R(CS) 6/98

Mr. M. Rowland	CCS/11252/1995
18.9.96
Income - additional housing costs allowance and repayments of advance of salary - whether to be deducted from income

The father of the qualifying child was given financial assistance by his employer to enable him to buy the former matrimonial home.  He received an “additional housing costs allowance” payable for nine years at a variable rate, which was not subjected to tax.  He also received an advance of salary, which he was required to repay by monthly instalments.  When he separated from his wife, she remained in the former matrimonial home.  He bought another house and continued to receive the allowance and to make the monthly repayments of the salary advance.  The child support officer treated the repayments of the salary advance as income of the mother received in respect of her housing costs.  On the father’s appeal, the child support appeal tribunal decided that, in assessing his earnings, the additional housing costs allowance should be disregarded under paragraph 6 of Schedule 2 to the Child Support (Maintenance Assessments and Special Cases) Regulations 1992 as an advance of earnings or a loan, and that the repayments of advance salary should be deducted from his assessable income if shown to be made in respect of housing costs.  The mother appealed to the Commissioner.
Held, allowing the appeal, that:
1.	as the father was not liable to repay the additional housing costs allowance, it was not an advance of earnings or a loan within paragraph 6 of Schedule 2 (para. 5); 
2.	a decision by the Inland Revenue not to tax an allowance was not conclusive as to whether the allowance should be excluded from the scope of earnings for the purposes of child support maintenance by virtue of paragraph 1(2) of Schedule 1 to the 1992 Regulations as being in respect of expenses wholly, exclusively and necessarily incurred in the performance of the duties of his employment (para. 7);
3.	while one purpose in buying the former matrimonial home was doubtless to enable the father to work in Greater London, another purpose must have been the provision of a reasonably pleasant home for the proposed occupiers and therefore the additional housing cost allowance was not paid in respect of expenses wholly, exclusively and necessarily incurred in the performance of the duties of the father's employment and it was to be treated as part of the husband’s earnings for the purpose of calculating his liability for child support maintenance (para. 8);
4.	the monthly repayments of the advance of salary did not fall within any of the sub-paragraphs of paragraph 1 of Schedule 3 to the 1992 Regulations and were therefore not made in respect of housing costs of either parent and should neither be deducted from the father's income nor treated as income of the mother (paras. 12 to 14).
The Commissioner referred the case to a child support officer to make a new assessment.

DECISION OF THE CHILD SUPPORT COMMISSIONER
1. 	This is an appeal, brought by the mother of the relevant child with the leave of a Commissioner, against the decision of the Sutton child support appeal tribunal dated 26 June 1995, whereby they allowed an appeal by the father against a decision of a child support officer as to the amount of child support maintenance payable by the father. At the oral hearing before me, the parents both appeared in person and the child support officer was represented by Ms. Daphne Thomas of the Office of the Solicitor to the Departments of Social Security and Health.
2. 	The basic facts of the case are not in dispute. The father is a civil servant. In 1987 he was married to, and living with, the mother and was working as a civil servant in Scotland. He was then given employment in London. House prices in and around London were far greater than in Scotland and so, when he and his wife moved to Greater London, he received some financial assistance with the purchase of their new home. This took two forms. Firstly, he received an “additional housing costs allowance” which was a salary enhancement payable for nine years (although the rate was reduced annually after five years) and, secondly, he received an advance of salary of £8,740. Following the parents’ separation, the father at first rented accommodation and then he bought another house which is his present home. Despite the move, he was able to keep the additional housing costs allowance (which enabled him to meet his new mortgage payments) and he was also allowed to continue making repayments of the advance of salary at the rate of £72.84 per month rather than being required to repay the balance immediately. The father has always maintained that the additional housing costs allowance is non taxable. Certainly his employers have treated it in that way (referring to it on his payslips as an “excess rent allowance”) and I am prepared to accept, for the purposes of this decision, that no tax has in fact been deducted from it, although I am not entirely sure that one of the adjustments to the father’s tax code is not to take account of tax liability on that allowance.
3. 	In remitting the case for reassessment by a child support officer, the tribunal, who had not had such detailed evidence as I have had, gave four directions. Only three of those directions are relevant to the present appeal:
“1.	The additional payment referred to on [the father’s] payslip as “excess rent allowance” is not to be taken into account (Schedule 2, paragraph 6, Child Support MASC Regulations).
2.	Evidence is to be produced for the purpose of the loan for which repayment of £72.84 per month is made from his salary.
	3.	...
4.	[The mother’s] income and housing costs are to be recalculated, so that the loan of £72.84 monthly (if it applies) is not applied twice to the calculations.”
It appears that the assessment made in compliance with the tribunal’s directions was some £62 per month less than the earlier assessment. Both parents have referred to the hardship they will suffer if this appeal goes against them. However, I must determine the appeal according to the law and the law requires me to have strict regard to the statutory formula for assessing liability for child support maintenance, set out in the Child Support Act 1991 and the Child Support (Maintenance Assessments and Special Cases) Regulations 1992 (to which I shall refer as the “1992 Regulations”).
