© 2024 by Michael Firth KC, Gray's Inn Tax Chambers
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Procedure.Tax
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N2 - 1: Interpretation of legislation
Modern approach to drafting legislation
"[13] The correctness of this approach is reinforced, to my mind, by the fact that the new code of entrepreneurs' relief is drafted in the modern style associated with the Tax Law Rewrite Project. [Counsel for the taxpayer], who has appeared for the Trustees at all three hearings, opened his oral submissions to us by helpfully reminding us of what Lord Carnwath JSC said in relation to the Tax Law Rewrite Project in R (on the application of Derry) v Revenue and Customs Commissioners [2019] UKSC 19, [2019] 1 WLR 2754, at [7] to [10]. Lord Carnwath quoted from the explanation of the drafting approach for the project given by the then Financial Secretary to the Treasury in 2009, at [8]:
"The project now has a well-established approach to rewriting legislation, developed with the help of people whom it has consulted over a number of years. It restructures legislation to bring related provisions together and to provide more logical ordering. It also helps users by providing navigational aids, such as signposts, to make relevant parts of the legislation easier to find, and it has introductory provisions to set the scene. It unpacks dense source legislation by using shorter sentences and, where possible, it harmonises definitions. It uses modern language and helps the reader with aids such as formulae, tables and method statements, when appropriate."
[14] Lord Carnwath also quoted from, and endorsed, the guidance given by Sales J (as he then was) in Eclipse Film Partners (No.35) LLP v Revenue and Customs Commissioners [2014] STC 1114 at [96], where he "likened the correct approach to statutory interpretation to that appropriate to a consolidation statute (as explained by the House of Lords in Farrell v Alexander [1977] AC 59)":
"When construing a consolidating statute, which is intended to operate as a coherent code or scheme governing some subject matter, the principal inference as to the intention of Parliament is that it should be construed as a single integrated body of law, without any need for reference back to the same provisions as they appeared in earlier legislative versions … An important part of the objective of a consolidating statute or a project like the Tax Law Rewrite Project is to gather disparate provisions into a single, easily accessible code. That objective would be undermined if, in order to interpret the consolidating legislation, there was a constant need to refer back to the previous disparate provisions and construe them."
[15] Although the entrepreneurs' relief code did not, as I understand it, form part of the Tax Law Rewrite Project as such, the fact that it was drafted in the modern style to which the Financial Secretary referred in 2009, and the fact that it was inserted into a consolidation statute, mean in my judgment that we should be guided by similar principles when construing it. We should also remember that, as Lord Carnwath put it in Derry at [10]:
"… the resulting statutes are intended to be relatively easy to use, not just by professionals but also by the reasonably informed taxpayer, and that the signposts are there for a purpose, in particular to give clear pointers to each stage of the taxpayer's journey to fiscal enlightenment."" (The Quentin Skinner 2015 Settlement L v. HMRC [2022] EWCA Civ 1222, Henderson, Lewison, Snowden LJJJ)
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Ordinary meaning
- What would a reasonable legislature be seeking to convey with the words used?
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"[31] Statutory interpretation involves an objective assessment of the meaning which a reasonable legislature as a body would be seeking to convey in using the statutory words which are being considered. Lord Nicholls, again in Spath Holme, 396, in an important passage stated:
“The task of the court is often said to be to ascertain the intention of Parliament expressed in the language under consideration. This is correct and may be helpful, so long as it is remembered that the ‘intention of Parliament’ is an objective concept, not subjective. The phrase is a shorthand reference to the intention which the court reasonably imputes to Parliament in respect of the language used. It is not the subjective intention of the minister or other persons who promoted the legislation. Nor is it the subjective intention of the draftsman, or of individual members or even of a majority of individual members of either House. … Thus, when courts say that such-and-such a meaning ‘cannot be what Parliament intended’, they are saying only that the words under consideration cannot reasonably be taken as used by Parliament with that meaning.” (R (oao O) v. Secretary of State for the Home Department [2022] UKSC 3, Lord Hodge)
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- Use of dictionaries
"[22] If there were any real doubt as to the ordinary relevant meaning of the word, I can see no reason why one should not turn to dictionaries to dispel it. This is a well established technique of statutory construction, recognized in Bennion on Statutory Interpretation (at section 24.23): "Dictionaries may be consulted to ascertain the meaning of terms …".
[23] Among the definitions of a "mast" in the Oxford English Dictionary is "[a] pole resembling the mast of a ship; e.g. the tall upright pole of a derrick or similar machine". The corresponding definition in the Shorter Oxford English Dictionary is "2. A pole; a tall pole or other slender structure set upright for any purpose; esp … (b) a post or latticework upright supporting a radio or television aerial"; in the online Oxford English Dictionary, "[an] upright pole or similar vertical structure resembling a ship's mast, esp. one supporting a flag, lightning conductor, broadcasting aerial, etc.; such a pole or structure forming part of a building, crane, etc. Also: a construction, often taking the form of a latticework tower or tripod, erected on a ship for various purposes, such as radio transmission, etc."; and in the online Oxford Living Dictionaries, "[a] tall upright post on land, especially a flagpole or a television or radio transmitter". Other dictionaries define the word in a similar way. For example, in the online Chambers Dictionary the relevant definition is "any upright wooden or metal supporting pole, especially one carrying the sails of a ship, or a radio or television aerial", and in Chambers English Dictionary, "any sturdy upright pole used as support". And Collins Dictionary states that "a radio mast is a tall upright structure that is used to transmit radio or television signals". Mr Parkinson emphasized the evolution of the word's meaning to reflect changes in technology. He drew attention, for example, to uses given in the Oxford English Dictionary: "any structure used to raise and support the aerial wires" (1924), and "[a] spar for the support of an antenna" (1956)." (R (oao Mawbey) v. Cornerstone Telecommunications Infrastructure Ltd [2019] EWCA Civ 1016, Lindblom LJ)
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Attributes on which the dictionaries converge
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"[24] In the relevant sense of the word, the dictionary definitions converge. A "mast" is an upright pole or lattice-work structure, whose function is to support an antenna or aerial. Some of the definitions refer to height, or tallness, as a characteristic of a "mast"; others do not. But this is not an attribute common to all definitions, whereas uprightness, or verticality, clearly is. Tallness may be in the nature of a mast erected on the ground, but is not necessarily so for a mast mounted on a building. So, for example, the online Oxford Living Dictionaries refers to "a tall upright post on land", while the online Oxford English Dictionary refers to "an upright pole or similar vertical structure …, esp. such a pole or structure forming part of a building" (my emphasis)." (R (oao Mawbey) v. Cornerstone Telecommunications Infrastructure Ltd [2019] EWCA Civ 1016, Lindblom LJ)
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- Use context to decide between more than one ordinary meaning
"[31] HMRC’s approach involves an assumption either that their preferred meaning is the ordinary meaning of the word, or that where there are two ordinary meanings for a word the wider meaning should be taken to be the ordinary meaning. Neither assumption is justified. In this case the Court of Appeal identified two possible ordinary meanings of both the words “tunnel” and “aqueduct”, not one such meaning. Where there are two ordinary meanings there is no reason for making an a priori assumption that the wider meaning should be taken. There is nothing in List B Items 1 to 6 to indicate an intention to cast the net as widely as possible, and the existence of Item 7 indicates that there was no need to do so. Nor is this approach justified by the suggested mischief. Drawing a ‘line in the sand’ or a clear boundary may well have been Parliament’s intention but that does not assist in identifying where that line or boundary has been drawn.
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[33] Where there are two possible ordinary meanings of the relevant words some means needs to be found to decide which was the meaning intended. There is nothing wrong in principle in relying upon a thematic connection which explains the grouping of items in a list. That is an important part of the statutory context. HMRC’s approach gives no effect to that context and does not proffer any explanation for the groupings made.
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[39] ...The meaning given to “tunnel” by the Court of Appeal is clear and draws ‘a line in the sand’. Drawing an objectively reasonable contextual inference as to the meaning intended is not speculative. As recently emphasised by this court in R (O) v Secretary of State for the Home Department [2022] UKSC 3, [2023] AC 255 at para 29: “Words and phrases in a statute derive their meaning from their context” (per Lord Hodge)." (SSE Generation Ltd v. HMRC [2023] UKSC 17)
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- Grouping of phrases together may indicate thematic connection
"[35]...Where there is no clear, single ordinary meaning the Court of Appeal and the tribunals below were correct to consider the context and whether that assisted in identifying the correct meaning. It is clear that a different drafting technique has been used in List B (where items are grouped) and List C (where items are listed). In List B a choice has been made to identify specific structures which are to be excluded in all cases, to group those structures in separate lists and to decide the list to which each structure belongs. It is reasonable to conclude that those grouping choices were made for a reason, most obviously a thematic reason, if such can be identified." (SSE Generation Ltd v. HMRC [2023] UKSC 17)
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Ordinary meaning of the term being defined is relevant
"[48] In an appropriate case “the potency of the term defined” may provide some guidance as to the meaning for that term as set out in a statutory definition. As it is put in Bennion, Bailey and Norbury, op. cit., section 18.6: “In the case of a statutory definition the defined term may itself colour the meaning of the definition”. Lord Hoffmann explained in MacDonald v Dextra Accessories Ltd [2005] 4 All ER 107, para 18, “a definition may give the words a meaning different from their ordinary meaning. But that does not mean that the choice of words adopted by Parliament must be wholly ignored. If the terms of the definition are ambiguous, the choice of the term to be defined may throw some light on what they mean”. I agree with Henderson LJ, paras 92-93 (citing Birmingham City Council v Walker [2007] 2 AC 262, para 11, per Lord Hoffmann, and Oxfordshire County Council v Oxford City Council [2006] 2 AC 674, para 38, per Lord Hoffmann, and para 82, per Lord Scott of Foscote), that this principle is not confined to cases where there is an ambiguity in the terms of the definition, but means that when the definition is read as a whole the ordinary meaning of the word or phrase being defined forms part of the material which might potentially be used to throw light on the meaning of the definition. Whether and to what extent it does so depends on the circumstances and in particular on the terms of the legislation and the nature of the concept referred to by the word or phrase being defined." (R (oao PACCAR Inc) v. CAT [2023] UKSC 28, Lord Sales)
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"[36] This interpretation also has the merit that it gives to the words “unused part of his basic rate band” in s. 4(3) TCGA 1992 a meaning which is its natural meaning. Mr Furness relies on the fact that “basic rate band” is not itself a statutorily defined term, and that to find out what the whole phrase means one 20 has to look at s. 4(4), which is simply a means of introducing an arithmetical formula. It is however a general principle that where a statute uses a defined expression, be it a word or a phrase, the ordinary meaning of the defined expression is part of the material that can be used as an aid to interpretation. We were not in fact taken to any authority for this proposition but neither 25 counsel dissented from it and it is well established. As Mr Pritchard mentioned, it was endorsed by the House of Lords in Oxfordshire County Council v Oxford City Council [2006] UKHL 25 (see at [38] per Lord Hoffmann (“in construing a definition, one does not ignore the ordinary meaning of the word which Parliament has chosen to define”) and at [82] per 30 Lord Scott, approving a statement in Bennion, Statutory Interpretation that “its dictionary meaning is likely to exercise some influence over the way the definition will be understood by the court” and referring to statements in previous House of Lords cases). See also the subsequent statements of Lord Hoffmann in Birmingham City Council v Walker [2007] UKHL 22 at [11] 35 (“the ordinary meaning of the word is part of the material which can be used to construe the definition”) and Chartbrook Ltd v Persimmon Homes Ltd [2009] UKHL 38 at [17] where in relation to the analogous question of contractual interpretation he said:
“The words used as labels are seldom arbitrary. They are usually chosen as a 40 distillation of the meaning or purpose of a concept intended to be more precisely stated in the definition. In such cases the language of the defined expression may help to elucidate ambiguities in the definition or other parts of the agreement.”" (Scott v. HMRC [2018] UKUT 236 (TCC), Nugee J and Judge Aleksander)
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"[67] Fourthly, there is high authority for the proposition that, if the terms of a definition are ambiguous, the choice of the term to be defined may throw some light on their meaning: see MacDonald v Dextra, loc. cit., at [18] per Lord 5 Hoffmann. Section 18 gives, in effect, a definition of “receipt” of earnings for the purposes of Chapter 4 of ITEPA. On UBS’s interpretation, Rule 2 is only a slight extension of the natural meaning of receipt embodied in Rule 1, and its rationale is easy to understand; but on HMRC’s interpretation, the accrual of an entitlement to a future payment is the very antithesis of receipt of such a 10 payment, and there is no obvious explanation why Parliament should have wished to extend the basic charge to tax on receipts to cover such a situation, particularly given the acute practical difficulties which could be expected to arise. More generally, if (for example) a person agrees to accept employment for a period of two years at a fixed salary payable monthly in arrears, nobody 15 would say that the full two years’ salary was received by the employee at the date when the contract of employment was signed, and the employer would no doubt be startled to learn that it was expected to deduct and account for tax under PAYE on the full amount at that date." (UBS AG v. HMRC [2021] UKUT 320 (TCC), Henderson J and Judge Hellier)
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- But not if the term has no clear or generally understood ordinary meaning
"[49] The difficulty in trying to use this sensible principle of interpretation in the present case is that it was agreed, and the Divisional Court accepted, that the phrase “claims management services” defined in section 4(2) of the 2006 Act did not have any established legal meaning. Nor, as explained below, did it have any clear or generally accepted meaning in ordinary parlance which was capable of exerting any significant “potency” in terms of qualifying the ordinary words used by Parliament in section 4(2) and (3) of the 2006 Act to define that term. Where an express definition of a term is given in statute then even if there is consensus as to its core content, in the absence of general consensus as to the limits of the term no significant potency can be attached to the term so as to colour or qualify the meaning of the definition: Phillips v News Group Newspapers Ltd [2013] 1 AC 1, para 20 (Lord Walker of Gestingthorpe, with whom the other members of the court agreed). Still less will the term defined have potency to colour the meaning of the definition if there is no general consensus as to the core meaning of the term, which is the case here. Rather, Parliament deliberately used wide words of definition in the 2006 Act precisely because of the nebulousness of the notion of “claims management services” at the time and in order to ensure that the general policy objective of Part 2 of the 2006 Act would not be undermined. That objective was to confer a general power on the Secretary of State appropriate for the regulation in the public interest of this developing area of activity, involving the creation of new commercial models to facilitate litigation and access to justice. The fact that Parliament provides a statutory definition of a term means that it is not satisfied that the term itself is sufficiently clear on its own. Where Parliament has taken the trouble to provide a definition, it is the words of the definition which are the primary guide to the meaning of the term defined. The weaker the inherent or established meaning of the term defined, the weaker must be its ability to throw light on Parliament’s meaning when setting out the express words of the definition which falls to be construed.
