© 2025 by Michael Firth KC, Gray's Inn Tax Chambers
Contact: michael.firth@taxbar.com
E3. Explanatory notes
Nature of explanatory notes
"Explanatory notes were introduced in about 1996 and they are drafted by or under the aegis of Parliament and published with the bill to which they relate. They are published again in an updated form when the Act receives Royal Assent. Their function is to explain the bill for the benefit of the Parliament in plain English. It is now clear that explanatory notes are admissible on interpretation. They are freely available on Parliament's website.
I can explain a little about how they came about. When I arrived at the Law Commission in 1996, I had several discussions with counsel assigned to the Law Commission, Geoffrey Bowman, later First Parliamentary Counsel. I explained that I would like to do a project on statutory interpretation. I found that the First Parliamentary Counsel, Sir Christopher Jenkins, was interested in this but had well developed views about the best way to present the content of legislation. He considered that it was not helpful if legislation included purely explanatory material. In his view, the function of legislation was to change the law, and indeed that is what Lord Lisvane said when he addressed the Statute Law Society recently. Sir Christopher took the view that another Law Commission project was not justified. Instead, he recommended to Parliament to approve the introduction of what we now know as explanatory notes.19
On difficult points of interpretation, the explanatory notes are not generally useful because they are too general and non-specific. Moreover, they can only deal with problems that were known about at the time of the legislation. The courts are regularly dealing with the problem that with time there have been developments which had not occurred to anyone when the legislation was before Parliament. But they are useful as a record of the contemporary understanding of the law, and also as providing an overview of the entire legislation." (What Makes Good Statute Law: A Judge's View, Lady Arden, Statute Law Review (2022) 43 (2) 139 at 149)
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Admissibility​​
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- Explanatory notes are always admissible
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"Explanatory Notes are not endorsed by Parliament. On the other hand, in so far as they cast light on the setting of a statute, and the mischief at which it is aimed, they are admissible in aid of construction of the statute. After all, they may potentially contain much more immediate and valuable material than other aids regularly used by the courts, such as Law Commission Reports, Government Committee reports, Green Papers, and so forth." (R v. Chief Constable of South Yorkshire Police ex p. LS and Marper [2004] UKHL 39, §4)
"[82] But I think that it is legitimate to refer for the purposes of clarification to the notes to this section in the explanatory notes to the Act prepared by the Home Office. I would use it in the same way as I would use the explanatory note attached to a statutory instrument: see Coventry and Solihull Waste Disposal Co Ltd v Russell (Valuation Officer) [1999] 1 WLR 2093, 2103D-G..." (R v. A [2002] 1 AC 45, Lord Hope)
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“I was also referred to the Explanatory Notes to the Corporation Tax Act 2010. I am guided by the remarks of Lord Steyn in R (Westminster City Council) v National Asylum Support Service [2002] UKHL 38 at [5] where (albeit obiter) he supported the use of Explanatory Notes as an aid to interpretation, even in the absence of ambiguity (and hence falling outside the scope of Pepper v Hart) where these cast light on 'the objective' or 'contextual sense'. That approach was supported by Sales J. in Eclipse Film Partners (Nr 35) LLP v HMRC [2013] UKUT 639 (TCC) who nonetheless remarked that Lord Steyn's observations should be approached "with a little caution, since none of the other members of the Appellate Committee referred to them or endorsed them." I must bear that observation in mind.” (Farnborough Airport Properties Company Ltd v. HMRC [2016] UKFTT 431 (TC), §38)
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“It is well-established that it is permissible to have recourse to Explanatory Notes as an aid to the construction of a statute. In Westminster City Council v National Asylum Support Service [2002] UKHL 38 Lord Steyn said at [5]:
“Insofar as the Explanatory Notes cast light on the objective setting or contextual scene of the statute, and the mischief at which it is aimed, such materials are therefore always admissible aids to construction.”” (Christianuyi Ltd v. HMRC [2016] UKFTT 272 (TC), §295).
