© 2025 by Michael Firth KC, Gray's Inn Tax Chambers
Contact: michael.firth@taxbar.com
Purposive interpretation
NATURE OF PURPOSIVE INTERPRETATION
Give effect to Parliament's purpose insofar as possible
"[10] In R (Quintavalle) v Secretary of State for Health [2003] UKHL 13; [2003] 2 AC 687, Lord Bingham of Cornhill warned against giving a literal interpretation to a particular statutory provision without regard to the context of the provision in the statute and the purpose of the statute. He stated (para 8):
"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."" (For Women Scotland Ltd v. The Scottish Ministers [2025] UKSC 16)
"[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)
"[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)
"[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)
"[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)
"[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)
"[34]...iv) Identifying the purpose of legislation is of "central importance" in construing it: Rossendale Borough Council v Hurstwood Properties (A) Ltd [2021] UKSC 16, [2022] AC 690 ("Rossendale"), at paragraph 10, per Lords Briggs and Leggatt. As this principle has been applied in the context of tax legislation, it involves "determin[ing] the nature of the transaction to which [the statutory provision] was intended to apply and then … decid[ing] whether the actual transaction (which might involve considering the overall effect of a number of elements intended to operate together) answered to the statutory description": Barclays Mercantile Business Finance Ltd v Mawson [2004] UKHL 51, [2005] 1 AC 684, at paragraph 32, per Lord Nicholls. "The ultimate question", Ribeiro PJ said in Collector of Stamp Revenue v Arrowtown Assets Ltd [2003] HKCFA 46, at paragraph 35, "is whether the relevant statutory provisions, construed purposively, were intended to apply to the transaction, viewed realistically";" (HMRC v. Innovative Bites Limited [2025] EWCA Civ 293, Newey, Males, Nugee LJJ)
“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).
- 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)
Gives the judge a greater role
"[35] The judge did not (expressly at least) seek to analyse the overall scheme in art 7. In my judgment, the overall scheme of legislation is a matter which the court should consider expressly on a question of interpretation for this reason. The courts have in the last few decades changed their approach to statutory interpretation. Their approach is now less literal than it used to be. A more purposive approach is now often used. This entails that the judge will have a greater role in interpretation than he would have under a purely literal approach since having found the purpose the judge will need to consider whether such purpose is furthered or hindered the interpretation that he favours. That approach will enable the courts further to ensure that an enactment achieves what the legislature intended..." (CEC v. Elm Milk Limited [2006] EWCA Civ 164, Arden LJ)
- Judge should expressly identify the purpose so it can be seen what role that had in the interpretation adopted
"[35] ... But to adopt a purposive approach the court needs to understand as best it can from the words Parliament has used the purpose or policy behind the provisions that the court has to interpret. It may well be that in this case, the judge, as probably often happens, did this silently but it is desirable in the interests of the application of the case in subsequent cases for the court to state the view that it has formed of Parliament's purpose so it can be seen what part the judge's perception of the purpose of the statute played in his conclusion." (CEC v. Elm Milk Limited [2006] EWCA Civ 164, Arden LJ)
LIMITS OF PURPOSIVE INTERPRETATION
Must be tethered to wording/not too abstract
- Appeal to purpose pitched at too general and abstract level
"[87] Mr Baldry submits that the court should apply section 850 in a way which reflects what he says is the commercial reality of the case, that absent a positive decision being taken that an individual member will not be paid the deferred remuneration sum which was previously indicated to him, he will receive that sum. However, Mr Baldry's appeal to the general object and purpose of section 850 is pitched at a level which is too general and abstract, and is untethered from the language used by Parliament to impose the tax charge. The meaning of a provision is to be derived from the words used, according to their ordinary and natural meaning as read in context. In my view, section 850 applies in accordance with the ordinary and natural meaning of the words used in it and the determinate legal concepts to which those words refer." (HMRC v. HFFX LLP [2026] UKSC 17)
"[81] For the taxpayers Mr Rabinowitz submitted that the relevant purpose is that of the whole of the statutory regime for enhanced capital allowances for expenditure on buildings in enterprise zones, namely to encourage the development of relevant buildings within the zone, by offering a tax incentive to developers. Thus, he said, any construction of a particular provision which enhanced that incentive was to be preferred to one which reduced it.
