[2004] UKSSCSC CIS_2467_2003 (26 August 2004)

	DECISION OF THE SOCIAL SECURITY COMMISSIONER

1.	The decision of the Birkenhead appeal tribunal dated 8 April 2003 is erroneous in point of law, for the reasons given below, and I set it aside. It is expedient for me to substitute a decision on the claimant's appeal against the Secretary of State's decision dated 4 November 2002, having made the necessary findings of fact (Social Security Act 1998, section 14(8)(a)(ii)). My decision is that the appeal is disallowed and that the claimant is not entitled to income support from and including 18 September 2002 because his capital exceeds the statutory limit. Thus, although the claimant's appeal to the Commissioner achieves a technical success, because the decision of the appeal tribunal has been set aside, the final decision is less advantageous to him than the appeal tribunal's.

The background
2.	This appeal raises some very difficult questions as to the application of the income support rules on the calculation of capital resources, and in particular the disregard of "the assets of any business owned ... by the claimant" (Income Support (General) Regulations 1987, Schedule 10, paragraph 6), to a self-employed author who receives both advances on contracting to write a book and subsequent royalties on sales. I can say at the outset that the structure and terms of the relevant legislation provide a poor fit for circumstances like those of the present case and would benefit from re-examination.

3.	The appeal tribunal was concerned with the claimant's appeal against the decision made on 4 November 2002 that he was not entitled to income support from 2 October 2002 because his capital exceeded the statutory limit of £8,000. That at least was the decision set out in section 2 of the Secretary of State's written submission to the appeal. The letter of 5 November 2002 notifying the claimant of the decision (page 161, and probably not before the appeal tribunal when it made its decision) said that the decision was that he was not entitled to income support from 18 September 2002. The claimant had requested a claim form on 18 September 2002. He seems to have sent off the form on 13 October 2002. On 15 October 2002 the Department wrote asking for further information and for some parts of the claim form to be completed. The form and the information had to be returned by 18 October 2002 and date-stamps indicate that that was done. It therefore looks as though the claim should have been treated as made on 18 September 2002. That would also explain some apparent discrepancies in an officer's calculation of the capital held at different dates (pages 85 and 86), which were discussed at the oral hearing. I therefore proceed on the basis that there was a claim for the period from 18 September 2002 and that a decision would have been given covering the period from that date to 4 November 2002. The Secretary of State's view of the amount of the claimant's capital would no doubt apply just as much to the period from 18 September 2002 to 1 October 2002 as to the period from 2 October 2002. However, it might have been significant that the claimant's wife was in part-time employment down to 1 October 2002 and the level of her earnings might have been too high, in addition to the claimant's incapacity benefit, for him to qualify for income support on income grounds.

4.	The claimant is a self-employed author, who has a large number of books earning royalties at any one time. He had the misfortune to suffer some illness and at the time of the claim had not been able to do any writing or to take on new contracts for some months. His evidence was that he intended at that time to recommence activity as soon as his health permitted, although in the nature of things he could not put a definite date on when that would be.

5.	There were four relevant financial assets, about which the claimant provided details. One was a Tesco Maxi ISA in the claimant's name taken out in the tax year 2000/2001. This was apparently a fixed term contract. A valuation statement as at 14 October 2002 gave its total value as £4,610.83.

6.	The second was a Tesco instant access account in the joint names of the claimant and his wife. A statement as at 14 October 2002 showed an opening balance of £4,864.24, a payment out of £1,500 on 20 September 2002 and a closing balance, after the addition of interest on 30 September 2002, of £3,373.77. Since the oral hearing, the claimant has provided (at my request) a copy of the next statement, as at 6 December 2002. This shows a payment in of £739.87 on 17 October 2002 and the addition of interest on 31 October 2002, so that the balance on 4 November 2002 was £4,121.00.