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[79] Secondly, “claims management services” had no established and generally accepted meaning which could lead a reader of the text of section 4 to suppose that the express language of the definition was to be treated as qualified or coloured by that meaning. Section 4 of the 2006 Act is thus to be contrasted with those statutory contexts where the term defined does have this effect." (R (oao PACCAR Inc) v. CAT [2023] UKSC 28, Lord Sales)
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- Or where there is no consensus as to the limits of the term
"[49]...Where an express definition of a term is given in statute then even if there is consensus as to its core content, in the absence of general consensus as to the limits of the term no significant potency can be attached to the term so as to colour or qualify the meaning of the definition: Phillips v News Group Newspapers Ltd [2013] 1 AC 1, para 20 (Lord Walker of Gestingthorpe, with whom the other members of the court agreed)." (R (oao PACCAR Inc) v. CAT [2023] UKSC 28, Lord Sales)
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"[21] Here there is no particular potency about the expression "intellectual property" because there is a general consensus as to its core content (patents for inventions, literary, dramatic, musical and artistic copyright, copyright in recordings, films and broadcasts, registered and unregistered design rights and trademarks, all now governed by national statutes and international treaties), but no general consensus as to its limits. The sweeping-up words at the end of the definition ("or other intellectual property") no doubt include new and specialised statutory rights akin to those in the core content, such as plant breeders' rights under the Plant Varieties Act 1997 and database rights under the Copyright and Rights in Databases Regulations 1997 (SI 1997/3032). But for present purposes the essential point is that the definition in section 72(5) contains the words "technical or commercial information." Parliament has made plain that information within that description is, for the purposes of section 72, to be regarded as intellectual property, whether or not it would otherwise be so regarded. Such limited potency as there is in the expression "intellectual property" (and more generally, the legislative purpose of section 72 in enhancing protection against unlawful trade competition) may be of assistance in determining the meaning of "technical or commercial information". It must be something in which a civil claimant has rights capable of being infringed, since infringement of rights pertaining to intellectual property is what section 72(2)(a) is concerned with. The fact that technical and commercial information ought not, strictly speaking, to be described as property (the majority view of the House of Lords in Boardman v Phipps [1967] 2 AC 46, 89-90, 103 and 127-128; cf 107 and 115) cannot prevail over the clear statutory language. Whether or not confidential information can only loosely, or metaphorically, be described as property is simply irrelevant." (Phillips v. Mulcaire [2012] UKSC 28)
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- "Wages" has a well understood basic meaning
"[80] Delaney v Staples (trading as De Montfort Recruitment) [1992] 1 AC 687 concerned the interpretation of a statutory provision which conferred exclusive jurisdiction on industrial tribunals in respect of the lawfulness of deductions from wages, where “wages” was defined in wide terms to mean “any sums payable to the worker by his employer in connection with his employment”, with a series of items said to be included within this. The question was whether a tribunal had jurisdiction under this provision to adjudicate on the lawfulness of a failure to make a payment in lieu of notice to an employee who was summarily dismissed. The House of Lords held that since “wages” were payments in respect of the rendering of services during employment, the term did not cover payments in respect of the termination of a contract of employment. The main reasons for this conclusion were that the procedural provisions of the statute were not compatible with such an interpretation and it would have an unjustified effect on the employer’s rights of set-off under the general law. However, a failure to pay some sums after termination of the employment would be covered according to the definition, and in order to draw the necessary dividing line Lord Browne-Wilkinson, who gave the sole substantive speech, said (p 697) that “one is thrown back to the basic concept of wages as being payments in respect of the rendering of services during the employment, so as to exclude all payments in respect of the termination of the contract save to the extent that such … payments are expressly included” in the relevant statutory definition. This reasoning depended upon the concept of “wages” having a well understood basic meaning." (R (oao PACCAR Inc) v. CAT [2023] UKSC 28, Lord Sales)
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- "Potential emolument" relevant to interpreting definition
"[18]... the ordinary use of language, the whole of the funds were potential emoluments. They could be used to pay emoluments. It is true that, as Charles J pointed out, "potential emoluments" is a defined expression and a definition may give the words a meaning different from their ordinary meaning. But that does not mean that the choice of words adopted by Parliament must be wholly ignored. If the terms of the definition are ambiguous, the choice of the term to be defined may throw some light on what they mean." (Macdonald v. Dextra Accessories Limited [2005] UKHL 47)
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Purposive interpretation
"[15] The basic principles have been analysed in many authorities including, recently, R (O) v Secretary of State for the Home Department [2022] UKSC 3, [2022] 2 WLR 343. Giving the lead judgment, with which the other members of the court agreed, Lord Hodge summarised the correct approach to statutory construction. He said at para 29:
“The courts in conducting statutory interpretation are ‘seeking the meaning of the words which Parliament used’: Black-Clawson International Ltd v Papierwerke Waldhof-Aschaffenburg AG [1975] AC 591, 613 per Lord Reid of Drem. More recently, Lord Nicholls of Birkenhead stated:
‘Statutory interpretation is an exercise which requires the court to identify the meaning borne by the words in question in the particular context.’
(R v Secretary of State for the Environment, Transport and the Regions, Ex p Spath Holme Ltd [2001] 2 AC 349, 396). Words and passages in a statute derive their meaning from their context. A phrase or passage must be read in the context of the section as a whole and in the wider context of a relevant group of sections. Other provisions in a statute and the statute as a whole may provide the relevant context. They are the words which Parliament has chosen to enact as an expression of the purpose of the legislation and are therefore the primary source by which meaning is ascertained.”" (R (oao VIP Communications Ltd v. SoS for Home Dept [2023] UKSC 10)
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"[27] It is clear that the modern approach to statutory interpretation in English (and UK) law requires the courts to ascertain the meaning of the words used in a statute in the light of their context and the purpose of the statutory provision: see, eg, Quintavalle, para 8 (per Lord Bingham); Uber BV v Aslam [2021] UKSC 5; [2021] ICR 657, para 70; Rittson-Thomas v Oxfordshire County Council [2021] UKSC 13; [2022] AC 129, para 33; R(O) v Secretary of State for the Home Department [2022] UKSC 3; [2022] 2 WLR 343, paras 28-29." (News Corp UK & Ireland Ltd v. HMRC [2023] UKSC 7)
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"[30] First, as with any question of statutory interpretation, the task of the court is to determine the meaning and legal effect of the words used by Parliament. The modern case law - including, in the field of employment law, the recent decision of this court in Uber BV v Aslam [2021] UKSC 5; [2021] ICR 657, para 70 - has emphasised the central importance of identifying the purpose of the legislation and interpreting the relevant language in the light of that purpose. Sometimes the context and background, or the statute viewed as a whole, provides clear pointers to the objectives which the relevant provisions were seeking to achieve. In other cases, however, the purpose needs to be identified at a level of particularity which requires it to be elicited mainly from the wording of the relevant provisions themselves. The present case is one in which, although the legal context and aim of seeking to secure article 11 rights is important, the somewhat complicated and elaborate wording of section 145B (and section 145D) calls, in my view, for a careful linguistic analysis on the assumption that the words used have been chosen with precision." (Kostal UK Ltd v. Dunkley [2021] UKSC 47)
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"[16] Both interpretation and application share the need to avoid tunnel vision. The particular charging or exempting provision must be construed in the context of the whole statutory scheme within which it is contained. The identification of its purpose may require an even wider review, extending to the history of the statutory provision or scheme and its political or social objective, to the extent that this can reliably be ascertained from admissible material." (Hurstwood Properties (A) Ltd v. Rossendale BC [2021] UKSC 16)
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"[6] Even where particular words used in a statute appear at first sight to have an apparently clear and unambiguous meaning, it is always necessary to resolve differences of interpretation by setting the particular provision in its context as part of the relevant statutory framework, by having due regard to the historical context in which the relevant enactment came to be made and, to the extent that its purpose can be identified (which may require examination of admissible travaux preparatoires), to arrive at an interpretation which serves, rather than frustrates, that purpose. In R (Quintavalle) v Secretary of State for Health [2003] UKHL 13; [2003] 2 AC 687, para 8, Lord Bingham of Cornhill said:
“Every statute other than a pure consolidating statute is, after all, enacted to make some change, or address some problem, or remove some blemish, or effect some improvement in the national life. The court’s task, within the permissible bounds of interpretation, is to give effect to Parliament’s purpose. So the controversial provisions should be read in the context of the statute as a whole, and the statute as a whole should be read in the historical context of the situation which led to its enactment.” (R (oao Fylde Coast Farms Ltd) v. Fylde [2021] UKSC 18)
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“As has recently been emphasised by the Supreme Court in UBS AG v Revenue and Customs Commissioners, DB Group Services (UK) Ltd v Revenue and Customs Commissioners [2016] UKSC 13 (the judgment in which was issued after conclusion of the hearing before us), the former distinction adopted by the courts between tax cases and others, including a literal adoption of tax statutes, was swept away by the House of Lords in W T Ramsay Ltd v Inland Revenue Commissioners [1982] AC 300. As the House of Lords explained in Barclays Mercantile Business Finance Ltd v Mawson [2005] 1 AC 684, the modern approach to statutory construction is to have regard to the purpose of a particular provision and to interpret its language, so far as possible, to give effect to that purpose.” (HMRC v. Trigg [2016] UKUT 165 (TCC), §12, Asplin J and Judge Berner).
- Objective purpose
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"[44] She observes that the modern approach to statutory interpretation is to give the words used in legislation their true meaning in the light of their context and their purpose: see e.g. R (Kaitey) v Secretary of State for the Home Department [2021] EWCA Civ 1875, at para. 119 (Singh LJ). As I explained there, by reference to authority from the House of Lords and Supreme Court, the purpose of legislation is nevertheless objective and not subjective. Evidence by the maker of the legislation or anyone else is therefore irrelevant. Nevertheless, I agree with the fundamental submission on behalf of the Appellants that it is often useful for the court to be assisted by a witness statement on behalf of the Government, which sets out the legislative background and history. This helps the court to ascertain the context and purpose of legislation. This is not the same thing as the subjective policy intentions of any individual minister or Government department. In the end, I did not understand Mr Cox to take any issue with this approach as a matter of principle. Accordingly, I would grant the application to adduce the witness statement of Mr Naim but only insofar as it contains objective matters and not subjective expressions of opinion. Ultimately, however, there is nothing in that statement which materially affects the conclusion which I would have reached in any event on the merits of this appeal." (R (oao DK) v. HMRC [2022] EWCA Civ 120, Singh LJ)
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- Purpose to be determined primarily from words used
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“The application of purposive construction does not mean that the literal meaning of the statutory language is to be ignored. It will often be – indeed it must be so in the vast majority of cases – that the purpose of a statutory provision which is discerned from the words of the statute will be the same as the literal meaning of those words. The will of Parliament finds its expression in the statutory language. The courts have identified certain types of statutory provision as less susceptible to a purposive construction that does not accord with the literal meaning.” (HMRC v Trigg [2016] UKUT 165 (TCC), §16, Asplin J and Judge Berner).
“In my view, the purpose of the statute emerges clearly from the words which are used. I agree that the purpose of section 154 was to introduce a requirement, as a qualification for group relief, that the surrendering company - here, PH2L - and the claimant companies - here, the Appellants - be under the same control: no more, and no less…I cannot infer any different purpose without a proper foundation for doing so. As Lord Hoffmann put it, extra-judicially, in an article on 'Tax Avoidance' ([2005] BTR 197): "It is one thing to give the statute a purposive construction. It is another to rectify the terms of highly prescriptive legislation in order to include provisions which might have been included but are not actually there". I respectfully agree.” (Farnborough Airport Properties Company Ltd v. HMRC [2016] UKFTT 431 (TC), §§44…45)
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- But also consider statute as a whole and historical context
"[8] The basic task of the court is to ascertain and give effect to the true meaning of what Parliament has said in the enactment to be construed. But that is not to say that attention should be confined and a literal interpretation given to the particular provisions which give rise to difficulty. Such an approach not only encourages immense prolixity in drafting, since the draftsman will feel obliged to provide expressly for every contingency which may possibly arise. It may also (under the banner of loyalty to the will of Parliament) lead to the frustration of that will, because undue concentration on the minutiae of the enactment may lead the court to neglect the purpose which Parliament intended to achieve when it enacted the statute. Every statute other than a pure consolidating statute is, after all, enacted to make some change, or address some problem, or remove some blemish, or effect some improvement in the national life. The court's task, within the permissible bounds of interpretation, is to give effect to Parliament's purpose. So the controversial provisions should be read in the context of the statute as a whole, and the statute as a whole should be read in the historical context of the situation which led to its enactment." (R (Quintavalle) v. Secretary of State for Health [2003] UKHL 13, Lord Bingham)
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- Find a rational scheme rather than just make grammatical sense
“Whatever the difficulties the court has to do its best to make sense of the statute, and that means not only making grammatical sense of the text but also finding a rational scheme in the legislation. That is not to say that the court should start off with preconceptions about what it expects to find, or that it should shrink from saying so in the rare case where a tax statute has “plainly missed fire” (the expression used by Lord Macmillan in IRC v Ayrshire Employers Mutual Assurance Association (1946) 27 Tax Cas 331, 347). But as Viscount Simon LC said in Nokes v Doncaster Amalgamated Collieries [1940] AC 1014, 1022 (which was not a tax case, but has often been cited in tax cases):
“ … if the choice is between two interpretations, the narrower of which would fail to achieve the manifest purpose of the legislation, we should avoid a construction which would reduce the legislation to futility and should rather accept the bolder construction based on the view that Parliament would legislate only for the purpose of bringing about an effective result.”” (Cooper v. Billingham [2001] EWCA Civ 1041, §35, Robert Walker LJ)
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- Focus on the normal operation of the provision
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"[29] This is not to construe paragraph 36(2) by inappropriate reference only to the penumbra at the outer edge of its normal operation." (Balhousie Holdings Ltd v. HMRC [2021] UKSC 11)
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- Must be the purpose of the provision in question rather than a general purpose
“We are satisfied that no process of purposive construction can have that effect. First, it is important to recognise that the “purpose” here must be the purpose of s 989 not the purpose of the entrepreneurs’ relief provisions in the TCGA. We do not agree with the assumption implicit in [34] of the FTT’s decision that s 989 ITA might bear a different meaning when it is imported by cross-reference into provisions relating to a particular tax regime from the meaning it bears in the statute of which the definition section forms a part.” (HMRC v. McQuillan [2017] UKUT 344 (TCC), §33, Rose J and Judge Berner).
