Beech Developments (Manchester) Limited & Ors v The Commissioners for HMRC

The second limb of regulation 13(3) of the Income Tax (Construction Industry Scheme) Regulations 2005 does not prevent HMRC from making a regulation 9(5) direction after a regulation 13 determination. It prevents the direction from operating against the relevant amount while the determination remains extant. Once the determination is adjusted, reduced or cancelled, the direction may operate. The regulations impose no requirement that an application under regulation 9 be made before a determination, or that HMRC give a prior warning. An interpretation that would nullify an appeal right or make liability depend on HMRC discretion requires clear words. The appeal was allowed.

Six related companies failed to operate the Construction Industry Scheme on payments to a related subcontractor. HMRC issued determinations under regulation 13 of the Income Tax (Construction Industry Scheme) Regulations 2005. The companies later sought a direction under regulation 9, relying on condition B, but HMRC refused to consider the claim because determinations had already been issued.

Fordham J dismissed the companies’ judicial review claim: [2023] EWHC 977 (Admin). The Court of Appeal considered whether regulation 13(3) prevented a regulation 9 direction being made while a determination remained capable of appeal or adjustment.

Disposition. Falk LJ gave the leading judgment, with Lewison LJ and Underhill LJ agreeing. The appeal was allowed. HMRC’s decision refusing to consider the regulation 9 claim was quashed, and HMRC were required to reconsider it in accordance with the court’s decision.

1. The second limb of regulation 13(3) does not remove the power under regulation 9(5) to make a direction after a regulation 13 determination. It means that the direction cannot operate against an amount covered by the determination while that determination remains extant.
2. The apparent symmetry between the two limbs of regulation 13(3) is not decisive. A regulation 9 direction is final under the CIS regulations. A regulation 13 determination may be adjusted, including to nil, through the appeal process under the Taxes Management Act 1970. It becomes final only when the appeal period expires or an appeal is finally determined, including by agreement under section 54.
3. The regulations contain no temporal restriction requiring regulation 9 to be invoked before a determination, or requiring HMRC to give a warning. Regulation 9 contains the power to make a direction, while regulation 13 governs the interaction between directions and determinations actually made.
4. An appeal against a determination may raise the question whether a regulation 9 direction should be made. Once that question is resolved, the determination can be adjusted so that it excludes the amount covered by the direction. This applies to both condition A and condition B, although the available routes for resolving the dispute differ.
5. HMRC’s construction could nullify an appeal to the First-tier Tribunal and usurp its function. That result required clear words, consistently with the principles discussed in R (UNISON) v Lord Chancellor [2017] UKSC 51. HMRC’s collection and management powers under section 5 of the Commissioners for Revenue and Customs Act 2005 could not provide a proper substitute. The court also proceeded without relying on any unilateral power to withdraw a notified determination, leaving that issue undecided.

North Point (Pall Mall) Ltd v HMRC [2021] UKFTT 0259 (TC) and earlier First-tier Tribunal decisions proceeding on the contrary interpretation were wrong and should not be followed.

• Court of Appeal (Civil Division): On 9 May 2024, allowed the appeal, quashed HMRC’s refusal decision and required reconsideration.
• High Court of Justice, King’s Bench Division, Administrative Court: Fordham J dismissed the judicial review claim: [2023] EWHC 977 (Admin).