7.	The third asset was a Lloyds TSB savings account stated by the claimant (page 48) to have a balance of £109.99.

8.	The fourth asset was a Lloyds TSB Select current account, I think a joint account of the claimant and his wife. A statement showed a balance of £2,420.66 on 26 September 2002, various transactions including a payment-in of £722.26 on 27 September 2002, obviously from the claimant's wife's employers, and a balance of £1,667.81 on 2 October 2002. The claimant also supplied a copy of the next page of the statement on this account after the oral hearing. This showed a final balance on 2 October 2002 of £1,662.81 and a balance of £1,412.80 on 14 October 2002. Following a further direction, the claimant has supplied copies of the next two pages, taking the position beyond 4 November 2002. After taking account of transactions on 4 November 2002, the balance was £774.82. There were payments-in of the claimant's incapacity benefit (£283.80) on 18 October 2002 and disability living allowance (£307.80) on 25 October 2002. It appears from the appeal tribunal's record of proceedings (page 131) that that was the first regular payment of DLA and that some arrears were paid after the date of the decision under appeal. There was also a payment-in of £504.84 from the claimant's wife's employers on 25 October 2002, which he has explained was his wife's final salary on retiring from employment (and that the payslip had been provided to the Department, although it was not in the papers before the appeal tribunal).

9.	The claimant's case, made from the outset, was that he did not have any savings and that he was making a loss in terms of earnings, as expenses exceeded royalties coming in. As I understand the notes dated 12 October 2002, sent in with the claim form, he argued that the then balance in the Lloyds TSB accounts would be more than wiped out by cheques not yet presented. In relation to the two Tesco assets, he gave the following explanation:

	"Revenue on books includes advances against royalties. These are down payments to secure a contract and are paid at the time of contract, or split between that date and the submission of the manuscript. This money is contractually repayable to the publisher if I do not fulfil the contract on time (enclosed contact clause). Moreover, no royalties are paid on book sales until the level exceeds the amount of the advance. Until advances are recouped by sales royalties they cannot be classified as earnings, but are publishers' deposits on account of eventual earnings.

	Books may take a year or more to write, then typically 2 or 3 more years until the advance is recouped. Meanwhile any advances I hold on deposit do not belong to me as they are not earned until sales are made and royalties are payable.

	[The claimant then summarised enclosed royalty statements down to 30 June 2002, plus advances on two other books, to calculate an outstanding unearned balance of at least £11,853.45]

	The effect of advances is that there is always an amount outstanding. For that reason I put part in a 5 year ISA account and the balance in a Tesco savings account (up to date statements requested). Unfortunately as our income has dropped we have had to draw on the savings account and so now we have spent a great part of unearned advances and have overdrawn on those publishers' deposits. Savings/capital is therefore negative."

10.	Not long afterwards the claimant also sent in a royalty statement down to 30 June 2002 from another publisher and also an income tax assessment for tax year 2001/2002 showing net income from self-employment of £3,471. That, even with the addition of interest received, was less than the claimant's personal allowance, so that no income tax was payable. In a covering letter the claimant wrongly described the assessment as showing that he had income of zero, but did make the point that, as royalties were received annually or half-yearly, there would always be some amounts not yet expended, as in the early part of a month on salary. On 4 November 2002 an officer made the decision described in paragraph 2 above. The calculations on a form A6 on pages 85 and 86 show that the officer took the current value of the ISA and whatever the balance was of the three accounts as capital and reached the conclusion that the amount exceeded £8,000 throughout the period in question. In my view, the figures make sense if "IDOC" (initial date of claim) is taken as 18 September 2002, rather than 2 October 2002.

11.	The claimant appealed. He put in detailed written submissions, both with the appeal and in reply to the Secretary of State's written submissions. I do not need to go into all of those now apart from noting that the issue of discrimination under the Human Rights Act 1998 was raised and that a new claim had been made from March 2003, for the purposes of which it had apparently been agreed that the claimant had no net income from his self-employment.

The appeal tribunal's decision
12.	The claimant attended the hearing on 8 April 2003. The appeal tribunal allowed the appeal and decided that at the date of claim he had capital of £4,610.83. The appeal tribunal therefore decided that the claimant was not disentitled to income support because of his capital, but that tariff income would have to apply. It referred that issue and the issue of the treatment as income of payments of royalties (which it considered was not raised on the appeal against the decision of 4 November 2002) to the Secretary of State for decision.

