Chapter 4: Legislation as a source of law Flashcards
4.1 Introduction
No tax can be levied in the UK without it being charged by an Act of Parliament. Legislation is a key source of tax law in the UK.
4.2 Legislation – a definition
Legislation is any formal written law made by a body legally empowered to make laws (such as the legislature).
4.3 Legislatures Operative in the UK
There are many law-making bodies whose laws have effect in the UK. They can be classified into those making primary legislation and secondary legislation (sometimes called delegated or subordinate legislation).
Primary legislatures of the UK – these are Parliament and the Privy Council. They create Acts of Parliament (statutes) and prerogative orders of the council respectively. Tax law is made solely by Acts of Parliament (with the exception of devolved parliaments).
Secondary legislatures in the UK – this is when Parliament delegates its powers to others to create secondary legislation. There are five key secondary legislatures in the UK:
• The privy council – by statutory instrument they create statutory orders in council. Tax treaties are ratified by the Privy Council. Given the dualist nature of the UK constitution although the crown concludes treaties with other countries, if the treaties are to operate in domestic law, they have to be enacted into domestic law by a UK legislature. Parliament gives the privy council powers to pass secondary legislation to enact tax treaties, which consequently become operative in UK law.
• The ministers of the crown – by way of statutory instrument the ministers of the crown may create orders and regulations.
• Government departments, public corporations and court rule committees – by way of statutory instrument government departments (eg treasury and HMRC) may create orders and regulations.
• Local government – they can create byelaws.
• Professional bodies – they can create rules that govern the members of those bodies (eg the chartered institute of taxation).
The respective standing of the UK legislatures –
Parliament is the supreme law-maker within the UK. The power of secondary law-making bodies is derived from Parliament. This means the legislation made by them can be declared invalid by courts, especially if they exceed the law-making powers granted to them by Parliament. If the legislation of a secondary law-maker conflicts with that of Parliament, then Parliament is valid. Despite this, valid legislation made by secondary law-making bodies is of equal force and effect with Parliaments legislation.
4.4 Types of Act of the UK Parliament
Application – in terms of applications Acts are either Public acts or private acts. Public acts apply throughout the UK as a whole or throughout one or more of the legal jurisdictions in the UK, they are initiated by the government or by MPs (Private members acts). Private acts are initiated outside Parliament and apply to a particular community. Most tax statutes are Public acts.
Purpose – acts of UK Parliament may be classified according to their purpose as follows:
• A declaratory Act – these acts create new law. For example, Part 2 of the Finance Act 2017 created a new tax called the Soft Drinks Industry levy
• An amending act – they amend existing law or repeal (abolish) them. All finance acts are of this type. To amend a statue Parliament must pass another Act with those amendments.
• An enabling act – these acts bestow powers on other bodies to make law. Parliament is able to delegate its authority to make law to other persons. The scope of the powers varies from technical powers (can vary the date the act comes into force) to wider powers such as filling out the administrative provisions of the act.
• A consolidation act – this is an act that brings into a single act the existing statutory law on a particular matter. They are not meant to make any alterations to the law. For example, the Stamp Act 1981 and Inheritance Tax Act 1984 are consolidation acts.
• A rewrite act – they only exist in the context of tax law. They re-state a simplified, consistent and more understandable form of the statute law relating to taxation. The CTA 2009 AND CTA 2010 are examples. They aim to use modern language and terminology.
• A codification act – this is an act that brings into a single act both the common law and statute law on a particular matter. As there is no common law of taxation, there are no codification acts in a tax context. But there are in other areas of law such as the Partnership Act 1890.
4.5 The Enactment of acts of the UK Parliament
There are two main stages to the enactment of legislation – the Whitehall stage and the Westminster stage.
The Whitehall stage – one of the functions of the executive is to formulate policies. The government can set out its legislative plans in advance and publish green or a white paper (can be called position papers) dealing with proposed legislation (this doesn’t always occur). A white paper is a set of firm proposals the government intends to legislate, the green paper is a tentative set of proposals that may come into legislation. In tax matters the government regularly consults interested parties on proposals. The consultations and outcomes are published on HMRC’s website.
The Westminster stage – the enactment of an act by Parliament is a formal process. A finance bill is always introduced into the House of Commons. A bill is drafted by Parliamentary council on the policy of the proposed legislation by government. The formal steps are as follows:
The first reading – the short title of the bill is read out to the commons, no debate at this stage. A date for a second reading is announced and the bill is allocated a number, which is printed on the bottom left cover of the front page in a square bracket. After the reading a set of explanatory notes are produced to give an understanding of the text. They are not an exhaustive description of the act and do not form part of the act.
The Second reading – the Commons debates the general principles of the bill. No amendments are made and a vote is taken at the end of the second reading. If approved by a simple majority it goes forward to the committee stage.