“The words used by Parliament in this statutory provision are entirely clear. Whilst a court or tribunal is not confined to a literal interpretation of the statutory words, but must consider the context and scheme of the Act as a whole, purposive construction cannot be used to give effect to a perceived different or wider policy objective in cases where the words used by Parliament do not bear that meaning.” (Patel v. HMRC [2018] UKFTT 185 (TC), §88, Judge Brannan).
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- Must be a proper foundation for inferring purpose
“It should be assumed that a statutory provision has some purpose, but that purpose must be found in the words of the statute itself. The court must not infer a purpose without a proper foundation for doing so (Astall v Revenue and Customs Commissioners [2010] STC 137, at [44]).” (HMRC v. Trigg [2016] UKUT 165 (TCC), §14, Asplin J and Judge Berner).
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- Not confined to tax avoidance cases
“The application of the approach of purposive construction has been observed most often in cases of tax avoidance. But it is a rule of construction of general application, and not therefore confined to such cases.” (HMRC v. Trigg [2016] UKUT 165 (TCC), §13, Asplin J and Judge Berner)
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- Taxing provision not to be strained in a way to cover matters not fairly within it
“I do not accept that section 29 is penal. As a taxing provision, section 29 TMA must not be given a strained interpretation so as to extend it in a way to cover matters not fairly within it (see generally per Hoffmann J in Charterhouse Investment Trust Ltd v Tempest Diesels Ltd [1984] 1 BCC 99, 544). But I do not consider that the interpretation which I have placed on section 29 TMA above strains its language in any way.” (Hargreaves v. HMRC [2016] EWCA Civ 174, §53).
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Parliament may choose to implement purpose only to limited extent
"[46] However, with regard to social purpose, we agree with [HMRC] that, in the realm of taxation, the fact that the same social purpose may be served by zero-rating two related items does not mean that they should or will be treated the same way. Taxation involves budgetary and political decision-making and how far to extend exemptions from tax is a budgetary choice. Such decisions are made on a granular basis. As she submitted, an interpretation which entails that more supplies promoting the social purpose are captured by the zero rate is not a reason for favouring that interpretation. This is illustrated by the example given by Simler LJ (at para 71) of an online rolling news service which no one suggests is a newspaper although it may be said to fulfil the same social purpose. The role played by identifying the social purpose of the legislation in enacting Item 2 zero-rating newspapers can go no further than ensuring that interpretations which do not meet that purpose are rejected. Put another way, identifying that the social purpose of the zero-rating of newspapers extends to digital newspapers is of limited assistance in deciding on the correct interpretation because that same purpose is over-inclusive in applying equally to many items (eg an online rolling news service) that cannot possibly be covered by the word “newspapers”." (News Corp UK & Ireland Ltd v. HMRC [2023] UKSC 7)
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"[76] We have not considered the tax journals; they are not an aid to construction. Even if Parliament had wished to achieve a particular result (we do not consider that it did), if the statutory language adopted is for a narrower purpose it is no part of an exercise in purposive construction to give effect to a wider outcome than can properly be borne by the statutory language. That would amount to rectification of legislation." (M Group Holdings Limited v. HMRC [2023] UKUT 213 (TCC), Green J and Judge Ramshaw)
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- Wider policy cannot override clear words
"[21] The principle that "the polluter pays" is a broad general statement of policy. It is no substitute for the words of the Finance Act itself. Words and passages in a statute derive their meaning from their context. A phrase or passage must be read in the context of the section as a whole and in the wider context of a relevant group of sections. Other provisions in a statute and the statute as a whole may provide the relevant context. They are the words which Parliament has chosen to enact as an expression of the purpose of the legislation and are therefore the primary source by which meaning is ascertained: R (Project for the Registration of Children as British Citizens) v Secretary of State for the Home Department [2022] 1 UKSC 3, [2022] 2 WLR 343 at [29]. Thus statutory interpretation is an exercise which requires the court to identify the "meaning borne by the words in question in the particular context" (R v Secretary of State for the Environment ex p Spath Holme Ltd [2001] 2 AC 349, 396). An appeal to a purposive interpretation of an enactment is of particular utility where there is no obvious meaning of the words that Parliament has used (IRC v McGuckian [1997] 1 WLR 991, 999) but it still requires the court to interpret the language that Parliament has used (Pollen Estate Trustee Co Ltd v HMRC [2013] EWCA Civ 753, [2013] 1 WLR 3785 at [24]). In this case, I cannot see that the words that Parliament has used leave room for doubt." (Northern Gas Networks Ltd v. HMRC [2022] EWCA Civ 910, Lewison, Baker, Dingemans LJJJ)
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- Not to strain provision designed to close one gap to close a different gap not considered by Parliament
"[51] If the drafting of s 167(2) had been defective in a way which failed to prevent the envelope trick from working, then that might well have been an error which the Tribunal could repair relying on Inco Europe. But Mr Ewart fairly accepted that Parliament did not address its mind either when s 167 was enacted or when LLPs were created to a non-resident owner of an interest in an LLP like Mr Reeves. We do not consider that the authority of Inco Europe is intended to allow HMRC to extend a provision designed to close one gap so that it closes a different gap which Parliament has not considered." (Reeves v. HMRC [2018] UKUT 293 (TCC), Rose J and Judge Sinfield)
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Straightforward meaning to be tested against wider considerations
"[34]...The straightforward interpretation of section 40(2) that we have put forward in paras 24-33 above has taken the natural meaning of the words in section 40(2) in their immediate context. But we must go on to a wider consideration of context and purpose - and hence to an examination of additional relevant interpretative factors - in order to see whether this supports or contradicts the straightforward interpretation set out above." (Rakusen v. Jepsen [2023] UKSC 9)
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Consider whether the legislation would have been drafted as it was if a suggested interpretation was correct
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"[30] Section 7(5)'s use of "in the company's case" is doubtless consistent with the proposition that "it is factors specific to the company which must cause s 7(5) to be engaged rather than factors which affect all companies in the same or a similar way". The words can also, however, be read as indicating no more than that the focus is on the circumstances of the company in question, be they unique to that company or such as to affect other companies as well. If, moreover, Parliament had intended matters shared with other companies to be disregarded, it could be expected to have spelt that out, and it has not. On top of that, it is very difficult to see why Parliament should have wished section 7(5) to apply only in relation to matters which did not pertain to other companies...
[...]
[37] A further reason for considering that Parliament is unlikely to have intended to restrict section 7(5) to cases where there has been something out of the ordinary and/or not shared by other companies is to be found in the problems of application to which such a requirement would give rise. Suppose that a company's production in the summer months were usually reduced by a four-week shut in for maintenance work, but the shut in lasted five weeks in 2011. Would that be sufficiently exceptional to allow the company to invoke section 7(5) and, if so, could an alternative basis of apportionment take account of the full loss of production or only a week of it? Suppose that a company suffered storm damage in six years out of ten. Would that fall to be disregarded as routine? Would the position be the same if there were storm damage in (a) four years out of ten or (b) eight years out of ten? Would it make a difference if such damage were particularly severe or, conversely, less serious than in many other years? Had Parliament intended the section 7(5) election to be subject to a limitation of the kind that the UT considered to exist, it could be expected to have explained its wishes more clearly and to have catered for the sorts of issue I have mentioned." (Total E&P North Sea UK Limited v. HMRC [2020] EWCA Civ 1419, Newey, King, Andrews LJJJ)
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“If the draftsman had really thought that the amount subscribed was already included in the liability on a winding up, he would hardly have drafted sub-section (2) in the way that he did. It may be that there are cases where the amount subscribed would not feature as an element of the liability on a winding-up with the result that section 118ZC(3) is not entirely redundant. Mr Ghosh has suggested a case in which that may be so. But that does not meet the point that, had the subsection been intended to cover the ordinary case, it would have been drafted differently.” (HMRC v. Hamilton & Kinneil (Archerfield) Limited [2015] UKUT 130 (TCC), §77(a), Warren J).
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Interpreting legislation to cover modern developments
Legislation should be interpreted to cover new and unforeseen developments if they fall within Parliament's policy intention
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"[29] What is meant by the always speaking principle is that, as a general rule, a statute should be interpreted taking into account changes that have occurred since the statute was enacted. Those changes may include, for example, technological developments, changes in scientific understanding, changes in social attitudes and changes in the law. Very importantly it does not matter that those changes could not have been reasonably contemplated or foreseen at the time that the provision was enacted. Exceptionally, the always speaking principle will not be applied where it is clear, from the words used in the light of their context and purpose, that the provision is tied to an historic or frozen interpretation. A possible example (referred to by Lord Steyn in R v Ireland at p 158) is The Longford (1889) 14 PD 34 where the word “action” in a statute was held not to be apt to cover an Admiralty action in rem: at the time the statute was passed, the Admiralty Court “was not one of His Majesty’s Courts of Law” (p 38).
[30] The great merit of the always speaking principle is that it operates to prevent statutes becoming outdated. It would be unrealistic for Parliament to try to keep most statutes up to date by continually passing amendments to cope with subsequent change." (News Corp UK & Ireland Ltd v. HMRC [2023] UKSC 7)
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"[9] There is, I think, no inconsistency between the rule that statutory language retains the meaning it had when Parliament used it and the rule that a statute is always speaking. If Parliament, however long ago, passed an Act applicable to dogs, it could not properly be interpreted to apply to cats; but it could properly be held to apply to animals which were not regarded as dogs when the Act was passed but are so regarded now. The meaning of "cruel and unusual punishments" has not changed over the years since 1689, but many punishments which were not then thought to fall within that category would now be held to do so. The courts have frequently had to grapple with the question whether a modern invention or activity falls within old statutory language: see Bennion, Statutory Interpretation, 4th ed (2002) Part XVIII, Section 288. A revealing example is found in Grant v Southwestern and County Properties Ltd [1975] Ch 185, where Walton J had to decide whether a tape recording fell within the expression "document" in the Rules of the Supreme Court. Pointing out (page 190) that the furnishing of information had been treated as one of the main functions of a document, the judge concluded that the tape recording was a document." (R (Quintavalle) v Secretary of State for Health [2003] UKHL 13, Lord Bingham)
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"In interpreting an Act of Parliament it is proper, and indeed necessary, to have regard to the state of affairs existing, and known by Parliament to be existing, at the time. It is a fair presumption that Parliament's policy or intention is directed to that state of affairs. Leaving aside cases of omission by inadvertence, this being not such a case, when a new state of affairs, or a fresh set of facts bearing on policy, comes into existence, the courts have to consider whether they fall within the parliamentary intention. They may be held to do so if they fall within the same genus of facts as those to which the expressed policy has been formulated. They may also be held to do so if there can be detected a clear purpose in the legislation which can only be fulfilled if the extension is made. How liberally these principles may be applied must depend on the nature of the enactment, and the strictness or otherwise of the words in which it has been expressed. The courts should be less willing to extend expressed meanings if it is clear that the Act in question was designed to be restrictive or circumscribed in its operation rather than liberal or permissive. They will be much less willing to do so where the new subject matter is different in kind or dimension from that for which the legislation was passed. In any event there is one course which the courts cannot take under the law of this country: they cannot fill gaps; they cannot by asking the question, "What would Parliament have done in this current case, not being one in contemplation, if the facts had been before it?", attempt themselves to supply the answer, if the answer is not to be found in the terms of the Act itself." (Royal College of Nursing of the UK v Department of Health and Social Security [1981] AC 800 at 822, Lord Wilberforce)
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Applied subject to EU law constraints in relation to VAT
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"Turning to the application of the always speaking principle that is at the heart of this appeal, it is clear that, in this case, that principle has to be applied having regard to the EU law constraints imposed by the standstill provision and the principle of strict interpretation of exemptions. As explained above, that is reinforced by a purpose of the law on VAT, as seen from the perspective of EU law, as being harmonisation with no derogations. Here these constraints mean that the always speaking principle is significantly limited so as to ensure that it does not conflict with the requirement for zero-rating for newspapers to be strictly construed and not extended." (News Corp UK & Ireland Ltd v. HMRC [2023] UKSC 7)
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VAT reference to newspapers not read to include digital news services
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"[58] In our view, therefore, having regard to the constraints of EU law, the always speaking principle cannot be applied so as to interpret newspapers as covering digital editions. This is not to close off entirely the operation of the always speaking principle in this context. So, for example, it is not in dispute that new versions of print newspapers, eg produced by computer rather than hot metal presses and containing colour rather than black and white photos, would all be included even if computers and colour photos were not used (and were possibly not even contemplated) in 1975. Similarly, if paper was replaced by a substitute physical material, newspapers published on such material would also likely be included. These examples, however, are very different to digital editions and do not involve the adoption of an impermissibly expansive approach, as would be required to include digital editions." (News Corp UK & Ireland Ltd v. HMRC [2023] UKSC 7)
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Purpose cannot be discerned
"[38] It is sometimes said, and HMRC submits, that if the court cannot discern the purpose of a statutory provision, then it must just do the best it can with the words used. If that were to be the position in this case, then “entire” still means exactly what it says. So the identification of a purpose behind paragraph 36(2) is not strictly necessary for that conclusion." (Balhousie Holdings Ltd v. HMRC [2021] UKSC 11)
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Making charge effective overriding coherent overall scheme
"[39] Regulation 9 does, therefore, give rise to some difficulties for HMRC’s interpretation of Regulation 4. However, our task is to construe Regulation 4 and not to provide a comprehensive explanation for why Regulation 9 is drafted as it is. Our overall conclusion is that Regulation 4 provides a free-standing power to assess the scheme sanction charge arising in these proceedings. We express our conclusion in this limited way since we do not need to decide whether Regulation 4 sets out a freestanding power to assess in all cases (and indeed, as we have noted, determining the source of the power to assess in Cases 1 to 3 is not straightforward given the provisions of Regulation 9).
