JP Whitter (Water Well Engineers) Limited v Commissioners for Her Majesty’s Revenue and Customs

The appeal concerned the scope of the discretionary power in section 66(1) of the Finance Act 2004 to cancel registration for gross payment under the Construction Industry Scheme (Part 3, Chapter 3). The company argued that HMRC were obliged to take into account the likely practical effect on its business before cancelling registration and relied also on Article 1 of Protocol 1 (A1P1) to the European Convention on Human Rights. The Supreme Court held that the discretion in section 66(1) must be exercised consistently with the objects and the tightly drawn requirements of the statutory scheme (including the compliance test in Part 3 of Schedule 11 and related provisions such as sections 60, 61, 63, 64 and 67). Matters extraneous to the statutory requirements for registration, such as the anticipated adverse commercial impact on the business, are not required considerations. The court also held that, even if A1P1 were engaged, the interference was proportionate and fell within the wide margin of appreciation afforded to the state in fiscal matters.

The appellant, a family-run water well engineering company registered for gross payment under the Construction Industry Scheme (CIS), appealed the cancellation of its gross payment registration by HMRC on the ground that HMRC failed to take account of the likely effect of cancellation on its business. The factual background included repeated late PAYE payments between August 2010 and March 2011 and prior reviews of registration; the First-tier Tribunal allowed the company’s appeal, finding likely severe business consequences if cancellation took effect. HMRC successfully resisted that conclusion before the Upper Tribunal and the Court of Appeal.

The company sought to quash the cancellation, contending that (i) section 66(1) confers an unfettered discretion which, absent express limitation, requires consideration of the practical consequences for the taxpayer; and (ii) cancellation disproportionately interfered with possessions within the meaning of Article 1 of the First Protocol (A1P1).

The issues identified by the court were whether the discretion in section 66(1) extends to matters extraneous to the statutory requirements for registration, in particular commercial impact on the business, and whether A1P1 required an individualised proportionality assessment taking account of such impact. The court reviewed the statutory scheme (Finance Act 2004 Part 3 Chapter 3, Schedule 11 para 12 compliance test, and related provisions including sections 60, 61, 63, 64, 66 and 67) and relevant authorities on proportionality and fiscal margin.

The Supreme Court concluded that any statutory discretion must be exercised consistently with the objects and scope of the CIS regime and its tightly prescriptive conditions; it would be inconsistent with that scheme to imply a broad dispensing power requiring consideration of commercial impact unrelated to the statutory compliance test. On the Convention point, the court accepted that registration confers advantages but found it unnecessary to determine whether A1P1 was engaged because, in any event, the statutory regime and its effects are within the wide margin of appreciation afforded to states in tax matters and are proportionate. The appeal was dismissed.

Appeal dismissed. The court held that the discretion under section 66(1) of the Finance Act 2004 must be exercised within the objects and scope of the Construction Industry Scheme and does not require consideration of matters extraneous to the statutory requirements for registration (for example the likely commercial impact of cancellation). In addition, any interference with possessions under Article 1 of the First Protocol to the Convention was within the wide margin of appreciation in fiscal matters and, on the facts and statutory context, proportionate.

First-tier Tribunal allowed the appeal ([2012] UKFTT 639 (TC)); Upper Tribunal allowed HMRC's appeal ([2015] UKUT 0392 (TCC)); Court of Appeal dismissed the appellant's case ([2016] EWCA Civ 1160). The matter was then before the Supreme Court on appeal ([2018] UKSC 31).