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You know what I mean: statutory construction

In construing legislation, the basic assumption is that the law means what it is says and says what it means.  It is assumed that Parliament knew what it was trying to achieve and was capable of passing legislation that achieved it.

Sometimes it becomes apparent that our elected representatives failed on one or both of those aspirations.

In HMRC v Martin [2020] UKUT 0159 (TCC), HMRC appeared in their capacity not as a tax collection agency but as a supervisory authority under the Money Laundering Regulations.  The Upper Tribunal (‘UT’) was called upon to make the best sense it could of one of those regulations.   Although it was not a tax case, the case is a wonderful example of the process of statutory construction, so to that extent is relevant to all legislation including tax law.

Under the money laundering rules, certain businesses may be lawfully carried on only if registered with a supervisory authority.  Mr Martin carried on such a business and HMRC was his regulatory authority.

The issue was that the regulation in question provided that a ‘relevant person’ such as Mr Martin

“may not carry on the business or profession in question for a period of more than six months beginning on the date on which the supervisory authority establishes the register unless he is included in the register.”

HMRC had established its register on 1 January 2019.  The First-tier Tribunal (‘FTT’) considered that the meaning of the words used in the regulation was clear.  The ‘date on which the supervisory authority establishes the register’ was 1 January 2019.  Therefore if the ‘relevant person’ was not carrying on the business on 1 January 2019 he could not as a matter of fact have been carrying on the business ‘for a period of more than six months’ (or for any period at all, for that matter) ‘beginning on the date on which the supervisory authority establishes the register’ so could not be in contravention of the regulation.

The UT grudgingly admitted that the FTT’s interpretation was ‘perhaps tenable as a purely linguistic matter’ (translation – yes, that is what the words actually say) but could not have been what Parliament intended the legislation to mean, for it would have had the absurd result that the Money Laundering Regulations applied only to businesses that existed at some arbitrary point in time.  The rules could only be read as ‘requiring both new and existing businesses to be subject to an ongoing registration requirement’.

That left the Tribunal with the Procrustean task of making the words fit the meaning they ought to have: a back-to-front way of interpreting legislation, but one to which the judicial system is sometimes forced to resort.

HMRC’s view was that the regulation meant that the prohibition on a relevant person’s carrying on a business came into force six months after the register was established – a construction that, as the UT conceded with notable meiosis ‘does not, without regard to the underlying purpose of the scheme, of regulation, readily leap out from the wording but takes some unravelling.’  The Tribunal thought that the regulation might equally well mean that there was a period of grace for any business such that ‘all businesses, and not just those in existence when the register was established, would benefit from a six-month grace period.’  In the end it didn’t matter, because on either construction Mr Martin had contravened the regulation and had rendered himself liable to pay a penalty.

The lesson? Sometimes Parliament does not mean what it plainly said.

For more information, please get in touch with your usual BKL contact or use our enquiry form.

This article was republished in Tax Journal (Issue 1489) and is available on the Tax Journal website.

Anthony Newgrosh

Partner, Head of Business Tax

T +44 (0)20 8922 9144

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