13.	The appeal tribunal's statement of reasons explained as follows its decision that the value of the ISA was capital which could not be disregarded:

	"[The claimant] maintains that none of the money held in any of his bank accounts or ISA account should be treated as capital because, if the tribunal has understood his argument correctly, this is all working capital and therefore an asset of the business which should be disregarded. It was established by the tribunal that none of the royalties advanced to the appellant was repayable. This is confirmed by the appellant's comment at the top of what is now page 115 of the appeal papers. This part of the letter refers to the ISA account which he said was set up because over a long period there had always been contractually refundable advances. There was no evidence that any of the advances the appellant had received were refundable because he had written the books in respect of which the advances had been made. It appeared to the tribunal, looking at the agreement produced, that the reason why an advance may be refundable is if the appellant actually failed to produce the work which he had been contracted to write. That did not apply. The appellant had produced the books for which advances had been made and no refund was therefore going to be requested. On page 2 of the Record of Proceedings, which now appears at page 131 of the appeal papers, the appellant told the tribunal that the ISA was a business account because it was made up of repayable royalties. That does not seem to be the case. The appellant also said that his current royalty payments were not paid into the ISA account but were paid into 2 other accounts which he holds, together with payments of Incapacity Benefit and Disability Living Allowance to which he was entitled at some point.

	The tribunal was therefore prepared to accept the appellant's argument relating to the accounts held at Lloyds TSB and Tesco's current account and that disposes of the issue in this appeal.

	...
	The tribunal concluded that the ISA account is capital because the payments into that account had long ceased to have any income bearing nature and they were now effectively savings. Apparently the original payment in had been £7,000 but this had reduced as a result of poor performance. In relation to the other two accounts, the tribunal accepted that they should be disregarded either as business assets or because some of the payments into those accounts still represented income. The tribunal also accepts the statement of the Secretary of State on what is now page 121 dealing with the question of the balance in the accounts [ie that deductions should not be made for unpresented cheques or credit card transactions]. The amount to be taken into account is the amount available to the appellant at the date of claim and no deductions can be made for indebtedness except in the circumstances mentioned in the Regulations."

14.	The statement also explained why the appeal tribunal concluded that the claimant was not assisted by any arguments based on the Human Rights Act 1998.

The appeal to the Commissioner
15.	The claimant now appeals to the Commissioner with the leave of the chairman of the appeal tribunal. Very much in brief, he argued that as the appeal tribunal had accepted the Tesco instant access account was a business asset, it should also have recognised the Tesco ISA as such. He also argued that the appeal tribunal had misunderstood the nature and source of the money invested in the ISA. The appeal was supported by the Secretary of State in the written submission dated 15 August 2003, but only on the basis that the appeal tribunal had been wrong in law to conclude that the Lloyds TSB accounts and the Tesco instant access account were business assets. The submission invited the Commissioner to substitute a decision that all of the accounts were capital which did not fall to be disregarded. The claimant objected to the Secretary of State's taking this line without having himself applied for leave to appeal. I rejected his application that I should refuse to admit the Secretary of State's submission as part of the documents in the appeal, but drew his attention to his right to apply to withdraw the appeal to the Commissioner. The claimant indicated that he wished to continue with his appeal, although he stood to gain little financial advantage from success, and put in detailed submissions.

16.	I directed an oral hearing in view of the difficult questions of law raised. Eventually, after some ups and downs (including one failed attempt at a video-link), the oral hearing took place by video-link on 23 March 2004. The claimant took part from the premises of Bebbington Citizens Advice Bureau, where Mr Paul Robinson of the CAB was also present, assisting the claimant. The Secretary of State was represented by Mr Leo Scoon of the Office of the Solicitor to the Department for Work and Pensions, who took part from the premises of that office. Unfortunately, despite the problem apparently having been solved while the start of the hearing was delayed, Mr Scoon was not able to see either the Commissioner or the claimant on screen, but could hear everyone. I am grateful for the assistance of all concerned in difficult circumstances.

17.	During the hearing it was agreed that the claimant would supply copies of further pages of statements of account, to try to cover the period down to 4 November 2002 and that Mr Scoon would have the opportunity to comment. The extra pages mentioned in paragraphs 5 and 7 above have made their way to me, although in two instalments. Mr Scoon (who saw the first instalment) and the representative of the Secretary of State in the submission dated 20 July 2004 have had no comments to make on the extra information. I regret that the process following the oral hearing has taken so long.

