The General Commissioner had held that an inspector’s refusal to renew a certificate allowing the taxpayer construction company to pay its sub-contractors without deducting income tax, infringed that company’s rights. The inspector appealed.
Held: The certificate itself would be a possession within the Convention, but the right to have it re-issued was not such a right in property. The requirement to deduct sums for tax did deprive the sub-contractors of a possession. However a state enjoys a wide margin of appreciation in taxation matters. An interference with property to ensure payment of tax could be justified. The provisions were not arbitrary or excessive, and need not be read down to make them compliant. The decision of the general commissioners was wrong and was set aside.
Ferris J said: ‘It became notorious during the latter part of last century that many sub-contractors engaged in the construction industry disappeared without settling their tax liabilities with a consequential loss of revenue to the Exchequer. In order to remedy that abuse Parliament enacted legislation going back to the early 1970s under which a contractor is obliged except in the case of a sub-contractor who holds a relevant certificate to deduct and pay over to the Revenue a proportion of all payments made to the sub-contractor in respect of the labour content of any sub-contract. The amount so deducted and paid over is in due course allowed as a credit against the sub-contractors liability to the Revenue. The need to make and pay over such deductions can be an irritation to the contractor obliged to carry out this exercise. It also adversely effects the cash flow of the sub-contractor. Accordingly it is advantageous to a sub-contractor to have a statutory certificate rendering such a deduction unnecessary. The provision of such a certificate tends to make the sub-contractor holding the certificate a more attractive party for the contractor to deal with and by enabling the sub-contractor to receive the contract price without deduction improves the sub-contractor’s case flow.
The legislation which governs the present regime is now contained in sections 559 to 567 of the Income and Corporation Taxes Act 1988. The basic requirement is imposed by section 559. It imposes the general requirement on a contractor to make deductions from payments made to a sub-contractor and to pay over to the Revenue the amounts deducted. The current percentage required to be deducted is 18 per cent. The section also prescribes how such amounts are to be treated in the hands of the Revenue.
Section 561 provides an exception from the requirements of section 559. In the case of a payment made to a sub-contractor who holds a certificate under section 561 which is in force when the payment is made the issue of such a certificate is governed by section 561 itself. In order to be entitled to the grant of a certificate the taxpayer must satisfy certain conditions. In the case of a company the conditions are those set out in section 565.’
Ferris J
Times 27-Dec-2002, [2002] EWHC 2659 (Ch), [2002] STC 1544
Bailii
Income and Corporation Taxes Act 1988 561 565, European Convention on Human Rights
England and Wales
Cited by:
Cited – Tom Hudson (HM Inspector of Taxes) v JDC Services Limited ChD 26-Mar-2004
The taxpayer company had been refused a statutory Construction Industry Scheme certificate. The General Commissioners allowed the company’s appeal and itself issued a certificate. The revenue said the Commissioners had no jurisdiction either to hear . .
Cited – HM Inspector of Taxes v CBL Cable Contractors Ltd ChD 23-Jun-2005
. .
Cited – JP Whitter (Water Well Engineers) Ltd v Revenue and Customs SC 13-Jun-2018
The taxpayers registration under the Construction Industry Scheme had been withdrawn. The Court was now asked whether HMRC are obliged, or at least entitled, to take into account the impact on the taxpayer’s business of the cancellation of its . .
Lists of cited by and citing cases may be incomplete.
Updated: 27 July 2021; Ref: scu.178617