R (Beech Developments (Manchester) Ltd & others) v HMRC
The claimants, Beech Developments LTD, made a judicial review application against HMRC’s decision not to issue ‘non-liability directions’ under the construction industry scheme (CIS). The claim revolved around the interaction between liability determinations (by which HMRC can assess a taxpayer amount that it has failed to deduct under the CIS) and HMRC’s power to issue non-liability directions (by which HMRC can direct that the taxpayer is not liable to pay such amounts, provided that the relevant conditions are met). The claimant’s position was that, correctly construed, the relevant legislation gave HMRC the power to issue non-liability directions in relation to amounts that were already the subject of a liability determination and that not to use that power was unlawful.
HMRC claimed, on the other hand, that the legislation does not allow non-liability directions to be issued in respect of the amounts already included in a liability notice. The High Court agreed with HMRC and dismissed the appeal, holding that if a liability determination is issued first, then amounts which are part of that determination cannot be the subject of a non-liability direction. Whilst the High Court did acknowledge that this meant HMRC could ‘abuse’ its power by issuing a liability assessment before any taxpayer had the opportunity to consider applying for a non-liability direction, it noted that HMRC’s constitutional obligation to act lawfully, reasonably and fairly acted as a safeguard.
Fordham J granted permission to appeal to the Court of Appeal.