The Court of Appeal has held in J P Whitter (Waterwell Engineers) Limited v The Commissioners for Her Majesty's Revenue and Customs [2016] EWCA Civ 1160 that when a public body such as Her Majesty's Revenue and Customs ("HMRC") decides whether to exercise its discretion in a certain manner, claims of hardship by an individual or entity are unlikely to convince a Court to 'read in' further obligations upon the public body where the relevant statute has been narrowly defined by Parliament. The Courts are also unlikely to find there to be a lack of proportionality by the public body in complying with its obligations, save in exceptional circumstances.  

Key points:  

  • A prescriptive statutory regime will leave little room for the Courts to impose further conditions on a public body when that body exercises a discretionary power.

  • Any assertion by an individual or entity alleging lack of proportionality by a public body would have to be exceptional to succeed. This includes arguments alleging lack of proportionality based on breach of the right to property under the European Convention on Human Rights.


The appellant was a family-run water well engineering company operating on a UK-wide basis ("Whitter"). It was registered to enable it to make gross payments to contractors under the Construction Industry Scheme ("CIS"). The CIS was introduced to counter widespread tax evasion by subcontractors in the construction industry. Registration gives such subcontractors a cash flow advantage.

Registration with the CIS was subject to annual review by HMRC to ensure compliance with certain conditions. Under section 66(1)(a) of the Finance Act 2004 ("FA 2004"), HMRC has a discretion to cancel a registration for gross payment if, were an application to register for gross payment to be made at that time, it would be refused. Whitter failed its annual review due to late PAYE payments 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 trivial nature of the breach of conditions. Without gross payment status the company could not tender for certain contracts and would lose a significant portion of its work, which was likely to result in redundancies. The Upper Tribunal found in favour of HMRC. Whitter then appealed to the Court of Appeal, arguing that the Upper Tribunal's decision should be overturned on the basis of two grounds:

  1. as a matter of statutory construction, section 66 of FA 2004 should be read so as to require or to allow HMRC to take into account the impact on Whitter;
  2. when exercising its discretion to cancel the registration for gross payment under the CIS, HMRC must do so proportionately, and so it should have considered the impact on Whitter as a matter of common law and human rights law.


Whitter's appeal was dismissed unanimously on both grounds.

Statutory construction

The Court of Appeal found that section 66 of FA 2004 neither authorises nor requires HMRC to take into account the likely impact on the taxpayer's business when deciding whether to cancel its registration for gross payments. In coming to this conclusion, the Court drew attention to the highly prescriptive nature of the legislation and found that if Parliament had intended that HMRC should take into account the impact on a taxpayer's business when cancelling any registration, Parliament would have expressly included this consideration in "such a prescriptive and closely-textured" regime. The Court also concluded that some guidance would have been given as to how such a difficult task was to be performed. The Court stated that while HMRC was afforded a degree of latitude as to how it collects tax under the Taxes Management Act 1970, the context of those powers were far removed from the instant case which was to be construed as part of a closely articulated code designed to combat tax evasion.


The Court of Appeal held that the common law principle of proportionality did not assist Whitter in this case, as the CIS legislation was proportionate in that it strikes a balance between 'the ends and the means'. The regime had procedural safeguards for the taxpayer built into it, the conditions for compliance were all in the taxpayer's power, and the consequences for non-compliance were clearly spelt out in the legislation.

The Court considered Article 1 of the First Protocol of the European Convention on Human Rights ("A1P1"). A1P1 articulates a right to property, and two types of property were identified in this case: (i) the registration for gross payment, and (ii) the contractual rights of a subcontractor to be paid the full contract price, without any deduction in respect of tax. The Court agreed with Whitter that A1P1 had to be considered because cancellation would involve interference with its property rights. However, the Court found that the proportionality review need not go beyond what was already included in the CIS regime.

The Court stated that it has not ruled out the possibility of exceptional circumstances justifying a wider proportionality test, but this case did not form such an exception. The nature of the registration was to give businesses a cash flow advantage. Therefore, it was probable that cancellation of registration would seriously affect the taxpayer's business, which was the main basis of Whitter's arguments. The Court noted that the result may seem harsh, but a degree of harshness in a regime which was designed to counter tax evasion and where continued compliance was within the power of the subcontractor could not be characterised as disproportionate.


This Court of Appeal judgment demonstrates that claims of hardship by an individual or entity are unlikely to convince a court to 'read in' further obligations upon a public body where the relevant statutory regime has been narrowly defined by Parliament. In particular in cases involving statutory regimes which are designed for clear public interest purposes, such as in this case to counter tax evasion, the Courts will be particularly reluctant to construe legislation or common law powers in such a way so as to find in favour of the affected individual or entity.