[40] Our conclusion accords with the ordinary meaning of Regulation 4, as applied to the scheme sanction charge, and avoids what we regard as the illogical outcome for which BFL argues under which, despite Parliament having legislated to impose a scheme sanction charge, HMRC would lack a practical power to assess that charge in many cases. As Lord Dunedin observed in Whitney v Inland Revenue Commissioners [1926] AC 37 (at p52):
"My Lords, I shall now permit myself a general observation. Once that it is fixed that there is a liability, it is antecedently highly improbable that the statute should not go on to make it effective. A statute is designed to be workable, and the interpretation thereof by a Court should be to secure that object, unless crucial omission or clear direction makes that end unattainable"." (HMRC v. Bella Figura [2020] UKUT 120 (TCC), Nugee J and Judge Richards)
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Comparing the purpose/policy and apparent effect of the legislation
Parliament could have given effect to policy in broader way, but did not
“If Parliament had wished to refer to any currency other than the pound sterling which might become the lawful currency of the UK it would have done so by the use of language appropriate to that aim. But it did not do so.” (HMRC v Trigg [2016] UKUT 165 (TCC), §43, Asplin J and Judge Berner).
Sometimes statutory provisions do not precisely hit the target
“Whether it is an absurd result is a different matter; sometimes, it has to be accepted, statutory provisions do not always precisely hit the target at which they are aimed, or, if they do hit the target, there is unforeseen collateral damage. It may be that that is the position in relation to section 118ZC.” (HMRC v. Hamilton & Kinneil (Archerfield) Limited [2015] UKUT 130 (TCC), §61, Warren J).
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Ask whether the legislation would have been drafted as it was if a suggested interpretation was correct
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“If the draftsman had really thought that the amount subscribed was already included in the liability on a winding up, he would hardly have drafted sub-section (2) in the way that he did. It may be that there are cases where the amount subscribed would not feature as an element of the liability on a winding-up with the result that section 118ZC(3) is not entirely redundant. Mr Ghosh has suggested a case in which that may be so. But that does not meet the point that, had the subsection been intended to cover the ordinary case, it would have been drafted differently.” (HMRC v. Hamilton & Kinneil (Archerfield) Limited [2015] UKUT 130 (TCC), §77(a), Warren J).
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Anti-avoidance legislation sometimes covers a wider area than necessary to achieve its object
“We were pressed in the course of the hearing with an elaborate argument…based on examples which, it is said, demonstrate that, as a matter of policy, it could not have been the intention of the legislature that s 286(7) TCGA 1992…should … have any independent application. I hope it will not be thought discourteous—or lacking in respect to the ingenuity with which that argument was formulated and advanced—if I do no more than draw attention to the observation of Morritt LJ, when faced with a similar argument in Steele v EVC [1996] STC 785 at 796). He pointed out that the fact that the Revenue's construction of s 839(7) ICTA 1988 might have unforeseen and unwelcome consequences—in that case, the denial of consortium relief made available by s 402 ICTA 1988 by the operation of s 410(2)(iii) in just those circumstances in which it was to be presumed that Parliament intended it to be available—was no reason for not construing s 839(7) ICTA 1988 in accordance with its terms. In my view the effect of s 286(7) TCGA 1992, in relation to the enquiry required under s 167(2)(b), is clear. I am not persuaded that the Court should refuse to give to the section the effect which, as a matter of construction, it was plainly intended to have in that context on the basis that, in other contexts, the section might be found to have unforeseen or unwelcome consequences.” (Foulser v. MacDougall [2007] EWCA Civ 8, §64, Chadwick LJ).
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“But he also observed, in my view rightly, that s 410 was an anti-avoidance provision which like many other such provisions sometimes covers a wider area than that strictly necessary to achieve its object.” (Steele (Inspector of Taxes) v EVC International NV (formerly European Vinyls Corp (Holdings) BV) [1996] STC 785 at 796, Morritt LJ).
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Distinction between policy and purpose
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“Although we are minded to accept the general policy of the EIS legislation was, as Mr Howard submitted, to limit relief to ordinary shares which carried the risk and reward of ownership, Parliament implemented this policy by limiting relief, inter alia, to those ordinary shares which did not carry any present or future preferential rights to assets on a winding up. Parliament did not say that the right to relief was restricted only as regards shares where the preference rights were significant or material; it specifically said that relief was denied if any preferential right to a return of capital existed. As this Tribunal said at [35] in Trigg, purposive construction cannot be used to give effect to a perceived wider policy in cases where the words used will not bear that meaning.” (Flix Innovations Limited v. HMRC [2016] UKUT 301 (TCC), §42, Mann J and Judge Brannan).
“There is also, in our judgment, a distinction between the policy behind, or the reason for, the inclusion of a particular provision in the legislative scheme and the purpose of that provision. Parliament might wish to achieve a particular result as a general matter, and legislate for that reason or in pursuit of that policy. But if the statutory language adopted by Parliament displays a narrower, or more focused, purpose than the more general underlying policy or reason, it is no part of an exercise in purposive construction to give effect to a perceived wider outcome than can properly be borne by the statutory language.” (HMRC v Trigg [2016] UKUT 165 (TCC), §35, Asplin J and Judge Berner).
Policy being taken into account
“…the policy reasons behind the restriction of the successor to relief only in those circumstances in which relief would have been available to the predecessor are obvious: if it were otherwise there would be ample opportunity for abuse.” (HMRC v. Leekes Limited [2016] UKUT 320 (TCC), §31, Roth J and Judge Bishopp).
Refusing to give effect to policy
“Whilst it is correct that Parliament intended that the lawful currency of the UK should not be an asset for CGT purposes, but should be the unit of measurement or account, it legislated to give effect to that intention by referring to what was, and is, that lawful currency, namely sterling, and not by reference to any other currency that might, at some future time, become that lawful currency. Contrary to Mr Gammie’s submission, in the context of the TCGA “sterling” does not “connote the UK’s lawful currency” or its money; it is simply because sterling is that lawful currency that Parliament has legislated by reference to pounds sterling. If Parliament had wished to refer to any currency other than the pound sterling which might become the lawful currency of the UK it would have done so by the use of language appropriate to that aim. But it did not do so.” (HMRC v Trigg [2016] UKUT 165 (TCC), §43, Asplin J and Judge Berner).
Provision not limited by mischief
“We also agree with the observation of the FTT, at [82], that the scope of s. 786 cannot be restricted by the mischief at which the provisions seem to have been aimed when no such restriction can be read into the words used.” (Spritebeam Limited v. HMRC [2015] UKUT 75 (TCC), §26, Proudman J and Judge Bishopp).
Construction not rectification
“There is in this case no purposive construction that can prevent the redeemable shares from being part of the “ordinary share capital” of Streat, as that expression is defined by s 989 ITA, for the purpose of the definition of “personal company” in s 169S(3) TCGA…A definition such as that in s 989 ITA is apt to produce results which appear unfair. There will be deserving cases that fail to qualify for relief, and non-deserving ones that do qualify. Such a definition may enable those who are well-advised to fall within its terms, whilst leaving a trap for the unwary. There is certainly a case for the legislation to be reviewed to address what may understandably be perceived as unfairness in particular cases, of which this is one. That will, however, be a matter for Parliament if it determines that such a change should be made.” (HMRC v. McQuillan [2017] UKUT 344 (TCC), §43…45, Rose J and Judge Berner).
“In the context of the highly detailed provisions of Part 5 ITA 2007 and the use of the word “any” in section 173(2)(aa) it is impossible to ignore the preferential rights carried by the Ordinary Shares. To do so would, in Lord Hoffmann’s words, be to rectify the language of the statute rather than to construe it purposively.” (Flix Innovations Limited v. HMRC [2016] UKUT 301 (TCC), §44, Mann J and Judge Brannan).
“That is, however, no more than an exercise of construction. Whatever underlying purpose may be identified, it is not the task of the courts to import a different meaning to the provision in question than can properly be attributed to it, merely because of a perception that such a meaning would better suit the purpose so identified. That, to adopt the words of Lord Hoffmann in his British Tax Review article in 2005, referred to by Lewison J in Berry, would be an exercise in rectification and not construction.” (HMRC v Trigg [2016] UKUT 165 (TCC), §34, Asplin J and Judge Berner).
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- Cannot imply in a limitation that is not there
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"[32] The ambitious exercise on which Mr Cannon has embarked is, in effect, to imply into an Act of Parliament a limitation which is not there. In my judgment that is not an exercise which enables the court to interpret the words of section 116 of the Finance Act 2003 in the way that he suggests. As Lord Salmon put it in James Buchanan & Co Ltd v Babco Forwarding & Shipping (UK) Ltd [1978] AC 141, 160:
"For a court to construe a statute is one thing but to graft a provision on to it on the ground that the court thinks it is reasonable to do so would bring the law into chaos … For the courts to graft a provision on to a statute or a contract is a practice which is entirely foreign to our jurisprudence and, as far as I know, to any other.[33] In agreement with the UT, I consider that the words of section 116 are clear and unambiguous; and do not produce absurdity. The suggested qualification is not there. I would dismiss the appeals." (Hyman v. HMRC [2022] EWCA Civ 185)
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Correcting plain drafting mistakes
"[21] The only principle of statutory interpretation which might enable the plain meaning of legislation to be circumvented is that it can be given a strained interpretation where that is necessary to avoid absurd or perverse consequences: see, for example, Inland Revenue Comrs v Hinchy [1960] AC 748, 768 (Lord Reid), and R (Edison First Power Ltd) v Central Valuation Officer [2003] 4 All ER 209, paras 25 (Lord Hoffmann) and 116 (Lord Millett). Indeed, even greater violence can be done to statutory language where it is plain that there has been a drafting mistake: R v Federal Steam Navigation Co Ltd [1974] 1 WLR 505, 509 (Lord Reid), and Inco Europe Ltd v First Choice Distribution [2000] 1 WLR 586, 592 (Lord Nicholls of Birkenhead).” (Shahid v Scottish Ministers [2015] UKSC 58)
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“It has long been established that the role of the courts in construing legislation is not confined to resolving ambiguities in statutory language. The court must be able to correct obvious drafting errors. In suitable cases, in discharging its interpretative function the court will add words, or omit words or substitute words. …This power is confined to plain cases of drafting mistakes. The courts are ever mindful that their constitutional role in this field is interpretative. They must abstain from any course which might have the appearance of judicial legislation. A statute is expressed in language approved and enacted by the legislature. So the courts exercise considerable caution before adding or omitting or substituting words. Before interpreting a statute in this way the court must be abundantly sure of three matters: (1) the intended purpose of the statute or provision in question; (2) that by inadvertence the draftsman and Parliament failed to give effect to that purpose in the provision in question; and (3) the substance of the provision Parliament would have made, although not necessarily the precise words Parliament would have used, had the error in the Bill been noticed. The third of these conditions is of crucial importance. Otherwise any attempt to determine the meaning of the enactment would cross the boundary between construction and legislation." (Inco Europe Ltd v First Choice Distribution [2000] 1 WLR 586 at 592, Lord Nicholls).
“Therefore, before a correction can be made it is necessary to be “abundantly sure” of the intended purpose of the statute or provision in question; that by inadvertence the draftsman and Parliament failed to give effect to that purpose in the provision in question; and the substance of the provision Parliament would have made.” (Reeves v. HMRC [2017] UKFTT 192 (TC), §32, Judge Brooks).
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- Must be satisfied there is a mistake in the drafting
"[89] In our view Parliament chose to include only the words 'member of the group' deliberately because it was intending only to cover transfers within groups. There is no mistake in the drafting in our view. We agree with HMRC that the concept of economic ownership is not referred to in the statutory provision or in the extra statutory materials.
...
[92] The words used in para 15A have a readily understandable ordinary and natural meaning and accord with the intended purpose. There is no basis upon which to conclude that there is any drafting error in the provision to allow us to deviate from the meaning or to read in words." (M Group Holdings Limited v. HMRC [2023] UKUT 213 (TCC), Green J and Judge Ramshaw)
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- Not applicable where draftsman was under a material misapprehension as to the law
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"[142] We do not think that the question of whether the principle in Inco Europe applies can be disassociated from the question of purposive construction. This is not just because both are principles of statutory interpretation. Rather, the underlying difficulty is what appears to have been an assumption by HMRC, possibly shared by the draftsperson of Schedule 1 to FA 2012, that s 29(1)(a) TMA was broad enough to catch “self-standing” income tax charges which are not charges on amounts of income. If, as we have held, that assumption was wrong on a purposive construction of the legislation, then it is very difficult to see how any error made by the draftsperson of Schedule 1 FA 2012 was the sort of slip that Lord Nicholls had in mind. This was not simply a case of Homer, in the shape of the draftsperson, having nodded (Inco Europe at p.589). Homer would have been under a material misapprehension." (HMRC v. Wilkes [2021] UKUT 150 (TCC), Falk J and Judge Herrington)
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- Sufficient to be confident of the substance of the correction
“We are not Parliamentary draftsmen; and it is sufficient that we can be confident of the gist or substance of the alteration, rather than its precise language.” (Pollen Estate Trustees v HMRC [2013] EWCA Civ 753, §49, Lewison LJ).
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Correct inadvertent error in re-write of legislation
"[141] With the benefit of hindsight, it is not difficult to see what went wrong when the draughtsman of section 23 and List C in CAA 2001 attempted to merge column 2 of Table 1 and column 2 of Table 2 (together with certain other provisions) "into a single list of items that are unaffected by the express exclusions in Sections 21 and 22" (to quote from the explanatory note on Change 2, set out at [134] above). Inadvertently, the draughtsman reproduced the substance of the items listed in column 2 of Table 1, but not the wording of paragraphs 1(3) and 2(3)(b) which made it clear that the saving extended to expenditure on the provision of those items, as well to expenditure on them.