[82] We have no doubt that this is the purpose of the regime for enhanced capital allowances, viewed as a whole. But in our view that purpose is identified at too high a level of generality. Section 298 imposes a formulaic statutory time limit within which steps have to be taken in order to gain the relevant tax incentive. Identifying the relevant purpose requires an understanding why that time limit was imposed. In the present context the question is, what is the purpose of the requirement that expenditure within the 20 year period should have been incurred under a contract made within the 10 year period? In short, why should that matter?" (R (Cobalt Data Centre 2 LLP) v. HMRC [2024] UKSC 40)
Partial implementation of purpose/policy
- 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)
"[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)
- 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)
- Purpose not all encompassing
"[93] In our view CNSL's interpretation does not lead to anomalous or perverse results, when the particular design of the statutory regime is taken into account – although it may suggest that there is some other lacuna in the code. While we agree that in broad terms Part 22 aims to preserve continuity of treatment in certain circumstances, that purpose (as highlighted by CNSL's submission acknowledged by Millett J's depiction of the purpose of the predecessor provision, which we come on to discuss below) is not all encompassing. Section 951 sets out specific circumstances where tax-neutral transfers are permitted; it is not a general neutrality rule..." (CATS North Sea Limited v. HMRC [2026] UKUT 142 (TCC), Judges Raghavan and Greenbank)
- 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).
“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)
- Purpose relied on so support disapplying extended part of statutory definition
"[85] That section 5 only applies to the core definition of crematorium is further supported by the purpose of the radius clause.
[86] I agree with the judge and the Court of Appeal that the primary purpose of the radius clause was the protection of public health. The public health concerns at the time of the 1847 Act and the Burial Acts of 1852 and 1855 are set out in the Consultation Paper:..." (Wathen-Fayed v. SoS [2025] UKSC 32)
Clear wording too strong
- 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).
- Purposive interpretation of no avail if words admit of only one meaning and do not produce absurdity
"[108]...It evidently suited BlueCrest to adopt HMRC's published view of what the legislation relevantly meant in support of its own appeal, even though neither side has ever attempted to explain how that wider supposed meaning of the clear statutory language can be reconciled with the established principles of statutory interpretation. The incantation of a purposive interpretation is of no avail, if the relevant words construed in their context, and with due regard to the statutory purpose, admit of only one meaning and do not produce absurdity..." (HMRC v. Bluecrest Capital management (UK) LLP [2025] EWCA Civ 23, Henderson, Lewison, Arnold LJJ)
- 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)
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)
Line has to be drawn somewhere
- Fine distinctions often have to be drawn when applying taxing provisions
"[107] I agree that fine distinctions often need to be made when applying taxing provisions. As this court has said previously in the context of applying VAT regulations, decisions about the application of taxing provisions are highly dependent on the factual situations involved. "A small modification of the facts can render the legal solution in one case inapplicable to another": see Revenue and Customs Comrs v Aimia Coalition Loyalty UK Ltd [2013] UKSC 15, [2013] 2 ALL ER 719, para 68. I am less sanguine about whether the Contracting States are likely to have drawn the boundary between their taxing rights on that basis, or whether such a fine distinction has any equivalence in Canadian land law. As noted in para 11 above, the model licence clauses set out in the 1966 Regulations that had to be incorporated in the licences granted by the UK Government require the Government's consent to both the assignment and the sub-licensing of the rights." (HMRC v. Royal Bank of Canada [2025] UKSC 2)
- Cannot use broad purpose to define where precise boundary line is (e.g. incentivising investment)
"[91] However, the answer to Mr Jones' point is the same as the answer that Lord Russell gave at p 1106 of Ben-Odeco:
"The point is made that the purpose of these provisions for capital allowance is to encourage investment in new plant and machinery. So it is. But the question remains how extensive, and how expensive to the fiscus, is that encouragement: and in this connection I note the extent of encouragement in terms of percentages allowed has varied through the years."
