JP Whitter (Water Well Engineers) Limited (Appellant) v Commissioners for Her Majesty’s Revenue and Customs (Respondent) [2018] UKSC 31

Key Points

  • The courts are unlikely to impose additional conditions on public bodies exercising a discretionary power under a prescriptive statutory regime.
  • Arguments alleging lack of proportionality by public bodies based on the right to property under Article 1 of the First Protocol of the European Convention on Human Rights (“A1P1“) in the context of taxation will only exceptionally fall outside of the state’s margin of appreciation.

The appellant was a family-run water well engineering company (“Whitter“). It was registered to enable it to receive gross payments from contractors under the Construction Industry Scheme (“CIS“). The CIS was introduced to counter widespread tax evasion by subcontractors in the construction industry. Only subcontractors with a good tax compliance record can obtain a gross payment registration, which gives subcontractors various advantages.

Under section 66(1)(a) of the Finance Act 2004 (“FA 2004“), HMRC has a discretion to cancel a registration for gross payment if the company does not meet the statutory conditions. The current appeal considered the scope of that discretion.

Whitter failed to make PAYE payments on time for three consecutive years, which led to the cancellation of the company’s gross payment status each time. Whitter appealed these decisions and the company’s CIS registration was reinstated on the first two occasions. However, HMRC refused to reinstate gross payment status on the third occasion because Whitter had failed to show a ‘reasonable excuse’ for failing to meet its PAYE obligations on time.

Whitter argued that this decision was disproportionate to the nature of the breach of conditions. Without gross payment status the company could not tender for certain contracts and would lose around 60% of its turnover, which was likely to result in the dismissal of about 80% of its employees. Whitter were successful at the First Tier Tribunal (Tax Chamber), but the Upper Tribunal and the Court of Appeal subsequently decided in favour of HMRC. Whitter then appealed to the Supreme Court on two grounds:

  1. When exercising its discretion under section 66 of FA 2004 the impact on Whitter should have been a relevant consideration for HMRC to take into account; and
  2. The decision to cancel the registration for gross payment under the CIS was a disproportionate interference with Whitter’s right to peaceful enjoyment of its possessions under A1P1.
Supreme Court Judgment

Whitter’s appeal was dismissed unanimously on both grounds.

Statutory construction / irrationality

Whitter argued that the section 66 discretion, absent specific restriction, must be an unfettered discretion. Contrary to the appellant’s argument, it is doubtful that any of HMRC’s discretions, however drafted, are truly ‘unfettered’ because every such discretion must be exercised lawfully and in accordance with the principles of administrative law, including procedural fairness, and in a manner that is not ‘irrational’ in the administrative law sense. The appellant suggested that HMRC’s behaviour in this instance was irrational, in that the impact of HMRC’s actions on the engineering company’s business was a relevant consideration which, if properly taken into account by HMRC, would have led them not to cancel the registration and it was therefore irrational for HMRC to ignore a relevant consideration. The Supreme Court rejected this argument, with Lord Carnwath (who gave the only judgment) saying he felt this approach “overlooks the basic principle that any statutory discretion must be exercised consistently with the objects and scope of the statutory scheme“. He cited with approval the Court of Appeal’s analysis of the statutory scheme as highly prescriptive, with narrowly defined conditions allowing no element of discretion in the conditions themselves.

Lord Carnwath agreed with the Court of Appeal that the limited discretion in section 66 itself did not extend to matters “which do not relate, directly or indirectly, to the requirements for registration for gross payment, and to the objective of securing compliance with those requirements”. There was therefore no requirement to give consideration to the impact on the taxpayer’s business when exercising the Section 66 discretion.


Whitter had also argued that the cancellation of the registration amounted to an interference with the possessions represented by either (a) the entitlement to the full contract price or (b) the bundle of rights inherent in registration, and is therefore caught by A1P1. It had been common ground before the Court of Appeal that both constituted possessions for the purposes of A1P1. However, A1P1 allows member states a wide margin of appreciation for the enforcement of tax, and the exercise of the section 66 power within the scope of the statutory framework was seen to be well within that margin. Registration was a privilege subject to stringent conditions and the cancellation was not therefore disproportionate.

The Supreme Court judgment confirms the approach taken in the Court of Appeal, which suggests that where public bodies are administering a narrowly defined statutory regime the courts will be reluctant to ‘read in’ further obligations on the decision-maker, especially where the additional considerations are not closely related to the objects and scope of the statutory scheme.



Andrew Lidbetter
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Nusrat Zar
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Heather Gething
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