Woolwich Equitable Building Society v Commissioners of Inland Revenue (R v Commissioners of Inland Revenue ex parte Woolwich Equitable Building Society)

The power in s 343(1A) of the Income and Corporation Taxes Act 1970 authorises regulations requiring building societies to pay an amount representing investors' income tax for a specified year. "On such sums as may be determined" means "by reference to such sums as may be determined". The Finance Act 1986 s 47(1) defines those determinable sums to include certain sums paid before the beginning of the year but not previously brought into account. Secondary legislation that, by its structure, fixes incompatible rates or otherwise alters the substantive scheme cannot be severed and is ultra vires.

The Woolwich challenged the validity of the Income Tax (Building Societies) Regulations 1986 (S.I. 1986 No. 482). The Regulations changed the basis and timing on which building societies accounted for amounts representing investors' income tax. The society argued that the regulations impermissibly taxed payments made in the period from the end of its accounting year up to the beginning of the new tax year (the "gap period") and that certain transitional provisions were ultra vires. The High Court (Nolan J) declared the regulations unlawful. The Court of Appeal reversed that decision ([1989] STC 463). The House of Lords heard full argument on construction of s 343(1A) as amended by Finance Act 1986 s 47(1), and on the effect and severability of Regulations 3 and 11 of the 1986 Regulations. The central issue was whether Parliament (expressly or by s 47(1)) authorised charging to the years 1986–87 and thereafter sums relating to payments in the gap period and whether the relevant regulatory provisions could stand if part was ultra vires.

1. Disposition: Appeal allowed for the applicant building society; the House gave judgment against the Crown (unanimously). (Per Lord Oliver, with Lords Keith and Brightman agreeing; Lords Goff and Lowry delivered concurring reasoning.)
2. Statutory construction: Per Lord Oliver (leading speech): s 343(1A) authorises regulations requiring a building society to account for and pay an amount "representing income tax" for identified years of assessment. The modifying phrase "on such sums as may be determined" is most naturally read as "by reference to such sums as may be determined". That construction confines the authority to measure the investors' tax for the identified year. (See discussion at pages 597–607 and 620–621.)
3. Effect of s 47(1) Finance Act 1986: The House addressed the retrospective words inserted by s 47(1). Lord Oliver considered that those words were intended to enable the Treasury/Board to take into account and charge sums paid in the gap period; he accepted that Parliament deliberately used those words and that they could bear the meaning relied on by the Revenue. (See pages 607–609.) Lord Lowry, while analysing the same words in detail, concluded differently on effect and construction and thought the amendment did not validate the tax sought; he nevertheless agreed the regulations were defective. The narrowest common ground on which the House disposed of the dispute was that, although the statutory authority in principle extends to regulation-making for specified years, key elements of the 1986 Regulations were invalid because they either fixed incompatible rates or could not be severed without changing the substance of the instrument.
4. Severance and invalidity of regulations: Regulation 11(4) expressly specified rates in a way admitted by the Revenue to be ultra vires. The House held that the invalid provision infected Regulation 11 as a whole. Regulation 3 was also ultra vires so far as it sought to require payment in respect of payments after February and before 6 April 1986. The draftsman’s scheme depended on the invalid part and, when excised, would leave a substantively different provision which the court could not re-write. The proper remedy was to declare those parts void; it is for the Revenue to make fresh valid provision. (Per Lord Oliver, and supported by Lords Goff and Lowry; see pages 613–620 and 621–631.)
5. Practical result: The Woolwich succeeded in the challenge to the 1986 Regulations so far as Regulation 11 and parts of Regulation 3 related to the gap period and to payments after February 1986 and before 6 April 1986. The House allowed the appeal and granted appropriate relief (declaration of invalidity) and costs against the Crown.

• High Court (QBD, Nolan J): Declared Regulations unlawful in part; [1987] STC 654.
• Court of Appeal: Reversed Nolan J, held s 47 words covered the case; [1989] STC 463 (Sir Nicolas Browne-Wilkinson V-C).
• House of Lords: Appeal allowed; declared parts of the 1986 Regulations ultra vires and void (Lord Oliver leading; judgment given 25 October 1990).