[92] The breadth or narrowness of the phrase "on the provision of" is a very blunt instrument with which to provide incentives to business to invest in plant—particularly the kinds of plant that Parliament wants to encourage. This case is concerned with renewable energy and that is certainly a business which the Government has tried to incentivise over the years by a variety of more targeted subsidies, increased first year percentage allowances for particular items of plant and other special provisions. A wide interpretation of section 11 would greatly increase the kinds of expenditure that can qualify for all kinds of plant and machinery whether the Government wishes to encourage that investment or not. One cannot rely on the broad purpose of a provision to define where the precise boundary lies between what is caught and what is not caught." (HMRC v. Orsted West of Duddon Sands (UK) Limited [2026] UKSC 12, Lady Rose)
- But can use more specific apparent purpose to help identify boundary line
"[89] The concept of the capital allowance therefore reflects the gradual deterioration of the asset through the wear and tear as it is used in the business and the ultimate need to replace it when it wears out. That also militates against the broad scope of section 11 to include these surveys and studies which have only the most tangential connection with the diminishing value of the physical asset comprised in the windfarm assets...I found the link between the annual allowance and the erosion the value of the plant through wear and tear to be a useful pointer to the narrowness of the concept." (HMRC v. Orsted West of Duddon Sands (UK) Limited [2026] UKSC 12, Lady Rose)
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)
CONCEPT OF PURPOSE
Nature of the purpose
- Parliamentary intention/purpose is a legal construct, not an empirical matter
"[166] Another constitutional fundamental which needs to be borne in mind is that the Government is separate from Parliament, notwithstanding the many connections between the two institutions. As a matter of daily reality, ministers and party whips have to negotiate and compromise in order to secure the passage of the legislation which the Government has promoted, often in an amended form. In fact, as well as in theory, “the legislative function belongs to Parliament not to the executive”: Wilson v First County Trust Ltd (No 2) [2003] UKHL 40; [2004] 1 AC 816, para 111 (“Wilson”) (Lord Hope of Craighead). Accordingly, as Lord Hope observed (ibid), “it is the intention of Parliament that defines the policy and objects of its enactments, not the purpose or intention of the executive”. The reasons which the Government gives for promoting legislation cannot therefore be treated as necessarily explaining why Parliament chose to enact it.
...
[167] Two other aspects of Parliamentary proceedings are important in this context. First, the will of Parliament finds expression solely in the legislation which it enacts. Parliament does not give reasons for enacting legislation: it simply votes on a motion to approve a proposed legislative text. There is no corporate statement of reasons, and the individual members of Parliament do not give their reasons for voting in a particular way. As Lord Hobhouse stated in Wilson, para 143, “[i]t is not part of the duty of any Member of Parliament to provide or state definitively in Parliament the justification for legislation which the legislature is [168] Secondly, the decisions which Parliament takes are not necessarily capable of being rationalised in any event. In the first place, Parliament does not operate only, or even primarily, as a debating chamber. It is also a forum for gathering evidence, and for extra-cameral discussion, negotiation and compromise. Furthermore, the way in which members of Parliament vote will usually, but by no means always, reflect party policy, and may be influenced by the discipline imposed by the party whips.
...
[172] A further consequence is that the intention of Parliament, or (otherwise put) the object or aim of legislation, is an essentially legal construct, rather than something which can be discovered by an empirical investigation. The point is illustrated by Lord Bingham’s comment in R (Countryside Alliance) v Attorney General [2007] UKHL 52; [2008] AC 719, para 40, after identifying the rationale of the legislation there in question, “that this rationale was nowhere expressed in the Act, that this did not reflect the Government’s intention in introducing the Bill and that virtually no Parliamentary statement expressed the rationale in this way”." (R (SC) v Secretary of State for Work and Pensions and others [2021] UKSC 26)
"[32] First, as Lord Reed explained at [167]:
"… the will of Parliament finds expression solely in the legislation which it enacts. Parliament does not give reasons for enacting legislation: it simply votes on a motion to approve a proposed legislative text. There is no corporate statement of reasons, and the individual members of Parliament do not give their reasons for voting in a particular way."
