QUEEN'S BENCH DIVISION
Strand, London, WC2A 2LL
Judgment handed down at
Leeds Combined Court Centre
The Courthouse, 1 Oxford Row,
Leeds, West Yorkshire LS1 3BG
B e f o r e :
| R (on the application of HUDSON CONTRACT SERVICES LTD)
|- and -
|THE SECRETARY OF STATE FOR BUSINESS, INNOVATION AND SKILLS
|- and -
|THE CONSTRUCTION INDUSTRY TRAINING BOARD
Sam Grodzinski QC and Brendan McGurk (instructed by the Govrnment Legal Department) for the Defendant and (instructed by Fieldfisher LLP) for the Interested Party
Hearing dates: 1-2 March 2016
Crown Copyright ©
Mr Justice Kerr:
any arrangement, not being a contract of service or of apprenticeship, made between an employer and any other person or persons whereby the services (including any incidental use of tools) of such person or persons, or of any person or persons in his or their employment, are rendered to the first mentioned employer in his trade or business.
any arrangement, not being a contract of service or of apprenticeship, made between an employer and any other person or persons whereby the services (including any incidental use of tools) of such person or persons, or of any other person or persons were rendered to the employer in his trade or business.
- A was again an "averaged per capita" but this time applied to employed workers only;
- B was one per cent of the payments made under labour-only agreements to self-employed workers during the relevant levy period;
- C was a corresponding one per cent of payments received by an employer from another employer under a labour-only agreement in respect of work done under a labour-only agreement at or from an establishment; and
- D was a fixed sum of £20.
- A was 0.5 per cent of the aggregate of the "emoluments and payments intended to be disbursed as emoluments which have been paid or are payable to or in respect of persons employed by the employer in respect of the base period";
- B was 1.5 per cent of payments, other than payments not made in respect of the provision of services, made to any persons during the base period under labour-only agreements in respect of work carried out at or from the establishment; and
- C was 1.5 per cent of payments received by an employer during the base period, other than payments not received in respect of the provision of services, from any other employer under labour-only agreements in respect of work carried out at or from the establishment.
any agreement or arrangement (other than a contract of service, a contract of apprenticeship or a contract which requires substantial use of plant or specialist equipment or both) between an employer and any other person, the purpose of which is wholly or mainly the provision of services (not including professional services) of such a person or any other person to the employer.
The preferred solution, referred to as Net CIS, [is] that Levy is no longer generated on payments employers make to labour-only sub-contractors , but instead on the labour element of payments made to sub-contractors taxed (Net paid) by way of HMRC Construction Industry Scheme (CIS).
(2) In respect of the third levy period, the amount of the levy to be assessed in respect of each construction establishment is
A + B
A is an amount equal to 0.5% of all emoluments which have been paid or are payable by the employer to or in respect of persons employed by the employer at or from the establishment in the relevant base period; and
B is an amount equal to 1.25% of the relevant part of all contract payments made by the employer at or from the establishment in the relevant base period.
(3) "Contract payment" has the meaning given to it by section 60 of the Finance Act 2004.
(4) The relevant part of a contract payment is the part of the contract payment in respect of which the relevant percentage is applied for the purpose of section 61 of the Finance Act 2004.
Parliament must be presumed not to legislate contrary to the rule of law. And the rule of law enforces minimum standards of fairness, both substantive and procedural. . It is true that the principle of legality only has prima facie force (R. v. Secretary of State for the Home Department ex p. Pierson  AC 539, 591E-F).
The House held that the Secretary of State did not have the power to increase a prisoner's tariff after it had lawfully been fixed.
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  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.
26. The specific presumption against double taxation was considered by the House of Lords in Regina v Inland Revenue Commissioners, ex parte Woolwich Equitable Building Society  1 WLR 1400 That case also concerned a power in general terms to make regulations; in that case, for the taxation of building society interest. The Society complained that the effect of the regulations was to make it subject to tax in respect of payments of interest which had already been taxed in a previous year and that the statute should not be construed as permitting such double taxation. But the House of Lords held that the background to the enactment of the statute made it clear that this was exactly what Parliament had in mind. Lord Oliver of Aylmerton said (at pp. 141213):
"The suggested inhibition against such cumulative taxation lies not in the words which Parliament has chosen to use but in certain well-established presumptions or principles a presumption against double taxation, a presumption that income tax, being an annual tax, is payable only on income of a particular year and so on. But these are only presumptions. They are clearly rebuttable if sufficiently clear express words are used.
