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JP Whitter (Water Well Engineers) Limited v. Commissioners for Her Majesty’s Revenue and Customs - (13 Jun 2018)

Registration is a privilege which has significant economic advantages, but it is subject to stringent conditions and risk of cancellation


Present appeal raises a short question on the operation by the Respondent Commissioners (“HMRC”) of the Construction Industry Scheme under the Finance Act 2004 (“the Act”). The Appellant Company (“the Company”) was registered for gross payment under the scheme. As is now accepted, it failed to comply with the requirements of the scheme without reasonable excuse. In consequence, on 30 May 2011, Her Majesty’s Revenue and Customs (HMRC) exercised their power under the Act to revoke its registration. In doing so, they took no account of the likely effect of their action on the company’s business.

The Company contends that, this represented a failure to take account of a material consideration, in breach of both domestic public law, and of the European Convention on Human Rights (“the Convention”). The Company’s appealed to the First-tier Tribunal (“FTT”) which accepted the company’s evidence that the cancellation, once it took effect, would have had a seriously detrimental impact on the company. The FTT allowed the company’s appeal, holding that HMRC had been wrong not to take account of the likely impact on the company’s business. However, that decision was overturned by the Upper Tribunal with which the Court of Appeal agreed. The company now appeals to the Supreme Court.

Where registration for gross payment is cancelled under Section 66(1), the person must be registered for payment under deduction (Section 66(6)). He may not reapply for registration for gross payment for one year after the cancellation takes effect (Section 66(8)), but the effect of the cancellation is suspended pending determination of an appeal (Section 67(5)).

By Section 67, a person aggrieved by cancellation of registration may appeal by notice given to HMRC within 30 days. Provision for HMRC review or determination by the tribunal are set out in Sections 49Aff of the Taxes Management Act, 1970/1970 Act. A favourable conclusion on HMRC review is treated as if it were an agreement for settlement under Section 54, and so equivalent to a determination of the appeal (Section 49F(2)). As already seen, the first two cancellations were disposed of in this way. However, on the third occasion, HMRC maintained its position and the appeal accordingly was referred to the Tribunal. Section 102 of the 1970 Act gives HMRC a general power “in their discretion [to] mitigate any penalty”. It is not however suggested that, cancellation of registration can be treated as a “penalty” within this provision.

The discretion does not extend to consideration of matters which relate neither to the requirements for registration for gross payment, nor to the objective of securing compliance with those requirements. The scheme is highly prescriptive, setting out narrowly-defined conditions for registration in the first place, including a record of tax compliance. The same conditions are brought into the cancellation procedure by Section 66. The mere fact that, the cancellation power is not itself mandatory is unsurprising. Some element of flexibility may be desirable in any enforcement regime to allow for cases where the failure is limited and temporary (even if not within the prescribed classes) and poses no practical threat to the objectives of the scheme. It is wholly inconsistent with that, tightly drawn scheme for there to be implied a general dispensing power such as implied by the company’s submissions.

Even accepting that rights conferred by registration amount to “possessions”, they cannot extend beyond the limits set by the legislation by which they are created. Registration is a privilege conferred by the legislation, which has significant economic advantages, but it is subject to stringent conditions and the risk of cancellation. The impact on the company is no different in kind from that which is inherent in the legislation. The exercise of the power within the scope of the statutory framework comes well within the wide margin of appreciation allowed to the state for the enforcement of tax. Appeal dismissed.


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