A consequence of this, as Lord Reed went on to say at [172], "is that the intention of Parliament, or (otherwise put) the object or aim of legislation, is an essentially legal construct, rather than something which can be discovered by an empirical investigation." (Banks v. HMRC [2021] EWCA Civ 1439)
- Objective purpose
"[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)
Content of purpose
- Purpose is usually to make some change or address some problem
"[49] As Lord Bingham explained in Quintavalle, legislation is usually enacted to make some change, or address some problem, and the court's task, within the permissible bounds of interpretation, is to give effect to that purpose (see para 8). He also approved as authoritative that part of the dissenting speech of Lord Wilberforce in Royal College of Nursing of the United Kingdom v Department of Health and Social Security [1981] AC 800 at 822, where Lord Wilberforce said:
"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."" (Centrica Overseas Holdings Ltd v. HMRC [2024] UKSC 25, Lady Simler)
- Sometimes the reason for the legislative intervention may be the very prominent focus of the legislative activity
"[11] The general approach of focussing on the words which Parliament has used in a provision is justified by the principle that those are the words which Parliament has chosen to express the purpose of the legislation and by the expertise which the drafters of legislation bring to their task. But where there is sufficient doubt about the specific meaning of the words used which the court must resolve, the indicators of the legislature's purpose outside the provision in question, including the external aids described in para 30 of R (O) quoted above, must be given significant weight. As Lord Sales has stated in an extra-judicial writing, "sometimes the purpose for which legislative intervention was required may be the very prominent focus for the legislative activity which follows from it, and thus may frame in a particularly strong way the context in which that activity takes place" (see "The role of purpose in legislative interpretation: inescapable but problematic necessity", Presentation at the Oxford University and University of Notre Dame Seminar on Public Law Theory: Topics in Legal Interpretation, 19 September 2024). Such aids can explain the meaning of a statutory provision which is open to doubt and can themselves alert the court to ambiguity in the provision, but they cannot displace the meanings conveyed by the clear and unambiguous words of a provision construed in the context of the statute as a whole."
(For Women Scotland Ltd v. The Scottish Ministers [2025] UKSC 16)
- 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)
DETERMINING THE PURPOSE
- Must be a proper foundation for inferring purpose
"[44] Is a purposive interpretation of the relevant provisions possible in this case? In my judgment, there is nothing to indicate that the usual principles of statutory interpretation do not apply and accordingly the real question is how to apply those principles to the circumstances of this case. In my judgment, applying a purposive interpretation involves two distinct steps: first, identifying the purpose of the relevant provision. In doing this, the court should assume that the provision had some purpose and Parliament did not legislate without a purpose. But the purpose must be discernible from the statute: the court must not infer one without a proper foundation for doing so. The second stage is to consider whether the transaction against the actual facts which occurred fulfils the statutory conditions. This does not, as I see it, entitle the court to treat any transaction as having some nature which in law it did not have but it does entitles the court to assess it by reference to reality and not simply to its form." (Astall v. HMRC [2009] EWCA Civ 1010, Arden, Keene, Sullivan LJJ)
“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).
- Purpose to be determined primarily from words used
"What the interpretation of commercial documents and constitutions have in common is that in each case the court is concerned with the meaning of the language which has been used. As Kentridge A.J. said in giving the judgment of the South African Constitutional Court in State v Zuma [1995] 1 LRC 145 at 145: “If the language used by the lawgiver is ignored in favour of a general resort to 'values' the result is not interpretation but divination”." (Matadeen v. Pointu [1999] 1 AC 98 at 108, Lord Hoffmann, quoted in Day v. Governor of the Cayman Islands [2022] UKPC 6 at §34)
“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)
- 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)
- Nothing in context or language to indicate purpose other than to describe particular cases and identify consequence
"[68] Nor do we think that it helps at all to say (as Mr Simpson submitted) that the host employer provision was aimed at situations that "approximate" a contract of employment. There is nothing in the context or, more importantly, the language of the provision that bears that out. The intention, as we have noted above, of the 1978 regulations was simply to describe particular cases and then provide who was to be the secondary contributor in relation to those cases: nothing more and nothing less. In any event, the notion of an arrangement "approximating" to a contract of employment simply begs the question as to the level of approximation required. Again, that would be to substitute a different test from the one actually used by the Secretary of State in the amending 1994 regulations." (Bilfinger Salamis UK Limited v. HMRC [2026] UKUT 143 (TCC), Judges Aleksander and Andrew Scott)
- No evidence that purpose of condition was to prevent abuse of relief
"[36]...While I agree that the general purpose is indeed "to promote private funding of political parties", I respectfully think that Judge Greenbank went too far in saying that the reason for the qualifying conditions was "to prevent abuse of the relief". There was no evidence of which I am aware to support the inference that avoidance of abuse was a material factor in the framing of the section. On the other hand, it would in my view be fair to say that the qualifying conditions were deliberately intended to limit the availability of the exemption to cases where the party has an established presence in the House of Commons, measured in one or other of the ways specified, and thus in the functioning of Parliamentary democracy in the UK through the Westminster Parliament." (Banks v. HMRC [2021] EWCA Civ 1439)
- Not the Judge's own views as to policy
"The way in which they used policy was, in my judgment, an impermissible approach to the interpretation of statutory language. Judges may not interpret statutes in the light of their own views as to policy. They may, of course, adopt a purposive interpretation if they can find in the statute read as a whole or in material to which they are permitted by law to refer as aids to interpretation an expression of Parliament's purpose or policy. But that is not this case. The Education Act's only guidance is the requirement contained in the Regulations that, to be eligible for a mandatory award, a student must have been ordinarily resident in the United Kingdom for three years. There is no hint of any other restriction, provided, of course, he has the educational qualifications and his conduct is satisfactory." (R (oao Shah) v. Barnet LBC [1983] 2 AC 309 at 348 per Lord Scarman - CoA had decided that it was improbable that the Education Act 1962 was intended to entitle overseas students to a mandatory award because the parents of such students were unlikely to have contributed to the UK revenue)
- 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).