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[143] If my analysis is correct thus far, the next question is whether it is possible to construe section 23 and List C in a way which gives effect to Parliament's evident intention, as elucidated by recourse to the 1994 precursor legislation. I consider that there are at least two ways in which the language of section 23 and List C may legitimately be so construed.
[144] The first, and in my view preferable, solution is to construe the words "on any item" in section 23(3) as equivalent in meaning, in this particular context, to "on the provision of any item". In a suitable context, I see no reason why expenditure "on" an item should not include expenditure on its provision, or (alternatively) why it should not be regarded as shorthand for the composite phrase "on the provision of" which lies at the heart of the judge-made law on capital allowances reflected in section 11(4) of CAA 2001. That this is a perfectly possible, and to my mind natural, use of language is in my view borne out by the heading to column 2 of Table 1 in Schedule 1AA to CAA 1990: see [138] above. I would add that these column headings appear to me to be an integral part of the Tables as drafted, and not comparable with side notes which are merely added for ease of reference and receive no Parliamentary scrutiny; but even if that is wrong, the column headings still form part of FA 1994 as enacted.
[145] The second, and more radical, solution is to exercise the power, which the court undoubtedly has, to correct clear cases of drafting mistakes as a matter of statutory construction. As Lord Nicholls explained in Inco Europe Ltd v First Choice Distribution [2000] 1 WLR 586, at 592:
"This power is confined to plain cases of drafting mistakes. The courts are ever mindful that their constitutional role in this field is interpretative. They must abstain from any course which might have the appearance of judicial legislation. A statute is expressed in language approved and enacted by the legislature. So, the courts exercise considerable caution before adding or omitting or substituting words. Before interpreting a statute in this way, the court must be abundantly sure of three matters:
(1) the intended purposes of the statute or provision in question;
(2) that by inadvertence the draughtsman and Parliament failed to give effect to that purpose in the provision in question; and
(3) the substance of the provision Parliament would have made, although not necessarily the precise words Parliament would have used, had the error in the Bill been noticed.
The third of these conditions is of crucial importance. Otherwise, any attempt to determine the meaning of the enactment would cross the boundary between construction and legislation: see per Lord Diplock in G Jones v Wrotham Park Settled Estates [1980] AC 74,105-106."
[146] For an example of the application of this principle to a tax statute, see the decision of this court in Pollen Estate Trustee Company Ltd v Revenue and Customs Commissioners [2013] EWCA Civ 753, [2013] 3 All E R 742. The leading judgment in that case was delivered by Lewison LJ, with whom McFarlane and Laws LJ agreed. At [26], Lewison LJ also quoted the well-known words of Lord Reid in Luke v IRC [1963] AC 557 at 577:
"To apply the words literally is to defeat the obvious intention of the legislation and to produce a wholly unreasonable result. To achieve the obvious intention and produce a reasonable result we must do some violence to the words. This is not a new problem, though our standard of drafting is such that it rarely emerges. The general principle is well settled. It is only where the words are absolutely incapable of a construction which will accord with the apparent intention of the provision and will avoid a wholly unreasonable result, that the words of the enactment must prevail".
[147] In the present case, if one needs to go that far, I consider that the three conditions stated by Lord Nicholls in Inco Europe are clearly satisfied. First, the evident purpose of List C was to preserve allowances on expenditure which would have qualified for relief both before and after the enactment of FA 1994. Secondly, a drafting error has obviously been made in transposing the items from the second columns of Tables 1 and 2 in Schedule AA1 to CAA 1990. Thirdly, it is clear what Parliament was seeking to achieve in substance, and it is easy to supply wording which would have corrected the error. This could be done either by inserting the words "the provision of" between "on" and "any item" in section 23(3) of CAA 2001, or, more laboriously, by inserting the words "The provision of" before each of Items 1 to 21 in List C." (Urenco Chemplants Limited v. HMRC [2022] EWCA Civ 1587, Henderson, Thirlwall, Arnold LJJJ)
​
Detailed code leaving little room for purposive construction
“Again, as this Tribunal said in Trigg at [33], the fact that the relevant legislation is highly detailed, prescriptive or “closely articulated” does not exclude the general principle that the statutory words must receive a purposive construction. Nonetheless, it is true, as Lewison J indicated in Berry, that highly prescriptive or formulaic legislation will often give less scope for a purposive interpretation resulting in a meaning which is different from the literal meaning.” (Flix Innovations Limited v. HMRC [2016] UKUT 301 (TCC), §42, Mann J and Judge Brannan).
“…I would, however, make the general point that the provisions form a detailed and meticulously drafted code, with a series of defined terms and composite expressions, and a large number of carefully delineated conditions, all of which have to be satisfied if the relief is to be available. The schedule runs to 26 paragraphs, and occupies ten pages in Tolley's Yellow Tax Handbook for 2005-06. I emphasise this point because one of Mr Gordon's submissions for Gripple is that the schedule evinces a general intention to provide enhanced relief for expenditure on R & D, and that a generous construction should where possible be adopted in order to further that general aim. I am unable to accept this submission. It seems to me, on the contrary, that a detailed and prescriptive code of this nature leaves little room for a purposive construction, and there is no substitute for going through the detailed conditions, one by one, to see if, on a fair reading, they are satisfied. It also needs to be remembered, in this context, that the relief is a generous one, which grants a deduction for notional expenditure which has not actually been incurred. Even if the relief is not available, there will be nothing to prevent the company from deducting its actual R & D expenditure in full in the computation of its trading profits, provided only that the normal 'wholly and exclusively' test is satisfied." (Gripple v. HMRC [2010] EWHC 1609 (Ch), §12, Henderson J).
However, individual provisions within a prescriptive code may be susceptible to purposive interpretation
“Even within closely-articulated or prescriptive legislation there may be individual provisions which fall to be construed purposively in a way which would be different from a literal construction. The judgment of the Supreme Court in UBS [UBS AG & Anor v Revenue and Customs [2016] UKSC 13 [2016] 1 WLR 20 1005, [2016] STC 934, [2016] WLR(D) 133] is the most recent example.” (HMRC v Trigg (a partner of Tonnant LLP) [2016] UKUT 165 (TCC), §33, Asplin J and Judge Berner).
Detail dealing with distinct matters
“In my opinion the first four safeguards or restrictions are concerned with questions so distinct from LPP that they provide no basis for any implication that it was intended to be excluded.” (R (oao Morgan Grenfell & Co Ltd) v. Special Commissioner [2002] UKHL 21, §16, Lord Hoffmann – re whether legal professional privilege was intended to be overridden by information powers).
Purposive interpretation that statute only applies to transactions with business purpose
"[85] In summary, therefore, the reference in section 423(1) to “any contract, agreement, arrangement or condition which makes provision to which any of subsections (2) to (4) applies” is to be construed as being limited to provision having a business or commercial purpose, and not to commercially irrelevant conditions whose only purpose is the obtaining of the exemption." (UBS AG v. HMRC [2016] UKSC 13)
​
Purposive interpretation that "market value" means "value attributed to the benefit by recipient"
"We are fortified in that conclusion by a purposive construction of the provision (as endorsed by Lord Nicholls in Barclays Mercantile Business Finance v Mawson [2005] STC 1, §28). The purpose of s. 1020 is to prevent shareholders extracting value from a company untaxed. That is achieved by treating as a distribution any difference between the value of the asset transferred and the value of the benefit received by the member, where there has been an over- or undervalue of an asset transferred from one to the other. The “market value” should accordingly, in our view, be determined by reference to the value attributed to the benefit by a member of a company (sharing the attributes and knowledge of the taxpayers), rather than the value which might be placed on the relevant asset by an arm’s length third party trader.
...
[46] That last point provides the answer to the example posited by [the taxpayer] of a small company agreeing to pay £1 billion for an asset that was only worth £1000. HMRC’s case, he said, would result in a s. 1020 deemed distribution of £999,999,000, which must be incorrect. The short answer is that in such a case there could be no genuine intention to repay the sum agreed, and the market value of the promise could not in those circumstances be assessed by reference to the face value of the debt. " (HMRC v. Pickles [2022] UKUT 253 (TCC), Bacon J and Judge Ramshaw)
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Absurdities and odd results
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- If a literal construction leads to injustice or absurdity adopt another reasonably possible construction that avoids such a result
"[43] The courts will not interpret a statute so as to produce an absurd result, unless clearly constrained to do so by the words Parliament has used: see R v McCool [2018] UKSC 23, [2018] 1 WLR 2431, paras 23-25 (Lord Kerr of Tonaghmore), citing a passage in Bennion on Statutory Interpretation, 6th ed (2013), p 1753. See now Bennion, Bailey and Norbury on Statutory Interpretation, 8th ed (2020), section 13.1(1): “The court seeks to avoid a construction that produces an absurd result, since this is unlikely to have been intended by the legislature”..." (R (oao PACCAR Inc) v. CAT [2023] UKSC 28, Lord Sales)
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"[54] It is well established that the court will lean against a construction of legislation which produces absurd or unworkable results, if there is an available alternative construction which does not do so. I am persuaded that a construction of the 2002 Act which either (on a rigorous view of section 97(2)) confers sole management of estate facilities on the RTM company with a right to manage one block or, on a more realistic view, forces the RTM company and the former manager (landlord, third party or manager under the 1987 Act) or the RTM companies managing other blocks into a shared management relationship of the type contended for by the First Respondent, is both absurd and unworkable. By contrast a right to manage the premises, which extends only to the relevant building, and to facilities exclusively used by its occupying tenants, avoids all, or almost all, of those difficulties." (FirstPort Property Services ltd v. Settlers Court RTM Company Ltd [2022] UKSC 1)
​
"[23] As I have said, it is my opinion that Parliament cannot have intended that a potentially extremely wide range of post-2003 offences would be excluded from the ambit of the 2002 Act. That would produce a result which would be plainly at odds with the entire scheme of the legislation. It is, of course, possible to regard section 156 as an open and simple gateway and that, on a literal interpretation, every offence of which the defendant is convicted, whether or not it preceded March 2003, must be considered. But the absurd outcome which this would produce is a strong indication against treating the section in that way." (R v. McCool [2018] UKSC 23)
​
“In particular, if a literal construction would lead to injustice or absurdity, and the language admits of an interpretation which would avoid it, then such an interpretation may be adopted: e.g. Luke v IRC [1963] AC 557, at 577; Mangin v. Commissioner of Inland Revenue [1971] AC 739 at 746; Jenks v. Dickinson [1997] STC 853.” (Harding v. HMRC [2008] EWCA Civ 1164, §51, Lawrence Collins LJ).
"In my view the interpretation proposed by the taxpayer does produce an anomaly as it results in the accrued gain on the shares falling out of the charge to tax. If that is the result of a mistake or omission by the legislature then the only remedy is amending legislation. But if, having regard to the anomaly, and to the scheme of the legislation, s 139(1) could be interpreted to apply only to disposals of qualifying corporate bonds, that should be done in order to give effect to the intention of the legislature." (Jenks v. Dickinson [1997] STC 853)
- Strained interpretation permissible to avoid absurdity
"[21] The only principle of statutory interpretation which might enable the plain meaning of legislation to be circumvented is that it can be given a strained interpretation where that is necessary to avoid absurd or perverse consequences: see, for example, Inland Revenue Comrs v Hinchy [1960] AC 748, 768 (Lord Reid), and R (Edison First Power Ltd) v Central Valuation Officer [2003] 4 All ER 209, paras 25 (Lord Hoffmann) and 116 (Lord Millett). Indeed, even greater violence can be done to statutory language where it is plain that there has been a drafting mistake: R v Federal Steam Navigation Co Ltd [1974] 1 WLR 505, 509 (Lord Reid), and Inco Europe Ltd v First Choice Distribution [2000] 1 WLR 586, 592 (Lord Nicholls of Birkenhead).” (Shahid v Scottish Ministers [2015] UKSC 58)
​
"[25] My Lords, the presumption against double taxation is one facet of a wider common sense principle of the construction of statutes by which courts will often imply qualifications into the literal meaning of wide and general words in order to prevent them from having some unreasonable consequence which it is considered that Parliament could not have intended: see Stradling v Morgan (1560) 1 Pl 199 and, for a more recent example, R (Morgan Grenfell & Co Ltd) v Special Commissioner of Income Tax [2002] 2 WLR 1299. The strength of the presumption depends upon the degree to which the consequences are unreasonable, the general scheme of the legislation and the background against which it was enacted." (R (Edison First Power Limited) v. Central Valuation Officer [2003] UKHL 20)
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- Wide meaning of absurdity (inconvenient, pointless, artificial, disproportionate counter-mischief)
"[43] ... As the authors of Bennion, Bailey and Norbury say, the courts give a wide meaning to absurdity in this context, “using it to include virtually any result which is impossible, unworkable or impracticable, inconvenient, anomalous or illogical, futile or pointless, artificial, or productive of a disproportionate counter-mischief”..." (R (oao PACCAR Inc) v. CAT [2023] UKSC 28, Lord Sales)
​
[24] In Bennion on Statutory Interpretation (6th ed) at section 312 of what the author describes as the Code, the following statements are made:
“(1) The court seeks to avoid a construction that produces an absurd result, since this is unlikely to have been intended by Parliament. Here the courts give a very wide meaning to the concept of ‘absurdity’, using it to include virtually any result which is unworkable or impracticable, inconvenient, anomalous or illogical, futile or pointless, artificial, or productive of a disproportionate counter-mischief.
(2) In rare cases, there are overriding reasons for applying a construction that produces an absurd result, for example where it appears that Parliament really intended it or the literal meaning is too strong.”
[25] Bennion suggests that the courts have been prepared to give the concept of absurdity an expansive reach. In support of that view, he cites Lord Millett in R (Edison First Power Ltd) v Central Valuation Officer [2003] UKHL 20, [2003] 4 All ER 209 at paras 116 and 117, where he said:
“The courts will presume that Parliament did not intend a statute to have consequences which are objectionable or undesirable; or absurd; or unworkable or impracticable; or merely inconvenient; or anomalous or illogical; or futile or pointless. But the strength of these presumptions depends on the degree to which a particular construction produces an unreasonable result. The more unreasonable a result, the less likely it is that Parliament intended it ...”