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- The explanatory notes to the Bill rather than the Act are the relevant version
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"[13] As discussed below, a number of cases have considered the scope of the charge to income tax under Schedule D Case V. One issue on this appeal is whether the different wording used in s.402 ITTOIA means that the basis of the distinction drawn in that case law between income and capital remains applicable. On this issue the Explanatory Notes to Chapter 4 of Part 4 of ITTOIA are potentially relevant. The relevant wording is largely unaltered as between the Explanatory Notes for the Bill that became ITTOIA and the Act, but I will refer to the former because they are strictly the relevant version to consider, since they would have been available to Parliament at the time that the legislation was passed (see Bennion, Bailey and Norbury on Statutory Interpretation, 8th ed. ("Bennion") at 24.14)..." (Beard v. HMRC [2025] EWCA Civ 385, Falk, Peter Jackson, Asplin LJJ)
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- Explanatory notes to subsequent legislation not admissible
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"[73] The Tribunal has some concern at referencing Explanatory Notes which relate to later legislation when the terms of the legislation, as interpreted by the FTT in circumstances in which it is right to apply the principle of comity, are clear and for which no contrary view is evident in the Explanatory Notes to the legislation to be interpreted. It is acknowledged that these Explanatory Notes state that the provisions “confirm” the principles outlined. However, mindful of the warning of Brooke LJ as set out in paragraph [64] above the Tribunal considers that to interpret the pre amendment language by reference to this note is at risk of treating the “wishes and desires” of HMRC about the historic scope of the statutory language as reflecting the will of Parliament." (Sally Judges v. HMRC [2022] UKFTT 77 (TC), Judge Amanda Brown QC)
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- Explanatory notes to earlier legislation should generally be avoided
"[58] [HMRC] also sought to rely on Explanatory Notes to clause 232 of the Finance Bill 2004, which became s.245 FA 2004 and which amended the immediate predecessor to s.1290 in Schedule 24 to the Finance Act 2003. I do not read those notes as providing any assistance about the treatment of unfunded pension arrangements, even if the notes are proper aids to interpretation. As to whether they are, as explained most recently in Alexander Beard v Revenue and Customs Comrs [2025] EWCA Civ 385, [2025] 3 WLR 645 at [64]-[68], legislation such as the CTA 2009 which is the product of the Tax Law Rewrite Project should generally be interpreted using the approach adopted to consolidation statutes, without referring back to legislative antecedents. This is subject to a point about earlier case law, but that is not in issue here. The difficulties are well-illustrated in this case by the point that s.245 FA 2004 was not the last legislative word on the topic before s.1290 was introduced, since material amendments were made by the Finance Act 2007." (A D Bly Groundworks and Civil Engineering Limited v. HMRC [2025] EWCA Civ 1443, Falk LJ)
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- Use to identify the context
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"[32] In the House of Lords case of R (Westminster City Council) v National Asylum Support Service [2002] 1 WLR 2956 Lord Steyn held at [5] that a court can consider Explanatory Notes as an admissible aid to construction in so far as they “cast light on the objective setting or contextual scene of the statute, and the mischief at which it is aimed”. Because the starting point in an exercise of statutory construction is that the language “conveys meaning according to the circumstances in which it was used”, the context “must always be identified and considered before the process of construction or during it”. Accordingly, the Explanatory Notes to the bill for FA 2003 are a relevant aid to construction in determining the context." (HMRC v. Candy [2021] UKUT 170 (TCC), Mellor J and Judge Andrew Scott)
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"[64] This note of caution has been more recently reinforced by the Court of Appeal in Flora v Wakom (Heathrow) Ltd [2006] EWCA Civ 1103 in which Brooke LJ stated:
16 … The value of … Explanatory Notes as an aid to construction … is that it [sic] identifies the contextual scene … That is all. If, however, it is impossible to treat the wishes and desires of the Government about the scope of the statutory language as reflecting the will of Parliament, it is in my judgment equally impossible to treat the Government’s expectations as reflecting the will of Parliament. We are all too familiar with statutes having a contrary result to that which the Government expected through no fault of the courts which interpreted them.