- Focus on the normal operation of the provision
"[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)
- Exceptions "proving the rule" as to what the purpose of provision is
"[89] The concept of the capital allowance therefore reflects the gradual deterioration of the asset through the wear and tear as it is used in the business and the ultimate need to replace it when it wears out. That also militates against the broad scope of section 11 to include these surveys and studies which have only the most tangential connection with the diminishing value of the physical asset comprised in the windfarm assets. Mr Jones fairly pointed out that installation and transport costs, or preliminaries such as site insurance and security, do not directly impact the value of the item of plant but everyone agrees that they can qualify. Further, he argued, there is no requirement that the taxpayer commits to replacing the plant when it wears out before it can claim the allowance. All that is true, but the inclusion of installation and transport costs can be regarded as the exception that proves the rule, rather than as indicating that there is no rule. I found the link between the annual allowance and the erosion the value of the plant through wear and tear to be a useful pointer to the narrowness of the concept." (HMRC v. Orsted West of Duddon Sands (UK) Limited [2026] UKSC 12, Lady Rose)
- Consider whether the legislation would have been drafted as it was if a suggested interpretation was correct
"[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)
“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).
- Whether structure/location of provision would have been as it is if suggested interpretation correct
"[39] Had this been the intention, it seems to me that the legislature would have amended section 113 itself rather than enact another quite different provision. I say quite different because it seems to me that it is not possible to import the two stage process in section 113 into the words used in section 103. There is no suggestion that section 103 is intended merely to put beyond doubt that HMRC is permitted to complete administrative tasks by the use of computers. Nor can section 103 be interpreted to mean that it is necessary to prove that an individual officer or an officer of a particular type or status carried out the initial decision making process. The words used in section 103 are to the reverse effect. Anything capable of being done by an officer of Revenue and Customs may be done by HMRC and has the same effect as it would have if done by such an officer or an officer of a particular kind. The wording of sub-sections (1) – (4) is entirely contrary to Mr Gordon's interpretation." (Marano v. HMRC [2024] EWCA Civ 876, Asplin, Coulson, Nugee LJJJ)
- No general purpose that business only taxed on its "true profits"
"[93] [The taxpayer] also argued that the purpose of the capital allowance regime is to ensure that a business is only taxed on its true profits. Those profits should reflect the fact that a great deal of money had been spent by Orsted on these surveys and studies in order to build the windfarm which then produces the trading income on which profits are earned. I do not accept that point since the way in which profits are calculated is different for accounting purposes from how they are calculated for tax purposes. The fact that Generally Accepted Accounting Principles lead to a greater deduction from trading income when arriving at profits reported in the company's accounts has never determined how the taxable profits are calculated. This was clear in Ben-Odeco. Lord Wilberforce recorded the taxpayer's argument that because the interest and commitment fees incurred were treated as capital expenditure according to accepted methods of commercial accounting, that was enough to bring them within the statutory provision: p 1095H. He rejected this firmly saying that accounting methods cannot determine the construction of statutory words: p 1096E." (HMRC v. Orsted West of Duddon Sands (UK) Limited [2026] UKSC 12, Lady Rose)
Purpose v. policy
- Distinction between policy and purpose
“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)
- Vague references to public policy not helpful
"[61] I do not consider that any general considerations of policy, whether legislative or otherwise, require a conclusion that a principle which prohibits a deduction for fines or penalties must extend to payments which are not in fact fines or penalties, even if they can be seen as replacing them. As Mr Goldberg fairly pointed out, judges have been warned against making decisions based on vague concepts of "public policy" (see, albeit in the very different context of breach of promise, the comments of Lord Atkin in Fender v St John-Mildmay [1938] AC 1, 10-12). More specifically here, in my view such a conclusion could be seen – with some justification – as going beyond the proper role of the judiciary: see [53] above.