4. 	The mother appeals against the tribunal’s decision on two grounds. Firstly, she submits that the tribunal incorrectly applied paragraph 6 of Schedule 2 to the 1992 Regulations to the additional housing costs allowance and, secondly, she submits that the repayments of the advance of salary neither fall to be deducted in the calculation of the father’s income nor fall to be treated as his housing costs. Her appeal is substantially supported by the child support officer.
5.	Paragraph 6 of Schedule 2 to the 1992 Regulations provides that, when the net income of a parent is being calculated for the purposes of the statutory formula, there shall be disregarded:
“Any advance of earnings or any loan made by an employer to an employee.”
An advance of earnings is a payment on account of future earnings and so a payment by an employer is an advance of earnings only if it is expected that it will be recovered by deduction from future salary payments. As both the mother and Ms. Thomas submit, there was no evidence before the tribunal that the additional housing costs allowance paid to the father would be recovered in the future. The father agrees that it would not be recovered. Accordingly, the tribunal were wrong to hold that the allowance should be disregarded under paragraph 6 of Schedule 2 of the 1991 Regulations. They seem to have been led astray by a submission made by the presenting officer at the hearing before them.
6. 	Does the additional housing costs allowance fall to be disregarded under some other provision? Ms. Thomas at first submitted that the additional housing costs allowance should be taken into account as “other income” under Part III of Schedule 1 to the 1992 Regulations and should not be disregarded. However, in my view, the allowance is clearly “earnings” within the scope of paragraph 1(1) in Part I of that schedule, which provides:
“Subject to sub paragraphs (2) and (3), ‘earnings’ means in the case of employment as an employed earner any remuneration or profit derived from that employment ...”
7. 	In resisting the appeal in respect of the additional housing costs allowance, the father relies on certain documents stating that non taxable allowances would be excluded from assessment of parents’ income for the purposes of calculating liability for child support maintenance. In most cases that is indeed the position because section 198(1) of the Income and Corporation Taxes Act 1988 has the general effect that there may be deducted from taxable emoluments expenses “wholly, exclusively and necessarily” expended in the performance of the duties of the employment and, for the purposes of assessing child support maintenance, paragraph 1(2) of Schedule 1 to the 1992 Regulations provides:
“Earnings shall not include‑
(a)	any payment in respect of expenses wholly, exclusively and necessarily incurred in the performance of the duties of the employment;
...”
However, it is an oversimplification to say that all allowances which have been treated by employers or the Inland Revenue as non taxable are to be disregarded in assessing child support maintenance. Firstly, tax legislation makes some specific provision for particular types of expenses so that it is not always true that allowances for expenses wholly, exclusively and necessarily incurred in the performance of duties of employment are non taxable or that allowances for expenses not so incurred are taxable. Secondly, the Inland Revenue operate, despite judicial criticism, a system of extra statutory concessions which have no place in child support law. The liability of one citizen to make payments to another is to be determined strictly in accordance with the legislation. Under the terms of their published concessions, the Inland Revenue determine that some allowances are not to be taxed even though they are paid in respect of expenses which are not, strictly speaking, wholly, exclusively and necessarily incurred in the performance of duties in employment. Thirdly, the view of an Inspector of Taxes as to whether a particular allowance is in respect of an expense which has been wholly, exclusively and necessarily incurred in the performance of duties of employment is not binding on a child support officer, child support appeal tribunal or child support Commissioner. It would be wrong for one parent to be bound by a decision in respect of which he or she had had no opportunity of making submissions. For these reasons, it is necessary for authorities determining liability for child support maintenance to make their own judgments as to whether or not expenses have been wholly, exclusively and necessarily incurred in the performance of duties of employment.
8. 	In the present case, the expenditure on housing costs to which the additional housing costs allowance relates was clearly not “wholly, exclusively and necessarily” incurred in the performance by the father of the duties of his employment. Quite apart from the fact that courts have taken a strict approach to the question whether expenses have been “necessarily” incurred in the performance of duties of employment, I do not think that it is arguable that expenses incurred in buying a home are “wholly” and “exclusively” incurred in the performance of such duties, in the light of Mallalieu v. Drummond [1983] 2 AC 861 and MacKinlay v. Arthur Young & Co. [1990] 2 AC 239. In the latter case, Lord Oliver of Aylmerton said, at page 255:
“Some results are so inevitably and inextricably involved in particular activities that they cannot but be said to be a purpose of the activity.”
One purpose in buying both the former matrimonial home and the father’s present home was doubtless to enable the father to work in Greater London, but another purpose must have been the provision of a reasonably pleasant home for the proposed occupants.
9. 	I understand why the father thought that the documents upon which he relied assisted his case but the mother is right to point out that neither of them referred specifically to an additional housing costs allowance. It is therefore unnecessary for me to comment upon the accuracy of those documents in the context in which they were written. Suffice it to say that the tribunal erred in holding that the additional housing costs allowance paid to the father should not be treated as part of his income for the purpose of calculating his liability for child support maintenance.