See also Lord Scott of Foscote’s approval of this dictum in Gumbs v Attorney General of Anguilla [2009] UKPC 27, para 44." (R v. McCool [2018] UKSC 23)
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- Query whether anomaly must be sufficiently astonishing
“I accept that in consequence the immigrant tax avoider who makes his dispositions before taking up residence in this country would escape liability under the section. I would for my part find it fruitless to speculate whether this consequence was foreseen and accepted, or arose through inadvertence. I would not, in any event, regard it as sufficiently astonishing in itself to cast doubt on what I have described as the natural meaning of the words used…” (CIR v. Willoughby [1997] STC 995)
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- Effect depends on extent to which construction produces unreasonable result and availability of alternative construction
"[43] ... The width of the concept is acceptable, since the presumption against absurdity does not apply mechanistically but rather, as they point out in section 13.1(2), “[t]he strength of the presumption … depends on the degree to which a particular construction produces an unreasonable result”. I would add that the courts have to be careful to ensure that they do not rely on the presumption against absurdity in order to substitute their view of what is reasonable for the policy chosen by the legislature, which may be reasonable in its own estimation. The constitutional position that legislative choice is for Parliament cannot be undermined under the guise of the presumption against absurdity. There is an issue between the parties whether the presumption against absurdity provides relevant guidance in the circumstances of this case." (R (oao PACCAR Inc) v. CAT [2023] UKSC 28, Lord Sales)
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- Hesitate before accepting results contrary to business sense
“The capital gains tax is of comparatively recent origin. The legislation imposing it, mainly the Finance Act 1965, is necessarily complicated, and the detailed provisions, as they affect this or any other case, must of course be looked at with care. But a guiding principle must underlie any interpretation of the Act, namely, that its purpose is to tax capital gains and to make allowance for capital losses, each of which ought to be arrived at upon normal business principles. No doubt anomalies may occur, but in straight-forward situations, such as this, the courts should hesitate before accepting results which are paradoxical and contrary to business sense. To paraphrase a famous cliché, the capital gains tax is a tax upon gains: it is not a tax upon arithmetical differences.” (Aberdeen Construction Group Ltd v Inland Revenue Commissioners [1978] AC 885 at 892 – 893, per Lord Wilberforce, adopted in Hardy v. HMRC [2016] UKUT 332 (TCC), §29, Arnold J and Judge Sinfield).
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- Odd results only relevant if there is a real ambiguity
“The Tribunal was influenced by its perception that it would be “very odd” to permit a taxpayer to elect to claim EIS relief against the gain made on the disposal of an asset which was, for taper relief purposes, a non-business asset without also allowing the taxpayer to make such an election against different parts of a single gain arising on the disposal of a single asset. Such considerations may be relevant to resolving any real ambiguity in the terms of particular provisions, but in this case it does not appear to me that there exists any ambiguity in the provisions for EIS relief and taper relief.” (HMRC v. Stolkin [2014] UKUT 165 (TCC), §37, Richards J).
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- But ambiguity may arise from anomalies
"I am unable to accept that this strict approach is the right one. An ambiguity in a statutory provision may arise in more than one way. In the present case, s 72(4) read in the context of the Act as a whole and, in particular, in the context of s 72 as a whole, leads the reader to conclude that the statutory intention was to limit the subsection to small distributions. That was how the learned Judge read it. That was how I read it. The natural construction of subs (4) in its context is, in my opinion, that it is limited in its scope. But the absence of any express limitation makes it possible that no limitation was intended. The contrast between the limitation that would be inferred from a reading of the subsection in its statutory context on the one hand, and the absence of any express limitation on the other hand, produces, in my Judgment, an ambiguity.
Accordingly, in my opinion, it is permissible as an aid to construction as an aid to identifying the legislative intention behind s 72(4), to take into account the anomalies that the absence of any limitation to the scope of the subsection will produce. It is permissible to take account of the antecedent legislation. The 1979 Act is a consolidating Act and it is to be presumed that there was no intention to change the previous law. It is permissible to take account of the manner in which, in the 1979 Act, other types of small distributions are dealt with." (O'Rourke v. Binks 65 TC 165 at 184, Scott LJ)
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- Not permissible to disregard words of statute because of a perception of practical difficulty
“...we accept [HMRC’s] point it is not permissible to disregard the words of a statute because of a perception of practical difficulty.” (HMRC v. Leekes Limited [2016] UKUT 320 (TCC), §31, Roth J and Judge Bishopp).
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- Or lack of any obvious explanation for treating similar situations differently
​
"[38] The only countervailing consideration, to my mind, is the lack of any obvious explanation, in the statutory history or otherwise, of the different treatment of this form of loss relief. In a post-hearing note Mr Nawbatt gave a detailed account of the treatment of the various forms of loss relief under the previous legislation. This shows, as is common ground, that the pre-2007 law did not draw any material distinction between share loss relief (section 574 ICTA 1988), and trade and employment loss relief (section 380 ICTA 1988). Mr Nawbatt was also able to point to some indications in the ITA Explanatory Notes (eg in respect of section 1025, which is not directly relevant to the present case) that the authors of the notes may have assumed that share loss relief would be subject to TMA Schedule 1B, in the same way as the other forms of relief. However, taken at their highest, these indications are far from providing a basis for departing from the ordinary principles of statutory interpretation, absent any suggestion that they produce a result which is absurd or unworkable. Indeed, for the taxpayer’s liability to be determined by reference to legal archaeology of this kind would negate the whole purpose of the tax law rewrite. It is neither necessary nor appropriate for the court to speculate as to Parliament’s intentions to justify a departure from the natural interpretation of the statutory language."​ (R (oao Derry) v. HMRC [2019] UKSC 19)
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- There may be cases in which an anomaly cannot be avoided by interpretation
“But there may be cases in which the anomaly cannot be avoided by any legitimate process of interpretation: 30 eg Revenue and Customs Comrs v Bank of Ireland Britain Holdings Ltd [2008] EWCA Civ 58 at [44], [2008] STC 398 at [44].” (Harding v. HMRC [2008] EWCA Civ 1164, §51, Lawrence Collins LJ).
“This conclusion, of course, means that the aim of the legislation as a tax avoidance measure has not been achieved in the present case. However, this is because the measures, which were tailored to deal with a situation such as the present, did not have the intended effect, and admittedly failed to transfer trust gains so that they could be matched with capital payments. That being so, in my judgment it is not opento this tribunal to strain the facts, and the clear meaning and effect of the legislation, to the extent which would be necessary to produce the outcome for which HMRC argue.” (Bowring v. HMRC [2015] UKUT 550 (TCC), §92, Barling J).
Keep odd results in perspective
"That is a puzzle to which I can offer no answer, but it is in my judgment important to keep it in perspective. The problem, such as it is, is one which will arise only in the probably infrequent cases where the material time does not coincide with the date of disposal, and where the qualifying beneficiary's interest in possession did not subsist at the earlier date. There is no indication in the material before us that this relatively remote possibility has in practice given rise to any difficulty in the 14 years since entrepreneurs' relief was first enacted in its modern form, or indeed in relation to the predecessor provisions which can be traced back to the Finance Act 1985. I appreciate, of course, that this is not necessarily an answer to inferences which can legitimately be drawn from the way in which the section is drafted; and in his able submissions for HMRC, Mr Nawbatt KC, who did not appear below, was at pains to emphasise that he was not relying on section 169O as itself being the source of a further requirement which the qualifying beneficiary has to satisfy, but rather as an integral part of the overall statutory scheme which must be taken into account when construing the requirements of section 169J." (The Quentin Skinner 2015 Settlement L v. HMRC [2022] EWCA Civ 1222, Henderson, Lewison, Snowden LJJJ)
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- Parliament decided to draw a bright line test which inevitably leads to anomalies at the border
“The requirement that a Company must certify to HMRC that all the conditions of EIS relief (including that in section 173(2)(aa)) are satisfied, effectively required the Company in this case to make a declaration to HMRC that the shares being issued did not carry any preferential rights to assets on a winding up. That requirement 5 seems to us a clear “bright line” test (as Mr Pritchard described it), which would have been much easier for a company officer to understand, than a test which, on Mr Howard’s argument, required an application of the de minimis test or a test which required “a normal commercial interpretation” of the words “carry…any… preferential right”. We therefore reject Mr Howard’s submission.” (Flix Innovations Limited v. HMRC [2016] UKUT 301 (TCC), §49, Mann J and Judge Brannan).
​
“The plain legislative intent is to draw a clear, and readily understandable, dividing line between those debt securities which are exempt from CGT and those which are chargeable. That will inevitably lead to some cases where there is a difference in treatment even though a similar economic result may obtain. That is nothing more than a normal incident of the drafting of statutory conditions defining a particular statutory concept that has no independent existence outside the terms set by the legislation. That outcome is, with respect to the FTT which thought otherwise, neither illogical nor absurd. It is not for the tribunal to fill any perceived gap, or to seek to equate cases on one side of the dividing line with similar cases falling on the other side by reason of similarity in effect or economic equivalence. Purposive construction cannot go so far. To construe such legislative conditions in that way would risk undermining rather than applying the distinction determined upon by Parliament according to the plain words of the legislation.” (HMRC v Trigg [2016] UKUT 165 (TCC), §57, Asplin J and Judge Berner).
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- Anomalies arising only in unusual circumstances less of an aid to construction
“Where a particular construction produces an anomaly which only arises in the context of a rather unusual set of facts, its force as an aid to construction is, in my judgment, somewhat weakened. If, in construing a statute, the court's object is 'to ascertain the will of the legislature', it is a little easier to accept a construction which gives rise to an undisputed anomaly only in the context of a somewhat unusual series of facts, whose existence simply may not have occurred to the legislature, than where such an anomaly is comparatively self-evident or of more general application (as in Luke and O’Rourke).” (Jenks v. Dickinson [1997] STC 853 at 873).
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- Parliament may have been aware of and intended this absurdity
“The unfairness of a rule which allows no deduction for a wasting capital asset is recognised in the authorities…The very fact of those [capital] allowances indicates that the meaning of “capital” in the prohibition in section 33 remains as it was understood more than half a century ago…Thus it seems to us that we must resolve this question by reference to the understanding of “capital” in, and the reasoning of, the authorities without regard to whether or not the result might seem absurd or unfair.” (Ingenious Games LLP v. HMRC [2017] UKFTT 429 (TC), §§21…22…23, Judge Hellier).
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Differences and similarity of language
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- What parliament deals with expressly in one provision indicates it is not to be implied in related provision
"[23]...In my view again this wording suggests that there is a general charge to tax under section 103 and that the former trader (or his personal representative) is not the only recipient who falls within that charge. Parliament had no reason to spell out in (b) that the sum had to be received by the former trader or his representatives if that was inherent in section 103." (Shop Direct Group v Revenue and Customs Commissioners [2016] UKSC 7, Lord Hodge)
​
“Far from supporting Mr Howard’s argument, we consider that, in the context of a detailed and self-contained statutory regime, sections 213-15 ITA 2007 indicate that, where Parliament intended that inconsequential matters should be disregarded, it said so expressly. We therefore reject Mr Howard’s argument.” (Flix Innovations Limited v. HMRC [2016] UKUT 301 (TCC), §47, Mann J and Judge Brannan – T was arguing that an exclusion for shares with preferential rights was subject to a de minimis exception).
“We note that, in considering the arguments on the construction of s 117(1)(b), the Upper Tribunal in Klincke accepted that there was a difference in language between that provision and s 117(1)(a), which requires that the debt on the relevant security represents at all times a normal commercial loan. The absence of those words in s 117(1)(b) was significant, and the tribunal declined to construe that provision as if it had read “no provision is [or ever has been] …There was a crucial difference 25 in the language employed in the adjacent provisions.” (HMRC v Trigg [2016] UKUT 165 (TCC), §27, Asplin J and Judge Berner).
“Parliament cannot have intended s 117(2)(b) to include such conversions; its choice of different language in s 117(1)(b) and s 117(2)(b) cannot be ignored, whatever principle of construction is applied.” (HMRC v Trigg [2016] UKUT 165 (TCC), §55, Asplin J and Judge Berner).
- Unless intention indicates otherwise
​
"[34] In section 78, Parliament has thus created a specific right to interest for taxpayers who have overpaid VAT, but has done so subject to limitations, including those set out in subsections (1), (3) and (11). Those limitations are a special feature of the statutory regime and would have no equivalent in a common law claim. They would therefore be defeated if it were possible for the taxpayer to bring a common law claim. Parliament cannot have intended the special regime in section 78 to be capable of circumvention in that way. Unlike section 80, however, section 78 contains no provision expressly excluding alternative remedies. That does not prevent the exclusion of alternative remedies by implication. As Littlewoods point out, however, the critical words in subsection (1) acknowledge that there are other rights to interest which must be given priority. Read literally, those words would apply to common law rights to interest; but that reading, as we have explained, would render the limitations in subsections (1), (3) and (11) effectively pointless. How, then, are those words to be construed in the context of the provision as a whole?
...
[37] In this context, the aspect of the decision in Sempra Metals which is important is that it was accepted for the first time that a claim would lie at common law for the use value of money by which the defendant was unjustly enriched, even if the money itself had been repaid, and that the enrichment could normally be calculated by compounding interest over the period of the enrichment. That decision was not contemplated by Parliament when it enacted sections 78 and 80, many years earlier. If a claim based on the principle established by that decision were held to be available to Littlewoods, on the basis that it fell within the critical words in section 78(1) (“if and to the extent that they would not be liable to do so apart from this section”), then it would equally be available in any other case where an amount was paid under section 80. As counsel for Littlewoods accepted in argument, section 78 would effectively become a dead letter. It follows that the literal reading fatally compromises the statutory scheme created by Parliament. It cannot therefore be the construction of the critical words which Parliament intended.