[62] My concerns on this issue are strongly reinforced by the lack of clarity about the scope of any such rule as is contended for by HMRC. As discussed further below, the difficulties that would create are well illustrated by the facts of this case and the regulatory regime in question. That is itself a strong indicator that this is properly a matter for Parliament, not the courts." (Scottishpower (SCPL) Limited v. HMRC [2025] EWCA Civ 3, Falk, Snowden, Zacaroli LJJ)
USE OF PURPOSE
Rejection of interpretations inconsistent with purpose
- Straightforward meaning rejected as it would conflict with purpose
"[47] There can be no doubt that the definition of the “owner” of a hereditament in section 65(1) of the 1988 Act as “the person entitled to possession of it” is to be interpreted as denoting in a normal case the person who as a matter of the law of real property has the immediate legal right to actual physical possession of the relevant property. Arden J so held in Brown v City of London Corpn [1996] 1 WLR 1070 as a reason for concluding that the right of a receiver under a debenture to exercise a power to displace the possession of the company which was the tenant of an unoccupied property did not make the receiver the “owner” of the property for the purposes of section 65(1) and thereby liable for business rates. It has not been suggested that that conclusion was wrong. Furthermore, such an interpretation generally accords with the legislative purpose of imposing the liability for business rates on the person who controls whether the property is left unoccupied and on whom the legislation is intended to place an incentive to bring the property back into use for the benefit of the community.
[48] In the unusual circumstances of this case, however, identifying “the person entitled to possession” in section 65(1) of the 1988 Act as the person with the immediate legal right to possession of the property would defeat the purpose of the legislation. As we have explained, the schemes were designed in such a way as to ensure that the SPV to whom a lease was granted had no real or practical control over whether the property was occupied or not and that such control remained at all times with the landlord.
[49] In our view, Parliament cannot sensibly be taken to have intended that “the person entitled to possession” of an unoccupied property on whom the liability for rates is imposed should encompass a company which has no real or practical ability to exercise its legal right to possession and on which that legal right has been conferred for no purpose other than the avoidance of liability for rates. Still less can Parliament rationally be taken to have intended that an entitlement created with the aim of acting unlawfully and abusing procedures provided by company and insolvency law should fall within the statutory description." (Hurstwood Properties (A) Ltd v. Rossendale BC [2021] UKSC 16, Lord Briggs and Lord Leggatt)
"[47] ... As I have said, no statute is immune from a purposive interpretation, and the very mistake that this court made in Rossendale was to focus on the accepted meaning of the statutory phrase as a matter of land law. While the Supreme Court accepted that in most cases that would be correct, it should not result in an interpretation in a way which will guarantee the effectiveness of transactions undertaken solely to avoid the liability which the legislation seeks to impose. In my judgment, as the Supreme Court said in Rossendale, it was both permissible and necessary to look at the scheme as a whole.
[48] Mayes was concerned with different legislation which did not lend itself to a purposive commercial construction. I do not consider that a decision on different legislation can dictate the approach in this case, even if the decision itself has survived Rossendale." (Brown v. HMRC [2024] EWCA Civ 92, Lewison LJ)
- Would make "no sense" to deny tax treatment based on whether relief claimed rather than whether relief was actually due
"[47] The effect of HMRC's approach is to impose a market value based charge on a distribution – the starting point for which is no such charge, due to the Case 3 exception – depending on whether a claim for group relief happened to have been made, however erroneously that claim was made and whatever its outcome (including, for example, if the claim was withdrawn). On the facts of this case, HMRC would have to accept that if B64 had claimed sub-sale relief rather than group relief, as HMRC maintained it was entitled to do, then that would have made all the difference.