Did the appeal tribunal err in law?
18.	Yes, the appeal tribunal did go wrong in law. In drawing a line between the claimant's ISA on the one hand and the Tesco instant access account and the Lloyds TSB current account on the other hand it was in part relying on paragraph 6 of Schedule 10 to the Income Support Regulations and in particular on paragraph 6(2). That includes in assets to be disregarded as capital:

	"(2) The assets of any business owned by in whole or in part by the claimant where--
	 (a)	he is not engaged as a self-employed earner in that business by reason of some disease or bodily or mental disablement; but
	 (b)	he intends to become engaged (or, as the case may be, re-engaged) as a self-employed earner in that business as soon as he recovers or is able to become engaged, or re-engaged, in that business;
	for a period of 26 weeks from the date on which the claim for income support is made, or is treated as made, or, if it is unreasonable to expect him to become engaged or re-engaged in that business within that period for such longer period as is reasonable in the circumstances to enable him to become so engaged or re-engaged."

19.	There seems no doubt that the claimant's circumstances fell within heads (a) and (b) of paragraph 6(2) and the period in issue in the appeal is within 26 weeks of the claim on 18 September 2002. Thus the appeal tribunal needed to ask itself which of the claimant's capital assets were assets of the claimant's business. The language of a business owned by a claimant does not really make sense in a case like the present, where, as the claimant put it at the oral hearing, he was the business. All the assets will be owned directly by claimant. However, it is agreed that a self-employed person may benefit from the disregard. That was established by Commissioner's decision R(SB) 4/85, about the same form of words in the supplementary benefit legislation. Mr Commissioner Monroe said this in paragraphs 9 to 11:

	"9. It is necessary that I attempt to give [a new appeal tribunal] some rough guidance on the criteria for distinguishing between a person's business assets and his personal assets. This is not an easy matter. If a person carries on a business in partnership with another he has a duty to that partner to keep the business assets severed from and not mixed in with his own assets, and it is reasonably easy in the case of a person who fulfils this duty to distinguish the two classes of assets. But a sole trader has no such duty and commits no crime if he mixes his own and his business assets together; and he can freely transfer an item from his business to his personal assets and vice versa, as when a person carrying on business as a grocer goes and takes a pound of butter out of the shop for use in his household. The distinction does however sometimes matter, as in the present case. How is it to be drawn?

	 10. The claimant and [the supplementary benefit officer's representative] put forward diametrically opposed and extreme alternative solutions. The claimant submitted that as a creditor of a business could have recourse to all a trader's assets, all were business assets. [The representative] submitted that everything that was in the trader's name was a personal asset. I reject both these submissions. The claimant's submission would mean that the assets of a claimant who owned a business could all be disregarded however prosperous it was. And I do not consider that it makes a difference that in this case the business was insolvent. This factor does not make, say, the claimant's toothbrush into a business asset. Conversely, [the representative's] submission would mean that no asset would be a business asset unless it were put into some name other than that of its owner.

	 11. The question is one that has arisen in other contexts ... it has even arisen in relation to social security (see Decision R(U) 3/77 at paragraphs 14 and 15), where the income tax cases are considered and it was said (adopting the phraseology of one of the cases cited) that the test was whether the relevant income was `fruit derived from a fund employed and risked in the business'. In the case of a capital asset it has to be considered whether the asset is part of the fund employed and risked in the business."

20.	Did the appeal tribunal properly apply that guidance? I find that it did not, both for the reasons put forward by the claimant and for those put forward for the Secretary of State. From the claimant's point of view, the appeal tribunal's statement did not explain why it considered that the fact that current royalty payments were not paid into the ISA pointed towards it not being a business asset. The appeal tribunal was on stronger ground towards the end of the statement in finding that the funds in the ISA were now effectively savings, but there was no finding in terms of whether or not the asset was employed and risked in the claimant's business. The appeal tribunal's explanations did not directly meet the claimant's case that the funds in the ISA represented a reserve to be held against the normally recurring contingency that advances would have been paid on books that had not yet been written or accepted for publication and that it did not alter its nature that, due to his ill-health, the claimant had been unable since around March 2001 to take on any new contracts and receive new advances. That was an argument for the funds being employed in the business and for a smaller amount of capital to be subject to the tariff income rule. From the Secretary of State's point of view, the appeal tribunal did not adequately explain why it found that the Tesco instant access account and the Lloyds TSB current account, in so far as they did not contain moneys which still retained their character as income, to be assets of the business. Again it did not make findings in terms of whether the assets were employed and risked in the business, especially in the light of both accounts apparently being joint with the claimant's wife.

