For the tax period 2017/18 each of the claimant taxpayers made contract payments to the same sub-contractor without deducting the amount due on account of tax or making the required payments to the revenue pursuant to the provisions governing the Construction Industry Scheme contained in section 61 of the Finance Act 2004 and regulation 7(1) of the Income Tax (Construction Industry Scheme) Regulations 2005. An officer of the revenue issued a warning letter to the taxpayers, expressing the intention to raise liability determinations under regulation 13(2) for the amount which the taxpayers were liable to pay under the scheme unless the taxpayers could satisfy the officer that one of the criteria in regulation 9(3) or (4) for non-liability were met. The warning letter explained that if the officer was satisfied that the criteria of either regulation 9(3) or (4) were met, a non-liability direction pursuant to regulation 9(5) could be made but that, once a liability determination had been made, any further or new consideration of claims under regulation 9(3) and (4) would be prevented by the operation of regulation 13(3), the second limb of which provided, in respect of non-liability directions under regulation 9(5), that “directions under that regulation do not apply to amounts determined under this regulation”. Having received no response from the taxpayers within 60 days, the revenue officer issued a liability determination in each case. That decision was upheld on review despite the taxpayers raising arguments under regulation 9(3) and (4) disputing their liability, the revenue inspector concluding that it was too late to consider such representations. The taxpayers sought judicial review of the final decision on the ground that it was wrong in law for the revenue to treat the non-liability directions sought by the taxpayer as being precluded by the prior and extant liability determination. The taxpayers contended that, on the proper interpretation of regulation 13(3), even where a liability determination had already been made an officer could still make a non-liability direction under regulation 9(5) where satisfied as to one of the regulation 9(3) and (4) conditions, although the non-liability direction would remain dormant and thus “not apply” to the “amount determined” until the pre-existing and extant liability determination was withdrawn or reviewed by the revenue or determined anew in the First tier Tribunal.
On the claim for judicial review—
Held, claim dismissed. (1) Nothing in the statutory Construction Industry Scheme purported to restrict or exclude the public law duties of lawfulness, reasonableness and fairness which applied to the decisions of a revenue officer discharging statutory public functions under the Income Tax (Construction Industry Scheme) Regulations 2005. Those public law duties were enforceable at common law under the supervisory function of judicial review. Viewed in that context, the purpose of regulation 9 of the 2005 Regulations was not to provide exceptions under which the contractor was not liable to pay, but was rather to give to the revenue officer, if they had reason to believe that there was a shortfall in the amount due to be deducted under section 61 of the Finance Act 2004 and paid to the revenue pursuant to regulation 7(1) of the Regulations, a limited power to make a non-liability direction where satisfied that one of the conditions in regulation 9(3) or (4) applied. The non-liability direction therefore provided a form of relief from that amount which the contractor was otherwise liable to pay. The operation of that relief was achieved by the first limb of regulation 13(3), the mandatory language of which provided an impervious shield in respect of the “amount” which the revenue officer determined under regulation 9(1) as the “amount by which the deductible amount exceeds the amount actually deducted” but had directed under regulation 9(5) that the contractor was not liable to pay, thus precluding a liability determination from being made under regulation 13(2) which included that amount. Although the wording in the second limb was not expressed in the same mandatory terms, when properly interpreted in context the reference to the “amount” which was the subject of an existing liability determination under regulation 13(2), namely, that which the revenue officer determined was due to be deducted under section 61 of the 2004 Act and paid to the revenue under regulation 7(1), could not also be the subject “amount” of a non-liability direction. It followed that it was the prior and extant instrument which governed the position, precluding the other. Whilst it was possible in theory for the revenue to abuse its power by issuing a liability determination to prevent a non-liability direction from subsequently being made, against the constitutional backcloth, with its guarantees and safeguards in place, that power could not, in practice, be abused with impunity. Furthermore, the revenue retained the power to withdraw a liability determination, the exercise or not of which power was also amenable to legally enforceable public law duties of lawfulness, reasonableness and fairness. In those circumstances, there was no basis for an interpretation that a non-liability direction could be made but sit dormant until such time as a prior liability determination had been removed. Accordingly, the decision of the revenue to treat the existing and extant liability determination as preclusive of any non-liability direction involved no error of law (paras, 32, 41–47, 49–50, 54).
Philip Coppel KC and Charlotte Brown (instructed by Freeths LLP) for the claimants.
Philip Simpson KC (instructed by Solicitor, Revenue and Customs Commissioners) for the revenue.