Beech Developments (Manchester) Limited & Ors., R (on the application of) v Commissioners for HMRC

Under the Construction Industry Scheme, a prior and extant liability determination precludes a subsequent non-liability direction in respect of the same amount. The expressions “must not include” and “do not apply to” in regulation 13(3) perform the same practical function because each instrument must identify an amount to which it relates.

The regulation 9(3) and (4) bases are routes to relief through a non-liability direction. They do not provide independent grounds for reducing liability in an appeal against a liability determination. The statutory scheme remains subject to public law duties of lawfulness, reasonableness and fairness, enforceable by judicial review.

The claimants, six companies in the same corporate group, made construction-industry contract payments without deducting sums required under the Construction Industry Scheme. HMRC subsequently issued liability determinations under regulation 13(2) of the Income Tax (Construction Industry Scheme) Regulations 2005.

The claimants later sought non-liability directions under regulation 9(3) and (4), relying on the carefulness and collection bases. HMRC refused to consider the requests, relying on regulation 13(3)(ii). The claim for judicial review alleged that this interpretation involved an error of law. The central issue was whether a prior and extant liability determination precluded a later non-liability direction concerning the same amount.

1. Claim dismissed. HMRC’s interpretation of regulation 13(3)(ii) involved no error of law. The claimants were ordered to pay HMRC’s costs, and permission to appeal was granted.
2. Regulation 7(1) imposes the primary liability to pay the deductible amount. Regulation 9 is a special mechanism for relief from that liability. A contractor is excused on the carefulness, chargeability or collection bases only through a non-liability direction under regulation 9(5).
3. Regulation 13(3) operates symmetrically. Limb (i) prevents a liability determination from including an amount already covered by a non-liability direction. Limb (ii) prevents a non-liability direction from applying to an amount already determined under regulation 13. The different wording does not create different legal consequences because “include”, “determine”, “in respect of” and “apply to” identify the amount that is the subject of the relevant instrument.
4. The contrary “hibernating” or “inchoate” direction analysis was rejected. It would give regulation 13(3)(ii) an artificial meaning and would undermine the statutory scheme by allowing a later direction to reverse the priority expressly given to an extant liability determination.
5. The regulation 9(3) and (4) bases cannot be raised directly as independent grounds in a regulation 13(5) appeal. Otherwise there would be a backdoor appeal on the collection basis, contrary to the structure of regulation 9. The FTT authorities were correctly decided on that issue.
6. The statutory functions remain subject to public law duties of lawfulness, reasonableness and fairness. HMRC has an ongoing power to withdraw a liability determination, and the High Court’s supervisory jurisdiction remains available to prevent abuse. No such public law challenge was advanced on the facts of this claim.

This was a first-instance judicial review in the Administrative Court. Permission to appeal was granted on the question whether a prior and extant liability determination precludes a subsequent non-liability direction concerning the same amount.