[65] It is therefore entirely permissible and appropriate that this Tribunal to take account of the Explanatory Notes for ITTOIA 2005 at its introduction. HMRC included the note to section 535 as set out above in paragraph [26]. Taken alone the notes appeared to lend some support for their contention that the intent underpinning top slicing relief was only to provide relief in respect of the rate at which the chargeable event gain was to be taxed: “The relief is the difference between the tax otherwise chargeable on the full gain and the tax that would be charged if the full gain were taxed at the rate of the tax chargeable on the fraction” (emphasis added)." (Sally Judges v. HMRC [2022] UKFTT 77 (TC), Judge Amanda Brown QC)
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Permissible use​​
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- May cast light on meaning and purpose
"[54] That the legislative purpose of aligning the capital expenditure position for investment companies with those for trading companies is readily inferred from the fact that the capital exclusion was re-enacted in section 1219(3)(a) of the 2009 Act using the same words "of a capital nature" as those found in section 53(1) of the 2009 Act without any limit or qualification signalling a contrary intention, is also reinforced by the Explanatory Notes to the Corporation Tax Bill (which became the 2009 Act). These are admissible to identify the mischief or purpose of this re-enactment. They demonstrate an intention to align the trading company and investment company rules in relation to capital expenditure, stating that clause 1219(3) was intended to exclude capital expenditure "in terms that follow closely the trading income rule": see para 3089 of the Explanatory Notes. The Explanatory Notes to the 2009 Act were expressed in identical terms: see para 3091." (Centrica Overseas Holdings Ltd v. HMRC [2024] UKSC 25, Lady Simler)
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"[30]...Explanatory notes, prepared under the authority of Parliament, may cast light on the meaning of particular statutory provisions. Other sources, such as Law Commission reports, reports of Royal Commissions and advisory committees, and Government White Papers may disclose the background to a statute and assist the court to identify not only the mischief which it addresses but also the purpose of the legislation, thereby assisting a purposive interpretation of a particular statutory provision. The context disclosed by such materials is relevant to assist the court to ascertain the meaning of the statute, whether or not there is ambiguity and uncertainty, and indeed may reveal ambiguity or uncertainty: Bennion, Bailey and Norbury on Statutory Interpretation, 8th ed (2020), para 11.2. But none of these external aids displace the meanings conveyed by the words of a statute that, after consideration of that context, are clear and unambiguous and which do not produce absurdity..." (R (oao O) v. Secretary of State for the Home Department [2022] UKSC 3, Lord Hodge)
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- Omission of what would have been an important point from explanatory notes
"[55] Had a purpose of the Bill been to change the established feature of an RRO so as to enable it to be made against a superior as well as an immediate landlord (the latter being the position under the 2004 Act: see paras 35-36 above) one might have expected there to have been some mention of that in the explanatory notes." (Rakusen v. Jepsen [2023] UKSC 9)
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"[43] Furthermore, the background materials are consistent with this interpretation. I come to this conclusion without the need to consider the extract from Hansard. The Explanatory Note to clause 100 repeats at paragraph 10 that any function capable of being done by an individual officer may be done by HMRC using a computer or otherwise. Like section 103 itself, if it had been the intention to replicate section 113 or to continue to require proof that an individual officer had authorised the function, it seems to me that both section 103 and the Explanatory Note would have been worded differently." (Marano v. HMRC [2024] EWCA Civ 876, Asplin, Coulson, Nugee LJJJ)
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- Do not supplant language of legislation
"[61] It is uncontroversial that Explanatory Notes to an Act of Parliament may be used "to understand the background to and context of the Act and the mischief at which it is aimed": Bennion at 24.14. However, as Bennion also explains they will not supplant the language of the legislation: R (Kaitey) v Secretary of State for the Home Department [2021] EWCA Civ 1875, [2022] QB 695 at [109].
