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

A statutory discretion must be exercised consistently with the objects and scope of its statutory scheme. Under the Construction Industry Scheme, the discretion to cancel gross-payment registration concerns matters related to the registration requirements and the objective of securing compliance. It does not confer a general power to dispense with those requirements because cancellation may seriously affect a business.

Cancellation for established non-compliance is proportionate under Article 1 of the First Protocol where its economic consequences are of a kind inherent in the statutory regime. The Convention does not require the decision-maker to assess the particular commercial impact when the legislation itself imposes no such requirement and the measure falls within the state’s wide margin in enforcing taxation.

The appellant company was registered for gross payment under the Construction Industry Scheme. After repeated late PAYE payments, HMRC cancelled its registration under section 66 of the Finance Act 2004. It was accepted that the company had failed to comply with the scheme without reasonable excuse. HMRC did not consider the likely effect of cancellation upon its business.

The First-tier Tribunal allowed the company’s appeal: [2012] UKFTT 639 (TC). The Upper Tribunal reversed that decision: [2015] UKUT 0392 (TCC). The Court of Appeal upheld the Upper Tribunal: [2016] EWCA Civ 1160.

The Supreme Court considered whether the section 66 discretion required HMRC to take account of the commercial consequences of cancellation, either under domestic public law or under Article 1 of the First Protocol to the European Convention on Human Rights.

1. The appeal was dismissed unanimously. Lord Carnwath delivered the judgment, with which Lord Mance, Lord Sumption, Lord Lloyd-Jones and Lord Briggs agreed.

2. Every statutory discretion must be exercised consistently with the objects and scope of its statutory scheme. The discretion under section 66 of the Finance Act 2004 was therefore not unfettered. It extended only to matters relating directly or indirectly to the requirements for gross-payment registration and the objective of securing compliance with them.

3. The Construction Industry Scheme was tightly drawn and highly prescriptive. Compliance with tax and other statutory obligations was a mandatory condition of initial registration. Section 66 brought the same conditions into the cancellation process. Its discretionary language allowed HMRC to accommodate limited and temporary failures which posed no practical threat to the scheme’s objectives. It did not create a general dispensing power based upon the commercial consequences of cancellation.

4. It was unnecessary to decide whether cancellation interfered with a possession protected by Article 1 of the First Protocol. There was force in the argument that statutory registration rights could not extend beyond the legislative conditions by which they were created. Assuming an interference, however, cancellation was proportionate.

5. Registration for gross payment was a statutory privilege carrying significant economic advantages, but it was subject to stringent conditions and the risk of cancellation. The company’s alleged losses differed neither in nature nor kind from consequences inherent in the scheme. Once the statute was correctly construed as imposing no duty to consider the effect upon an individual taxpayer, Article 1 of the First Protocol did not justify reading in such a duty. Exercise of the cancellation power within the statutory framework fell well within the state’s wide margin in enforcing taxation.

1. United Kingdom Supreme Court: The company’s appeal was dismissed unanimously: [2018] UKSC 31.
2. Court of Appeal: The court upheld the Upper Tribunal’s conclusion that HMRC was not required to consider consequences extraneous to the Construction Industry Scheme: [2016] EWCA Civ 1160.
3. Upper Tribunal: The tribunal reversed the First-tier Tribunal’s decision: [2015] UKUT 0392 (TCC).
4. First-tier Tribunal: The tribunal allowed the company’s appeal, holding that HMRC should have considered the likely impact of cancellation upon the business: [2012] UKFTT 639 (TC).