[38] Is it possible to construe the critical words more narrowly than their literal sense? What source or sources of a liability to pay interest can Parliament have contemplated, which were to take priority over the liability created by section 78? Given the background which we have explained, such sources can only have been statutory. One such source is the power to award interest following a decision on an appeal, originally enacted in section 40(4) of the Finance Act 1972 and now contained in section 85A of the 1994 Act (as inserted by paragraph 223 of Schedule 1 to the Transfer of Tribunal Functions and Revenue and Customs Appeals Order 2009 (SI 2009/56)). Another is the power to award interest where an appeal is settled, originally enacted in section 25 of the Finance Act 1985, and now contained in section 85 of the 1994 Act. A third example is the power to award interest on an amount for which judgment is given, under section 35A of the Senior Courts Act 1981. The effect of the critical words in section 78(1) is to give priority to provisions such as these, and to prevent double recovery by the taxpayer.
[39] The reservation in section 78(1) (“if and to the extent that they would not be liable to do so apart from this section”) must therefore be interpreted as referring only to statutory liabilities. It is not a literal construction, but a departure from a literal construction is justified where it is necessary to enable the provision to have the effect which Parliament must have intended." (Littlewoods Limited v. HMRC [2017] UKSC 70)
​
"The approach indicated in these passages justifies, in my judgment, implying into s 72(4) the natural limitation as to its scope that would correspond with the obvious intention of the legislature, namely, that the subsection should apply only to cases where the amount of the distribution was, in comparative terms, small."
(O'Rourke v. Binks 65 TC 165 at 184, Scott LJ)
​
"[61] [The taxpayer] drew our attention to O’Rourke (Inspector of Taxes) v Binks [1992] STC 703 as an example of a case where the court transposed words expressly included in some subsections into a subsection from which they had been omitted. In that case the court considered a claim by the taxpayer to make an election under section 72(4) 40 Capital Gains Tax Act 1979 (which was a consolidating Act) in respect of a capital distribution even though it was not a “small” distribution within the meaning of the other subsections of section 72. The problem with the drafting was that although section 72(2) limited its application to small distributions, subsection (4) on its face contained no such limitation and appeared to apply wherever allowable expenditure was less than the amount distributed. The Court of Appeal held that subsection (4) was designed to 5 remedy a potential anomaly created by subsection (2). But if read literally it had an effect that went far beyond merely remedying that anomaly: page 706f. Scott LJ, with whom Stuart-Smith and Lloyd LJJ agreed, said that it was “natural” to read subsection (4) as dealing with only small distributions even though there was no express limitation of its scope." (Reeves v. HMRC [2018] UKUT 293 (TCC), Rose J and Judge Sinfield)
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- Other things being equal give the same meaning to the same words within the same area of legislation
"[60] First, the phrases are to be found in the same Act. It would be surprising if Parliament intended to give them different meanings in the same Act. Parliament did not give the phrase a special or different meaning in section 1219(3)(a): it simply amended the equivalent predecessor legislation by introducing what is a short phrase. Moreover, that phrase was already well known from other parts of the tax code, in particular what is now section 53(1). It should also be recalled that the CTA 2009 was enacted as part of the Tax Law Rewrite project. One of the purposes of that project was to set out tax legislation in a comprehensive way that could be understood by a reasonably informed taxpayer: see R (Derry) v HMRC [2019] UKSC 19; [2019] 1 WLR 2754, at paras. 7-10 (Lord Carnwath JSC). I note that, at para. 10, Lord Carnwath said that the purpose of the project was "in particular to give clear pointers to each stage of the taxpayer's journey to fiscal enlightenment."'" (HMRC v. Centrica Overseas Holdings Limited [2022] EWCA Civ 1520, Singh, Newey, Henderson LJJJ)
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“Other things being equal, the same construction should be given to the same or similar words and phrases in different sections within the same fasciculus of sections unless the context requires otherwise. This is a pointer against the construction of section 118ZC for which Mr Ghosh contends.” (HMRC v. Hamilton & Kinneil (Archerfield) Limited [2015] UKUT 130 (TCC), §77(d), Warren J).
“Secondly, while it is true that section 79(2A) refers to “a return or claim”, rather than “requisite return or claim”, it seems to me to be implicit that the words “a return or claim” refer back to the return or claim mentioned in section 79(2)(a) and (b). I consider that it would be very odd for the words “return or claim” in section 79(2A) to have a wider meaning than the same words in section 79(2), and especially odd for the word “claim” to refer to different things altogether in the two contexts.” (HMRC v. Our Communications Limited [2013] UKUT 595 (TCC), §30, Arnold J)
- Context of same phrase in related provision may indicate correct interpretation
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"[76] We are reinforced in this view in the way "relating to" is used in s224 TIOPA (set out above at [21]). Mr Ghosh submitted that this provision is neutral as between the competing interpretations of the requisite relationship but we consider that the use of "relating to" in the phrase "may contain provision relating to chargeable periods" gives the clear impression that the legislation envisages that the APA agreement drafters will need to turn their minds to, and specify, the chargeable periods to which the agreement is to apply, not least so as to ensure that the agreement does not infringe the backstop date of 27 July 1999, mentioned in s224(2). We asked at the hearing whether anything could be drawn from the fact that s224 only referred to past periods and not future periods but Mr Ghosh submitted that no such negative inference could arise from that. The specific provision in s224, he argued, is needed to give the requisite "vires" for backdating whereas there was no need to provide for future periods as they (i.e. periods after the agreement) were exactly what APAs are there to cater for. We can certainly see that that would be the case insofar as the future periods are those specified in the agreement - indeed the proposition that future periods are to be covered is reflected by the fact the agreements are called advance pricing agreements. But, s224 having made clear that the APA can look backwards (and that this must be done, we consider, with specific charging periods in mind) we do think that this implies that an APA cannot extend to future periods which are not so specified in the APA. Taking that more restrictive approach is also consistent with our starting observation above that one should err on the side of a less expansive interpretation of the scope of APAs (given their effect of disapplying the statutory regime that would otherwise apply)." (R (oao Refinitiv Limited) v. HMRC [2023] UKUT 257 (TCC), Green J and Judge Raghavan)
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- Presumption that difference in language used to describe comparable concepts intended to reflect differences in meaning
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“In the ordinary course, there is a presumption that the same expression used in different provisions of a statute has the same meaning wherever it appears. There is also a presumption that differences in the language used to describe comparable concepts are intended to reflect differences in meaning. But the latter presumption is generally weaker than the former, because the use of the same expression is more likely to be deliberate. It will readily be displaced if there is another plausible explanation of the difference.” (Plevin v. Paragon Personal Finance Ltd [2017] UKSC 23, §22, Lord Sumption)
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- Parliament using different phrases to refer to the same concept
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“[the taxpayer] pointed out that Parliament had deliberately used the expression “profits of the company’s ring fence trade” instead of the defined expression RFP. He must therefore have intended something different. It followed that “adjusted ring fence profits” did not simply mean RFP as adjusted… It would make little sense of that part of the legislation if the sum liable to the Supplementary Charge was not defined in terms of “ring fence profits”, albeit adjusted.” (Wintershall (E&P) Limitd v. HMRC [2015] UKUT 334 (TCC), §§19…21, Lord Glennie).
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- Do not import meanings from other contexts unless the words have a clear and well-established meaning
“It is well-established that the proper approach to statutory construction is to interpret the actual words used in their statutory context, without importing assumptions from the way those words are or may be used in other contexts unless, of course, and this is not such a case, the words used have such a clear and well-established meaning that it is to be assumed, unless the contrary is shown, that Parliament must have used them in that sense.” (Wintershall (E&P) Limitd v. HMRC [2015] UKUT 334 (TCC), §20, Lord Glennie).
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"Paid" having different meanings in different contexts
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"[27] We accept that, viewed in isolation, “paid” is broad enough to encompass non-monetary payments. That, however, is not enough to determine this case. As can be seen from Brutus v Cozens, Pollen Estate and, in particular, Irving at [39] and [45], context is key. The outcome of HMRC’s appeal depends on whether “paid” in section 188(1) must be construed, not in isolation but in the context of Chapter 4 of Part 4 FA 2004, as “paid in money”. The cases relied on by Ms Murray concerned different facts and legislation and, accordingly, the context was different.
...
[31] We accept Mr Bradley’s submission that section 195 is an extension of the relief under section 188. Section 195 informs the way we read “contributions paid” in section 188(1). In our view, it makes no sense, in the context of provisions to relieve contributions to pension schemes, to restrict relief for transfers of eligible shares to a period of 90 days from acquisition if transfers of non-eligible shares or other assets are not so limited. That logical inconsistency disappears if “contributions paid” is interpreted as restricted to monetary contributions." (HMRC v. Sippchoice Ltd [2020] UKUT 149 (TCC), Roth J and Judge Sinfield)
- If Parliament imports a definition, it must have the same meaning as in the earlier statute
"[50] Where a term in a later statute is defined by reference to a definition in an earlier statute, it seems to me self-evident that the meaning of the definition in the later statute must be the same as the meaning of the definition in the earlier statute. Hence, the meaning of the term in the later statute is determined by the definition in the earlier statute. Further, the adoption of the definition in the later statute cannot somehow alter the meaning of the definition in the earlier statute. It accordingly follows that one has to determine the meaning of the term in the later statute simply by construing the definition in the earlier statute. Thus, the meaning of "trustee" in section 21(1)(a) must be determined by construing the definition of "trustee" in section 68(1)(17) of the 1925 Act ("section 68(1)(17)"). In the light of Lord Mance's judgment, it is, I think, important to emphasise that the way in which the definition of "trustee" in section 68(1)(17) is incorporated into the 1980 Act appears to leave no scope for contending that the meaning of the expression in the 1980 Act can somehow be different from that which it bears in the 1925 Act." (Williams v. Central Bank of Nigeria [2014] UKSC 10, Lord Neuberger)
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Terms of art
"Decisions of the court upon the meanings of phrases used in Acts of Parliament may come, in the course of time, to give them the quality of terms of art which Parliament may well be assumed to have intended them to bring with them when used in subsequent legislation. In section 265, for example, terms such as "domiciled," "personally present," "ordinarily resident," have had attributed to them, both in the context of bankruptcy and in that of civil procedure generally, a wealth of refined construction which it is difficult to suppose Parliament did not intend equally to apply when those words were used in the Act of 1986. Is there any reason why that should not apply equally to the words "has carried on business?" There does not seem to me to be anything in the policy of the new Act which suggests that in this provision Parliament was intending to give those words a different meaning from those which they had been held to bear under the Act of 1914." (re a Debtor [1992] Ch 554, Hoffmann J)
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"Unless the context otherwise requires"
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- Allows partial adjustment of definition
[75] However, here a statute imports a complex, many-limbed definition from another statute and provides that the definition applies in a number of different places in the importing statute. We do not see that it makes sense to treat the qualifying words that Parliament has included in s 288 as requiring a choice between applying every element in the definition or none...
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[77] Newfields therefore recognises that where a definition has been drafted for one purpose but is imported into another context for a different purpose one must take care in applying it in that other context not to include unsuitable elements that arrive at results which are illogical or which require one to take into account an irrelevant consideration. Again, we recognise that this case is not on all fours with Newfields because there is no doubt that the associate attribution rule is part of the definition of 'control' and not some additional wording which is intended only to apply in the original context of defining close companies. But it would not be possible to follow Lord Hoffmann's guidance if one were faced with the choice of either applying s 416 in its unmodified entirety or disapplying it." (Reeves v. HMRC [2018] UKUT 293 (TCC), Rose J and Judge Sinfield)
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Definition deliberately not incorporated (use ordinary meaning)
"[43] We conclude that “market value” for the purpose of s. 1020 is not to be interpreted as the “open market” value as defined in s. 272 of TCGA or any other similar provisions. Had the drafter intended that to be the case then a definition to that effect would, in our view, have been included as in s. 609 and s. 210. We agree with HMRC that we cannot directly import definitions used for the purposes of other taxes, as the statutory provisions are different." (HMRC v. Pickles [2022] UKUT 253 (TCC), Bacon J and Judge Ramshaw)
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Settled interpretation and novelty
Novelty is no bar to an interpretation being correct but gives pause for thought
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“[148] I have even greater reservations about the so-called “customary meaning” rule. As just mentioned, a court should not lightly decide that a statute has a meaning which is different from that which the court believes that it has. Indeed, so to decide could be said to be a breach of the fundamental duty of the court to give effect to the will of Parliament as expressed in the statute.” (R (N) v. Lewisham LBC [2014] UKSC 62, Lord Neuberger).
“[168] I also share Lord Neuberger PSC's reservations about the “so-called customary meaning rule”. In In re Spectrum Plus Ltd [2005] 2 AC 680, the House of Lords was not deterred from over-ruling a decision of a highly respected High Court judge as to the effect of the wording of a particular debenture in common use, despite the fact that his decision had stood and been relied on by the banks for many years.” (R (N) v. Lewisham LBC [2014] UKSC 62, Lady Hale).
"[71] We were informed by Ms McCarthy that the researches of HMRC have failed to come across any decision in which section 118(2), enacted 48 years ago, has previously been given the meaning attributed to it by the UT. While I accept, as the UT said in their Decision at [67], that "Novelty is no bar to the section having a wider application than many may have assumed in practice to date", it gives pause for thought." (HMRC v. Raftopoulou [2018] EWCA Civ 818, David Richards LJ)
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Settled interpretation
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Principle (if there is one) based on contemporaneous exposition
“An important element in the construction of a provision in a statute is the context in which that provision was enacted. It is plain that those affected by the statute when it comes into force are better placed to appreciate that context than those subject to it 30 years later. The 1981 Act was introduced as a successor to legislation of similar character dating back to 1935. I would not readily have been persuaded that those who, when the 1981 Act came into force, charged and paid levies on imports of fish and fish products had misunderstood the effect of the Act.” (Bloomsbury International Ltd v. Department for Environment, Food and Rural Affairs [2011] UKSC 25, §61, Lord Phillips).
Act interpreted in a particular way without dissent over a long period
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“It is unnecessary in my view to attempt a general reconciliation of these various conflicting strands of authority or to explore the full breadth of the principle which they illustrate. My own respectful view is that Lord Blackburn's more liberal view is supported by considerations of common sense and the principle of legal certainty. Where an Act has been interpreted in a particular way without dissent over a long period, those interested should be able to continue to order their affairs on that basis without the risk of being upset by a novel approach.” (Isle of Anglesey County Council v. Welsh Ministers [2009] EWCA Civ 94, §43, Carnwath LJ).