10. 	The repayments of the advance of salary raise different issues. The father argues that paragraph 6 of Schedule 2 to the 1992 Regulations is relevant in this context, but that is clearly not so. That provision allows for the disregarding of an advance of salary when it is received as income. There is no provision in the regulations for deducting from earnings an amount in respect of repayments. In that, the legislation is consistent because the overall effect is that the fact that there has been an advance of salary is wholly ignored both when it is received and when it is repaid.
11. 	The tribunal, in making their second and fourth directions, clearly had in mind that the repayments of the advance of salary might be eligible housing costs of the father under Schedule 3 to the 1992 Regulations. The child support officer had originally regarded the mother as having those housing costs and had treated the payments made by the father as being her income. However, at the hearing before the tribunal, the presenting officer invited them to give the directions they did. Before me, Ms. Thomas argues that the repayments cannot be housing costs of either parent and that the tribunal erred in accepting the presenting officer’s submission.
12. 	It is not in dispute that the advance of salary was in fact used for the purchase of the former matrimonial home which has been the mother’s home since the parents’ separation. However, the advance is not related to a mortgage or other charge on the property and only the father is liable to make the repayments. In those circumstances, it is clear that the repayments of the advance cannot be housing costs of the mother because she is not “responsible for those costs” (see paragraph 4(1)(b) of Schedule 3 to the 1992 Regulations). Ms. Thomas submits that they cannot be housing costs of the father either, because they are not “in respect of the provision of a home” for the purposes of paragraph 1 of Schedule 3 which provides:
“Subject to the following provisions of this Schedule, the following  payments in respect of the provision of a home shall be eligible to be taken into account as housing costs for the purposes of these Regulations-
(a)	payments of, or by way, of rents;
(b)	mortgage interest payments;
(c)	interest payments under a hire purchase agreement to buy a home; 
(d)	interest payments on loans for repairs and improvements to the home, including interest on a loan for any service charge imposed to meet the cost of such repairs and improvements;
(e)	payments by way ground rent ...;
(f)	payments under a co‑ownership scheme;
(g)	payments in respect of, or in consequence of, the use and occupation of the home;
(h)	where the home is a tent, payments in respect of the tent and the site on which it stands;
(i)	payments in respect of a licence or a permission to occupy the home (whether or not board is provided);
(j)	payments by way of mesne profits ...;
(k)	payments of, or by way of, service charges, the payment of which is a condition on which the right to occupy the home depends;
(l)	payments under or relating to a tenancy or licence of a Crown tenant;
(m)	mooring charges payable for a houseboat;
(n)	where the home is a caravan or a mobile home, payments in respect of the site on which it stands;
(o)	any contribution payable by a parent resident in an almshouse ...;
(p)	payments under a rental purchase agreement ...;
(q)	payment in respect of ... croft land;
(r)	where the home is provided by an employer, whether under a condition or term in a contract of service or otherwise, payments to that employer in respect of the home, including payments made by the employer deducting the payment in question from the remuneration of the parent in question;
(s)	[revoked]
(t)	payments in respect of a loan taken out to pay off another loan but only to the extent that it was incurred for that purpose.”
Ms. Thomas submits that “a home” has to be construed as referring to the current home of the relevant parent at the time in respect of which child support maintenance was being assessed, rather than at the time the expenditure was incurred. She may be right, but I prefer not to express a view on that point. It is unnecessary for me to do so because I am quite satisfied that the repayments cannot fall within any of sub- paragraphs (a) to (t) of paragraph 1 (or, for that matter, within paragraph 3 which relates only to the calculation of “exempt income”). In particular the repayments were not “mortgage interest payments”, within sub-paragraph (b) of paragraph 1, and, in relation to sub-paragraph (g), payments in respect of a purchase of a home are not payments “in respect of, or in consequence of, the use and occupation of the home”, even if the purchase is for the purpose of having the use and occupation of the home.
13. 	Accordingly, I agree with Ms. Thomas that the repayments of the advance of salary cannot be regarded as housing costs of either parent. The father’s continuing liability for the repayments is therefore not a matter that can affect his liability for child support maintenance but it was a matter to be taken into account in the matrimonial proceedings between the parents in which the father retained a one third share in the former matrimonial home upon a trust for sale.
14.	I therefore allow the mother’s appeal. I refer the case to a child support officer to make a new assessment. In making that assessment, the child support officer shall include the father’s additional housing costs allowance within his earnings but should have regard to the fact that the allowance has decreased each October and will cease altogether next month. The child support officer shall not make any deduction from the father’s earnings in respect of the repayments of the advance of salary, shall not treat those repayments as income of the mother and shall not treat those repayments as eligible housing costs of either parent.

Date: 18 September 1996	(signed) Mr. M. Rowland
	Commissioner