27. But they can also be rebutted, as it seems to me, by circumstances surrounding the enactment of the particular legislation which lead to an inevitable inference that Parliament intended, in using the words that it did, that these presumptions or principles should not apply." In the present case, there was a division of opinion in the Court of Appeal about whether it really was an example of double taxation....
28. I do not think that it advances the argument to debate whether this is really a case of double taxation or not. The question is whether the Act authorised what actually happened, whatever you choose to call it. .
114. My Lords, I have no doubt, and the Secretary concedes, that Dyson LJ's analysis of the effect of the legislation is correct, and that the question has to be addressed as a matter of substance and not as a matter of form. I also have no doubt that it is generally regarded as oppressive for the same person to be taxed twice over in respect of the same matter: IRC v Clifforia Investments Ltd  1 WLR 396; IRC v FS Securities Ltd  1 WLR 742 at p 751. The present, however, is not such a case.
115. There is not, in my opinion, necessarily the same objection to double recovery where two different persons are taxed in respect of the same matter. In Furniss v Dawson  AC 474 at p 525 Lord Brightman observed that there was an element of double taxation whenever a shareholder sells at a profit his shares in a company that has itself realised a capital asset at a profit, but that he did not see any undesirable element of double taxation in such cases.
116. This shows that the presumption against double taxation is not a strong presumption which gives effect to a high constitutional norm, like the presumptions against the abrogation of the privilege against self-incrimination or legal professional privilege. It is rather a species of a wider genus, viz. the presumption that Parliament intends to act reasonably: see IRC v Hinchy  AC 748 at p 767 per Lord Reid. 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.
117. 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 (in a contractual context) Wickman Machine Tool Sales Ltd v L Schuler AG  AC 235 at p 251 per Lord Reid. I do not, therefore, find it profitable to discuss whether the effect of the ESI Order amounts to "double taxation" or "double assessment" (whether straightforward or not) or the rather less objectionable "double recovery". I would prefer to go straight to the real question: whether the scheme established by the ESI Order is so oppressive, objectionable or unfair that it could only be authorised by Parliament by express words or necessary implication.
(1) that the fundamental purpose of the levy is, and has always been, to raise the funds necessary to ensure adequate training of workers in the construction industry, and not any wider purpose;
(2) that the levy has always been recognised in the various orders, and in the documents preceding the 2015 Order, as a levy on the cost of labour (employed or self-employed) only, i.e. on "emoluments";
(3) that levy is raised, to avoid "double counting", only on the "last link in the chain"; thus an employer can offset receipts against payments, so that only the employer who actually pays for the labour is charged;
(4) that levy is akin to a payroll tax raised once only, and not more than once, in respect of a particular piece of work done, whether by an employee or self-employed; this again avoids double counting.
(1) the purpose of the levy was expressly changed by the 1981 Act from "encouraging adequate training in the industry" to "raising money towards meeting its [a board's] expenses" (as set out earlier in this judgment);
(2) it is not correct that levy was always raised by reference to the direct cost of labour, as in the case of a payroll tax; from 1970 until 1990, the levy was raised, in varying ways, by reference to a per capita charge per worker;
(3) the legislative history discloses no required or consistently used formula for raising the levy; the history shows that different methods were favoured over different periods during that history, with no uniform pattern and no requirement for there to be one;
(4) the raising of levy by reference to "emoluments" did not mean that levy could only be raised on emoluments; at various times, it could also be raised on "sums intended to be disbursed as emoluments", which could include sums paid to third parties in respect of labour;
(5) while previous levy orders incorporated a set-off provision which meant that only the last employer in the "chain" of payments was required to pay levy, that was not a consequence of any mandatory provision in the primary legislation; there was none.
settled practice may, in appropriate circumstances, be a legitimate aid to statutory interpretation. Where the statute is ambiguous, but it has been the subject of authoritative interpretation in the lower courts, and where businesses or activities, public or private, have reasonably been ordered on that basis for a significant period without serious problems or injustice, there should be a strong presumption against overturning that settled practice in the higher courts. This should not necessarily depend on the degree or frequency of Parliamentary interventions in the field. As in the Anglesey case, the infrequency of Parliamentary intervention in an esoteric area of the law may itself be an added reason for respecting the settled practice. On the other hand it may be relevant to consider whether the accepted interpretation is consistent with the grain of the legislation as it has evolved, and subsequent legislative action or inaction may be relevant to that assessment.
the activities of any establishment engaged wholly or mainly in activities not being construction activities or activities described in the Appendix to this Schedule; or to a less extent [sic] in construction activities than in activities described in that Appendix in relation to any one industry (paragraph 2(a)(i) and (ii)).