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Parliament re-uses words that have been given authoritative judicial interpretation
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"[26] There is another principle of statutory interpretation (usually referred to as the Barras principle). This principle is that where words in an Act of Parliament have been given a clear and authoritative judicial interpretation, and Parliament uses the same words in a subsequent Act in a similar context, those words will be taken to have been used in the same way as the courts had previously interpreted them: Barras v Aberdeen Steam Trawling and Fishing Co Ltd [1933] AC 402. But since we are concerned with guidance given by HMRC rather than with court rulings, that principle is not in play." (Hyman v. HMRC [2022] EWCA Civ 185, Lewison LJ)
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HMRC practice may support taxpayer
“This is not a decisive consideration, but in choosing between competing constructions of a taxing provision it is legitimate, I think, to incline against a construction which the revenue are unwilling to apply in its full rigour, but feel they must mitigate by way of extra-statutory concession, recognising, presumably, that in some cases their construction would operate to produce a result which Parliament can hardly have intended.” (Wicks v. Firth [1983] 2 AC 214 at 231 per Lord Bridge).
But maybe only where it is consistent with natural meaning:
“In our view Lord Bridge’s comments in Wicks may be distinguished. Lord Bridge was already (at pp 229-230) leaning towards an interpretation based on the natural meaning of the provision before him without any straining of language. 35 Mr Prosser on the other hand invited this tribunal to move away from such a natural meaning.” (Spritebeam Limited v. HMRC [2015] UKUT 75 (TCC), §28, Proudman J and Judge Bishopp).
However:
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"[44] Nonetheless, the fact that HMRC’s pensions tax manual contains passages that support Sippchoice’s case carries little weight in this case. Sippchoice has not sought to make any argument that it relied on the passages or had a legitimate expectation that HMRC would not resile from them. Statements in HMRC’s manuals are merely HMRC’s interpretation of the law in their internal guidance and they do not have the force of law. We must interpret the legislation in accordance with the principles of construction described above and if we conclude, as we have, that the legislation bears a different meaning to that found in the HMRC manual, the legislation must be preferred." (HMRC v. Sippchoice Ltd [2020] UKUT 149 (TCC), Roth J and Judge Sinfield)
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Not when interpreting an international treaty
"The unilateral practice of a taxing authority – no matter how well-advised – is not material that can support or contradict a particular interpretation of a treaty.” (Irish Bank Resolution Corporation Ltd v. HMRC [2019] UKUT 277 (TCC), Marcus Smith J and Judge Herrington - bilateral practice is admissible - §30).
Do not imply Parliamentary approval from failure to Act
“Under this heading, Mr Chamberlain relies on a passage in Bennion on Statutory Interpretation, 6th ed (2013), p 661:
“Parliament is normally presumed to legislate in the knowledge of, and having regard to, relevant judicial decisions. If therefore Parliament has a subsequent opportunity to alter the effect of a decision on the legal meaning of an enactment, but refrains from doing so, the implication may be that Parliament approves of that decision and adopts it. This is an aspect of what may be called tacit legislation.”
With respect to that distinguished author, I have difficulty with the phrase “tacit legislation”, if it is intended to connote some form of silent endorsement by Parliament implied from its failure to act. As Lord Nicholls made clear, Parliament legislates by what it says, or what is said under its authority, not by what it does not say.” (R (N) v. Lewisham LBC [2014] UKSC 62, §§81 – 82, Lord Carnwath).
Unless, perhaps, there has been a judicial decision at the time of re-enacting the same wording
“Whatever the true scope of the principle, I do not find the expression “tacit” legislation a very apt description. In such cases Parliament has not remained silent. Rather, the previous court decision (even at a level below the highest court) is relevant, because it is part of the background against which Parliament has spoken, and by reference to which accordingly its intention can properly be ascertained… In any event, we were referred to no authority which has applied that principle to a case where, as here, the most that can be said is that Parliament has failed to take what might have seemed an obvious opportunity to legislate. Absence of legislation may be governed by many factors which have nothing to do with the perceived merits of a possible change, not least parliamentary time and other Government priorities.” (R (N) v. Lewisham LBC [2014] UKSC 62, §§84 – 85, Lord Carnwath – Lord Hodge concurred (§53), Lord Neuberger and Lady Hale expressed doubts (§148, §168).
“Where once certain words in an Act of Parliament have received a judicial construction in one of the Superior Courts, and the legislature has repeated them without alteration in a subsequent statute, I conceive that the legislature must be taken to have used them according to the meaning which a court of competent jurisdiction has given to them.” (re Cathcart (1870) LR5 Ch App 703 at 706 per James LJ)
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Primary legislation often confers a right without complete code to exercise right
"[48] Where primary legislation confers a particular right it is not always (or even often) the case that it prescribes a complete code for the effective exercise of that right. That is commonly left to subordinate legislation. Where, as here the right in question is part of the rights embodied in the concept of access to justice, the procedure for its exercise is usually left to rules of court." (Attorney General v. Crosland [2021] UKSC 58)
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Interpreting tax rewrite statutes
"[9] In Eclipse Film Partners (No 35) LLP v Comrs of Her Majesty’s Revenue and Customs [2013] UKUT 639 (TCC); [2014] STC 1114 Sales J, likened the correct approach to statutory interpretation to that appropriate to a consolidation statute (as explained by the House of Lords in Farrell v Alexander [1977] AC 59):
“When construing a consolidating statute, which is intended to operate as a coherent code or scheme governing some subject matter, the principal inference as to the intention of Parliament is that it should be construed as a single integrated body of law, without any need for reference back to the same provisions as they appeared in earlier legislative versions. … An important part of the objective of a consolidating statute or a project like the Tax Law Rewrite Project is to gather disparate provisions into a single, easily accessible code. That objective would be undermined if, in order to interpret the consolidating legislation, there was a constant need to refer back to the previous disparate provisions and construe them …” (para 97)
[10] I would respectfully endorse this guidance, which should be read with Lady Arden’s comments (paras 84-90) on the relevance of prior case law. At the same time I would emphasise that the task should be approached from the standpoint that the resulting statutes are intended to be relatively easy to use, not just by professionals but also by the reasonably informed taxpayer, and that the signposts are there for a purpose, in particular to give clear pointers to each stage of the taxpayer’s journey to fiscal enlightenment." (R (oao Derry) v. HMRC [2019] UKSC 19)
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Not to be interpreted to conform precisely with preceding legislation if natural meaning differs
“The Corporation Tax Act 2010 formed part of the tax code rewrite: it was an Act “to restate with minor changes…certain enactments”. It was not a pure consolidating Act. It should not be interpreted so as to conform precisely with the legislation it supersedes if a difference in meaning is the natural meaning of the words used; nor should earlier legislation necessarily be construed so as to conform with the clear meaning of the superseding legislation.” (HMRC v. Hamilton & Kinneil (Archerfield) Limited [2015] UKUT 130 (TCC), §67, Warren J).
Not necessary to look at previous law if word used unambiguous and can be construed satisfactorily
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"[47] Lady Arden’s comments were not necessary for determination of the appeal in Derry and the effect of Farrell v Alexander regarding reference to the case law interpreting statutory provisions as they appeared prior to consolidation was not the subject of any written or oral submissions in Derry. It is not necessary in the present appeal to consider whether what was said in Derry is consistent with what was said about consolidation statutes in Farrell v Alexander nor how that would apply to a Tax Law Rewrite Project statute. In the present case, the use of the word ‘incurred’ is different from the earlier wording considered in Lowry; it is a plain English word that is unambiguous and can be construed satisfactorily in its context without the need to consider any glosses or baggage that might have attached itself to the earlier, pre-Rewrite provisions." (HMRC v. NCL Investments Ltd [2022] UKSC 9)
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Query whether it is permissible to look at previous case law
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"[47]...However, given the prominence which the comments of Lord Carnwath and Lady Arden in Derry were given in parts of HMRC’s submissions, we think we should sound a note of caution that in a future case it may be necessary to give further consideration, with the benefit of submissions on the issue, as to whether and when it is appropriate to refer to earlier case law either in relation to a consolidation statute properly so called or to a Tax Law Rewrite Project statute." (HMRC v. NCL Investments Ltd [2022] UKSC 9)
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"[87] It would often be laborious for a court to investigate what provisions had been consolidated in any particular provision of a consolidating statute. It would be wrong in general for it to do so. The process of drafting a consolidation statute requires specialist techniques and skills and can be very complex.
[88] But the position is different in relation to prior case law. The restraint required by the House of Lords in Farrell v Alexander [1977] AC 59 relates to legislative history, and not to relevant antecedent case law. Moreover, in practice, even where a statute is a consolidation statute, courts often look at previous case law on provisions that are consolidated to assist them interpret the new provision where there is any doubt or simply to confirm the view that they have formed. This is good sense in the interest of the consistency of the law, the fulfilment of Parliament’s presumed intention and the efficient use of judicial resources.
[89] There is a further issue, yet to be resolved, as to the application of the doctrine of precedent where there is a previous binding decision on the same provision in the earlier enactment: see the discussion in Bentine v Bentine [2016] Ch 489.
[90] Reference back to the earlier case law does not undo the good work done by the consolidation, or run counter to it, since Parliament is likely to have had the previous case law in mind in any event when enacting the consolidating statute without any pre-consolidation amendment." (R (oao Derry) v. HMRC [2019] UKSC 19)
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Apply previous case law if same wording is re-enacted
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"[64] Fourthly, the concept of "items of a capital nature" has a very long history in the case law going back for almost a century. I will return to that case law later. It can reasonably be presumed therefore that, in enacting a similar provision in 2004, the intention of Parliament was to adopt the meaning which had been given to that concept in the case law.
[65] In R (N) v Lewisham London Borough Council [2014] UKSC 62; [2015] AC 1259, the Supreme Court re-affirmed the well known principle in Barras v Aberdeen Steam Trawling and Fishing Co Ltd [1933] AC 402. At para. 53, Lord Hodge JSC said that:
"… where Parliament re-enacts a statutory provision which has been the subject of authoritative judicial interpretation, the court will readily infer that Parliament intended the re-enacted provision to bear the meaning that case law had already established …"
[66] In my view, what Parliament did in 2004 is analogous. This indicates that Parliament intended that the phrase "expenses of a capital nature" should be interpreted in accordance with the meaning which it had acquired in the case law on what is materially the same phrase in other parts of the tax code." (HMRC v. Centrica Overseas Holdings Limited [2022] EWCA Civ 1520, Singh, Newey, Henderson LJJJ)
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Human rights
Not for the domestic court to adjudicate within the margin of appreciation left by European Courts
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"[85]...As has been explained, the margin of appreciation is itself a principle of interpretation. When the European court finds that the contracting states should be permitted a margin of appreciation, it does not cede the function of interpreting the Convention to the contracting states, or enable their domestic courts to divide that function between their domestic institutions. Contracting states can of course create rights going beyond those protected by the Convention, but that power exists independently of the Convention and the Human Rights Act, is not dependent on the margin of appreciation doctrine, and is exercisable in accordance with long-established constitutional principles, under which law-making is generally the function of the legislature." (R (oao Elan-Cane) v. Secretary of State for the Home Department [2021] UKSC 56)
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- Discriminatory treatment producing anomalous results contrary to ECHR and read down
"[115] We accept that although tax avoidance in a broad sense is a legitimate aim of the provision, the literal interpretation of section 167(2) fails on proportionality grounds because of the anomalous position it creates. The importance of bright lines as a justification for discriminatory treatment in the context of Article 14 was also considered by the Supreme Court in Brewster. Lord Kerr cited at [60] a passage from the joint dissenting judgment of Lord Sumption and Lord Reed JJSC in R (Tigere) v Secretary of State for Business, Innovation and Skills (Just For Kids Law intervening) [2015] 1 WLR 3820. They described the advantages of a clear rule as being capable of being applied accurately and consistently, simplifying administration to enable speedy decisions to be made particularly where there is a need to process a very large number of applications within a short time. Lord Kerr contrasted the position in Tigere with the position in the instant case where no thought was given to possible difficulties with administration that might arise if the surviving cohabitee nomination procedure was not included in the new scheme. Further the respondent had not been able to produce tangible evidence that there would be significant problems if the requirement was abandoned: “Vague suggestions as to the workability of the scheme and the advantages of actuarial predictions were made but these were not supported by evidence”: [62].
[116] In our judgment, it is impossible to justify the application of section 167(2) by reference to the residence or non-residence of a spouse who holds no interest in the company to which the gift is being transferred. Indeed, the application of the provision in circumstances where the taxpayer happens to have a relative living abroad strikes us as precisely the kind of provision at which Article 14 in conjunction with A1P1 is aimed. First, its application is entirely unexpected. No UK resident taxpayer transferring a gift to a company which is wholly owned by other UK resident shareholders would expect to have any difficulty with relying on section 165(4) because of the operation of section 167(2). They are unlikely to seek advice in relation to the issue. It would be a very sharp-eyed adviser who would think of checking with his client the tax residence status of all his parents and grandparents, children and grandchildren, brothers and sisters. It operates as a potential trap for taxpayers and their advisers when trying to plan for the future of their business.
[117] Secondly, its application is entirely arbitrary because there is no reason why that taxpayer should be treated differently depending on the answers to those questions.
[118] Thirdly it may well be the case that many taxpayers over the years have claimed holdover relief in their self-assessment, this has not been queried by HMRC and they have successfully relied on section 165 when in fact on the literal interpretation they were not entitled to do so. It is therefore a provision which in fact places a discretion in the hands of a taxing authority to choose in respect of which taxpayers’ self-assessments it will open an enquiry in the expectation that in many cases there will be a non-resident associate within the taxpayer’s wider family whom they can point to, thereby depriving that particular taxpayer of holdover relief. We are not of course suggesting that HMRC have, in this instance, behaved in such a manner or that they ever would. But this is a provision which is open to abuse by a taxing authority which might be so minded..." (Reeves v. HMRC [2018] UKUT 293 (TCC), Rose J and Judge Sinfield)
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