Committee stage – this is a cross party committee and the bill is looked at, clause by clause. Some clauses are considered by a committee of the whole house (in the commons/Lords), some are considered by a standing committee, which are appointed for each bill. Votes are held in respect of each clause. The committee may amend the bill and new clauses can be introduced. If it is amended the bill is reallocated a new Bill number.
The report stage – the standing committee reports the bill to the House. The government and the house can make further amendments to the bill.
The third reading – this is the final stage of the bill in the house. No amendments are made at this stage. The bill is passed if the house votes in favor of the bill by a simple majority.
4.5 The Enactment of acts of the UK Parliament (2)
Once a bill has passed these stages, it does the same process in the Lords. If the Lords amends the bill is it returned to the commons to agree on the amendments. The Lords can only delay the passing of a bill for a maximum of one year and can only delay the passing of a bill twice. In the case of a Money Bill (finance bill) the Lords cannot amend any provision but still must approve the bill.
The finance bill is also debated by the Lords select committee on economic affairs. This is not part of the enactment procedure of the finance bill but rather allows a committee of specialists to report on the contents of the budget and bill following the commons committee stage. The lords committee looks at issues of tax administration and the scope for clarifying or simplifying the provisions, they cannot make amendments.
Under the Parliament Act 1911 even if the Lords rejects a bill, the commons can send the bill for royal assent and when it becomes law without the consent of the Lords. Royal assent is always granted, since 1707 royal assent has never been refused.
There are two stages of royal assent. First the queen physically signs the bill and then following the signature Houses are told royal assent has been granted (royal asset is signified). Then the bill is regarded as being enacted (promulgated).
Parliamentary Resolutions – during a passage of a bill, a House may pass resolutions associated with the bill, these can include Money Resolutions and Ways and means resolutions. These votes are normally taken after the second reading. However, resolutions are introduced after the budget statement and agreed before the finance bill is introduced at first reading. A money resolution is required to authorize any part of a Bill which involve a significant amount of expenditure from central funds.
A way and means resolution are needed to authorize the levying of taxes. These resolutions relating to a finance bill are temporarily deemed to be included in an Act of Parliament, this ensures the smooth administrative operation of the tax system.
The validity of Acts of Parliament – due to parliamentary supremacy nobody can challenge the validity of an Act of Parliament in the courts, except on the basis the act has never been properly passed by Parliament.
Hansard – all proceedings in Parliament are transcribed verbatim and are recording in writing. This publication is known as Hansard.
4.6 The Operation of acts of the UK Parliament
The extent of an Act of Parliament – this is the geographical area the act operates in. Acts of Parliament at common law extend to the whole of the UK usually but not all acts do. Some acts just apply in one jurisdiction, some acts lay different extend for different provisions and some acts extend to the territorial sea of the UK. Repeals and amendments made by an Act have the same territorial extend as the legislation they are repealing or amending.
The application of an Act of Parliament – this refers to the entities and transactions that are governed by the Act. An act is said to apply wherever it produces a practical effect. Tax statutes frequently have extra-territorial application, so they can apply to entities and transactions outside the UK if they have the appropriate UK connections as defined by that act.
Colquhoun v Brooks 2 TC 490 said income tax acts impose a territorial limit. Individuals not resident in the UK are not subject to UK income tax statutes unless they have sources of UK income.
In rare circumstances the tax acts apply to persons with no connection to the UK. This applies only to the taxation of payments on the termination of employment (chapter 3 Part 6 ITEPA 2003 Nichols v Gibson 1996).
The temporal operation of an Act of Parliament – this refers to the amount of time an Act operates. An act operates between its commencement and its repeal. If an Act does not contain specific dates on which it comes into force, it comes into force on the beginning of the day which is receives royal assent. Different parts or sections can be brought into effect at different times.
An act may be modified by transitional provisions as to when it first applies or when it ceases to apply. A statutory instrument can bring portions of an Act into force at different times. Rarely an act can operate retrospectively, it changes the legal effect of transactions that have been entered into before the Act comes into force. An act can also operate retroactively so transactions started but not completed before an act comes into force may be affected by the new provisions in an Act from the date it comes into force.
Repeals do not have retrospective effects unless the Act says so or it is interpretated this is the case.
4.7 The structure of an Act of the UK Parliament
An act is divided into the body and the schedules. The schedules do not have statutory force unless a section of the acts says so. A schedule deals with a self-contained detailed body of rules which is cluttered up in the body of the Act. If an act repeals any part of the previous enactment, the repeals are normally in a Schedule.
The operative parts of a schedule are called paragraphs and sub-paragraphs.
The body of the act is divided into parts, which are divided into chapters, which are divided into sections. When an act is still a bill sections are referred to as clauses. If a section is missing from the sequential order, this section has been repealed. Sections can be split into sub-sections and paragraphs.
An Act of Parliament contains the following elements in order:
• The monarchs name and the royal arms
• The name and year of the act and its chapter number (all acts of UK Parliament are regarded as forming one law book, with each act being a chapter).