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[63] It will be observed from this that Explanatory Notes, like other external aids to interpretation, play a secondary role but "may cast light on the meaning of particular statutory provisions" as well as providing background and identifying the mischief at which the provision is aimed and its purpose. Further, the context they can provide is relevant irrespective of whether there is apparent ambiguity in the wording of the legislation." (Beard v. HMRC [2025] EWCA Civ 385, Falk, Peter Jackson, Asplin LJJ)
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Limits on use​​
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- Perhaps only use explanatory notes to choose between equally straightforward interpretations
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“It is true that there was no such match. But it would be wrong on the basis of that mismatch to search for a meaning of the statute which reflected the Explanatory Notes unless there was a choice between two equally simple and straightforward interpretations of the statute, one of which did, and one of which did not, reflect the Explanatory Notes. The explanation for the mismatch, surely, is that either the wording of the statute fails to reflect what the draftsman meant to say or that the Explanatory Notes are inaccurate. It seems to me that the latter explanation is far more likely. If the construction for which Mr Ghosh contends is correct, I find it astonishing that the Explanatory Notes are drafted in the way that they are.” (HMRC v. Hamilton & Kinneil (Archerfield) Limited [2015] UKUT 130 (TCC), §75, Warren J).
“It is also clear from the Court of Appeal decision in Sun Life Assurance Company of Canada (UK) Limited v HMRC [2010] STC 1173 that the Explanatory Notes do not give a sponsoring Government Department a second bite of the cherry if the terms of the legislation as enacted do not produce the result that the department expected.” (Sippchoice Ltd v. HMRC [2018] UKFTT 122 (TC), §39, Judge Gething).
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- Legitimate to look at pre-legislative materials where there is doubt
"[51] Where there is doubt as to the correct interpretation of a statutory provision, assistance may be derived from relevant consultation papers, reports, and explanatory notes: R (O) v Secretary of State for the Home Department [2022] UKSC 3, [2022] 2 WLR 343, paras 30-32; R v Luckhurst [2022] UKSC 23, [2022] 1 WLR 3818, para 23." (Rakusen v. Jepsen [2023] UKSC 9)
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- Strain the explanatory notes rather than the legislation
“In any case, if the mismatch is to be resolved, rather than left as an acknowledged error, it should surely be the Explanatory Notes, rather than the statute which should be given the strained construction.” (HMRC v. Hamilton & Kinneil (Archerfield) Limited [2015] UKUT 130 (TCC), §76, Warren J)
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Tension between statute and explanatory notes​​
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- Explanatory notes used to depart from literal meaning
[48] The starting point is, of course, to look at paragraph 14(3A)(b). Read literally, I agree with HMRC, that a Type A transfer requires only that the transfer forms part of arrangements under which a partner's interest is acquired by another and consideration is given by or on behalf of the person acquiring the interest. On the face of it, there is no additional requirement for the consideration to be given to or for the benefit of a particular person (such as the vendor) and neither is there any requirement for the consideration to be given for the transfer in question. However, the Rubicon with regards to the purposive as opposed to literal interpretation of taxing statutes was crossed long ago.
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[54] In summary, it is now not only permissible or desirable for a judge to interpret taxing statutes purposively, but s/he is probably under a positive duty to do so. I say "probably" only because it was not a point on which anything in this case turned and I did not hear argument on it. Explanatory notes (together with Hansard) provide a valuable window into the mind of Parliament and used judiciously offer a valuable aid to interpretation. That these materials should not supplant the statute itself goes, in my view, without saying. With that caveat (namely that they are an aid to interpretation and not statute) explanatory notes are often, as in the present case, of enormous help. In the present case not only did the Explanatory Notes clarify that Parliament intended that the consideration must have been paid on or behalf of the acquirer for the transfer, but there was nothing to suggest that the Explanatory Notes were wrong or misleading. Nor could it be said, in the present case, that the Explanatory Notes urged an interpretation of the statute that was illogical or absurd." (Brindleyplace Holdings Sarl v. HMRC [2024] UKFTT 808 (TC), Judge Malek)
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