scheme also accommodated minor and technical failures, allowed the Commissioners to substitute their own view, and permitted a fresh application after improved performance.
4. The principles concerning peaceful enjoyment of possessions, taxation and fair balance stated by the European Court of Human Rights in National & Provincial Building Society and Others v The United Kingdom [1997] 25 EHRR 127 were applied. The court’s review was limited to deciding whether the legislative solution lacked a reasonable foundation. It did not.
5. The refusal to renew a certificate did not infringe Convention rights. Consequently, there was no occasion to use section 3 of the Human Rights Act 1998. Section 3 did not authorise the court to introduce a general proportionality test or tailor the statutory scheme to an individual hard case. Such policy choices were matters for Parliament.
6. Following Hudson v JDC Services Ltd [2004] STC 834, the statutory construction was upheld. The proper remedy for the Commissioners’ legal error was to allow the appeal and quash the certificate.

1. General Commissioners for Income Tax: allowed the taxpayer’s appeal against refusal to renew the certificate, applying a proportionality assessment based on the consequences of refusal.
2. High Court (Chancery Division): allowed the Inland Revenue’s appeal by way of case stated, held that the Commissioners had erred in law, and quashed the certificate.