• A table of contents – comprises of a list of sections in the act and the schedules
• The long title to the act – explains in detail what the act is about
• The date the act received royal assent
• The enacting words which give the act the force of law
• The short title of the act
4.8 Secondary Legislation - the need, disadvantages and making of secondary legislation
The need for secondary legislation –
• Parliament does not have the time to debate in detail all matters. In a Parliamentary session on average 40 acts are passed and 3,000 statutory instruments are created
• Legislation may cover technical details which are best drafted by experts in gov departments and industry specialists
• Regulations may have to be introduced and changed quickly
• Minor changes that do not require the attention of Parliament can occur, so secondary legislation is more efficient
The disadvantages of secondary legislation –
• It erodes the supremacy of Parliament
• The amount of secondary legislation results in it being difficult to know whether a particular rule of law actually exists
• Unelected officials tend to make secondary legislation and there is a danger they may act beyond the powers delegated to them by Parliament.
The making of secondary legislation – usually drafted by the legal department of the government department authorized to make it. Then a consultation follows, the legislation is made when the person who has been granted authority signs the act. It comes into form on the date stated within the delegated legislation.
Subordinate legislation is in the form of statutory instruments, in Scotland they are called Scottish Statutory Instruments (SSI), WSI in Wales and NISR in Northern Ireland. Subordinate legislation can be either orders or regulations, both are enacted in a statutory instrument.
4.8 Secondary Legislation - parliamentary control, repeal of secondary legislation
Repeal of subordinate legislation – like statutes, subordinate legislation remains in force until it is repealed. Under s.14a Interpretation Act 1978, since April 2014 subordinate legislation can include a sunset provision, which states it will cease to have effect at a specified date.
Parliamentary control of secondary legislation – delegated legislation is valid if it is made in accordance with the powers conferred by the enabling act, in this case it is made intra vires (within the powers. It is invalid if the body has exceeded the powers by the enabling statute, in this case ultra vires (outside the powers). If the legislation is ultra vires it is void.
Parliament scrutinizes secondary legislation by the Joint Select Committee on Statutory Instruments, in both houses. The committee can refer an instrument back to Parliament. There are two types of formal procedure that Parliament requires for the creation of a statutory instrument.
• Under the negative resolution procedure, the instrument is annulled if either House passes a motion called for its annulment within 40 days of it being created (this period can be altered by the enabling act).
• Under the affirmative resolution procedure an instrument is laid in draft before either house and has to be approved by resolution of both houses (just commons in the case of tax) before it takes effect.
There are two sub-categories of the affirmative resolution procedure:
• The draft affirmative procedure: the statutory instrument cannot be made unless a draft has been laid before and approved by both houses.
• The made affirmative procedure: the instrument can be made and come into force before it is debated, but cannot remain in force unless approved by both houses within one month.
The affirmative resolution procedure is less common, but provides more Parliamentary control.
Control of secondary legislation by the courts – the validity of secondary legislation is subject to judicial review (unlike acts of Parliament). A complaint can be taken to the High Court to rule whether the delegated legislation is ultra vires. If the complaint is successful the statutory instrument is void or needs to be redrafted.
The Structure of a statutory instrument – comprises of a body and schedules. The operative part is called articles (in the case of an order) or regulations. These can be subdivided. Collectively sections, articles and regulations are known as enactments.
On the front page is a number followed by the year of enactment and its name. it also records who made the instrument, the section from the enabling act which granted their authority and the dates when the instrument was made, laid before Parliament and will come into force.
4.9 Tertiary legislation
This is the third type of legislation, created where the body empowered by Parliament to make secondary legislation creates binding rules of law that are not contained in a Statutory Instrument but in some other document.
This is still made under formally delegated powers; it is not the body empowered by Parliament granting itself arbitrary law-making powers.
4.10 Legislation of the EU
While the UK remains a member state of the EU, this is still a source of legislation. The EU treaties are primarily legislation of the EU. The two main treaties are the treaty of the European union and the treaty on the functioning of the European Union.
The treaties set out where the EU is permitted to act and to what extent. They contain procedural rules for how the EU operates and substantive rules. They also set out the EU’s competence (subject areas the EU can make laws in).
The EU also creates secondary legislation, the two keys ones being regulations and directives.
EU regulations contain detailed legal rules and have the force of law in the EU. They are directly applicable to a member state. Directives set out a legal framework which member states have to follow but member states choose how to make it part of its law. Once created, member states have an obligation to make domestic laws that give the directive an effect.
As a member of the EU the UK uses the dualist nature of its constitution to incorporate the EU treaties into domestic law via the European Communities Act 1972. It confirms the UK’s member of the EU and gives EU law supremacy over UK domestic law. It ensures that the EU treaties and regulations are directly applicable in the UK and provided a delegated power to allow for the implementation of directives.
4.11 Extra statutory material
The following are the six main types of extra-statutory material published by HMRC: • Extra statutory concessions • Statements of practice • HMRC interpretations • HMRC briefs • Tax bulletins • Other HMRC materials