[48] At the hearing, Mr Henderson confirmed on instruction that even if B64's group relief claim had been formally denied and it had been assessed to SDLT (rather than erroneously being treated as entitled to sub-sale relief) then HMRC's position would remain that the proviso is engaged, because that is how the legislation operates. As he recognised, that is the logical consequence of HMRC's argument. However, it makes no sense in the context of the mischief at which the provision is aimed and indeed it appears to give rise to a penal result. Further, it renders HMRC's own approach to the legislation incoherent." (The Tower One St George Wharf Limited v. HMRC [2025] EWCA Civ 1588, Falk LJ)
- Associated companies depends on real association rather than coincidence of which trustee(s) named first on share register
“On the whole matter, in my opinion, what Parliament was dealing with in Section 469 was a real association between two companies, not just the accidental association arising from what must often be a coincidence - namely, that the same individual is the first-named trustee in the register of two companies in respect of a majority holding of shares by two trusts which may have no connection with one another at all.” (CIR v. Lithgows Ltd (1960) 39 TC 270 at 276 Court of Session)
- "Incredible" if possibility of a loan treated more harshly than an actual loan
"To a limited extent, particularised in the Section, any such capital sum would be treated for all the purposes of the Income Tax Acts as the income of the recipient for that year. It seems to be incredible that the mere possibility of a loan being made should bring upon the settlor the severe consequences set out in Section 38 (4) if the actual making of a loan only brings about the less severe consequences set out in Section 40." (Vestey v. IRC 31 TC 1 at 115)
Purpose used to interpret scope
- Link between annual allowance and erosion of the value of the plant through wear and tear pointing to narrow concept of what expenditure falls within allowance
"[89] The concept of the capital allowance therefore reflects the gradual deterioration of the asset through the wear and tear as it is used in the business and the ultimate need to replace it when it wears out. That also militates against the broad scope of section 11 to include these surveys and studies which have only the most tangential connection with the diminishing value of the physical asset comprised in the windfarm assets. Mr Jones fairly pointed out that installation and transport costs, or preliminaries such as site insurance and security, do not directly impact the value of the item of plant but everyone agrees that they can qualify. Further, he argued, there is no requirement that the taxpayer commits to replacing the plant when it wears out before it can claim the allowance. All that is true, but the inclusion of installation and transport costs can be regarded as the exception that proves the rule, rather than as indicating that there is no rule. I found the link between the annual allowance and the erosion the value of the plant through wear and tear to be a useful pointer to the narrowness of the concept." (HMRC v. Orsted West of Duddon Sands (UK) Limited [2026] UKSC 12, Lady Rose)
- Condition targeting private use of car equally satisfied by legal or physical restriction on use
"[37]...It is relevant to answering that question to consider to what extent the narrow meaning which Mr Paines proposes is required by the purpose of the relevant provisions as identified above. In my judgment, while, if "available" meant only "physically available", there would undoubtedly be fewer cases where VAT paid on the purchase of a car could be deducted, that itself is not the object of the provision. The object is to prevent claims to deduct tax on cars purchased for business save where the possibility of private use is excluded. That purpose can equally well be achieved if the concept of availability is not restricted to physical availability but includes also cases of unavailability due to the imposition of effective legal restraints." (CEC v. Elm Milk Limited [2006] EWCA Civ 164, Arden LJ)
Provisions with a common purpose
- Consistent interpretation of two provisions with common purpose
"[45] Paragraph 3 of Schedule 7 applies only if group relief was not only claimed but was in fact enjoyed: see the requirement for a claim in s.62(3) ("relief … must be claimed") and paragraph 3(1) of Schedule 7 ("in the case of a transaction … that is exempt from charge by virtue of paragraph 1", emphasis supplied): see [19] and [21] above. Paragraph 3 could not apply if a claim for group relief had been properly denied or if the claim had been withdrawn, since in neither case would the transaction have in fact been exempt.
[46] This provides important context for the interpretation of s.54(4)(b). If group relief has not in fact been obtained then the mischief at which the proviso is clearly aimed would be absent. If the company in question left the group rather than making a distribution of the land interest then no SDLT charge would arise, because paragraph 3 of Schedule 7 would not apply. Rather, SDLT would be chargeable on, and only on, the earlier transaction by which the property was acquired." (The Tower One St George Wharf Limited v. HMRC [2025] EWCA Civ 1588, Falk LJ)
Situations falling outside the purpose
- 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)
Preventing opportunities for avoidance
- 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)