21.	The appeal tribunal thus failed to give adequate reasons for its decision, such as to show that it had properly applied the principle laid down in R(SB) 4/85. Its decision must accordingly be set aside as erroneous in point of law. Following the further submissions made at the oral hearing and the further evidence provided, it is expedient for me to give a decision on the claimant's appeal against the decision of 4 November 2002, having made the necessary findings of fact.

The Commissioner's decision on the claimant's appeal against the decision dated 4 November 2002
22.	I shall look first at the issue of whether the claimant is excluded from entitlement to income support for all or part of the period from 18 September 2002 to 4 November 2002 by reason of the amount of his capital. That was certainly an issue raised by the appeal, and I do not need to consider any question of exercising a discretion to consider issues not raised by the appeal (Social Security Act 1998, section 12(8)(a)). By virtue of section 12(8)(b), circumstances obtaining after 4 November 2002 cannot be taken into account.

Beneficial ownership
23.	There are a number of different elements to the claimant's case. I accept one part the claimant's submission that some of the money in the four accounts was not his at all, either because it included receipts of VAT which did not belong to him or because advances could only be treated as part of his assets to the extent that they had been covered by royalties actually earned (but not paid until the advance was cleared). In relation to the receipts of advances, leaving aside the question of whether at any particular date the amounts involved constitute income or capital (see paragraphs 27 to 33 below), I have no doubt that as soon as they were received the amounts were fully in the claimant's legal ownership. Even in a case where the book had not yet been accepted for publication, where the claimant might come under an obligation to repay the advance if work of an acceptable standard was not produced, that would merely be a personal obligation on the claimant. There would be nothing to impose any trust or equitable obligation that would take the amount out of the claimant's beneficial ownership or to create any charge or security over any particular assets. It may well be prudent and good business practice for the claimant to keep a reserve to cover "unearned" advances, but that is a long way short of showing that the amounts received in advances do not belong fully to the claimant as soon as they are received.

24.	I find the treatment of VAT more difficult. The claimant's points have never been really specifically dealt with by the Secretary of State, although the opportunity was there. It may be that in some other case the question will have to be argued out more fully, but I am not going to delay the present case any further. The situation, as I understand it, is that when the claimant receives payments of VAT on the amounts of royalties or advances (and the royalty statements at pages 74 to 79 show the separate VAT calculation) he then comes under a liability to pay the VAT over to the Customs and Excise, less any amount for his input VAT. I also understand that for income tax purposes VAT received is not treated as part of a taxpayer's income. There is therefore an argument that, on its receipt and until it is paid over, it does not form part of the claimant's capital either: that it is of a different nature from a personal liability that arises and may need to be met out of capital resources. The claimant said that he now makes monthly payments to Customs and Excise, but at the time with which this case is concerned, he appears to have made annual payments. Thus the first Lloyds TSB current account statement shows a cheque for £837.07 paid on 1 October 2002, which the claimant has labelled "VAT annual".

25.	I deal with the issue as follows. For the period from 18 September 2002 down to 30 September 2002, I regard the claimant as holding the £837.07 VAT which was paid over on 1 October 2002 in his bank account. That amount should not be treated as part of his capital and a deduction should be made. From 1 October 2002 onwards, the VAT owing having been paid over, no deduction should be made under this heading. That changes from 14 October 2002 when the claimant received a payment into his bank account of £933.29 from his agents. The payment advice shows a net payment of £139.00 VAT to the claimant, after taking account of input VAT. I shall make a deduction of £139 from whatever would otherwise be the total of the claimant's capital from 14 October 2002 to 4 November 2002.

26.	The claimant also made an argument in a response to the Secretary of State dated 13 October 2003 that business receipts did not become beneficially owned by him until attributable expenses had been deducted and a net profit calculated in accordance with regulation 38 of the Income Support Regulations. That argument does not work. It uses a particular meaning of beneficial ownership which is not the legal meaning, and confuses treatment of income with the ownership of assets. All the assets of the claimant's business are owned directly by him, including business receipts. They are owned by him regardless of the fact that money derived from them will have to be spent on business expenses.

Metamorphosis from income to capital and business receipts
27. The claimant submitted that the business receipts in the form of advances and similar payments (eg for translation rights etc) formed part of his income and, in accordance with the principles laid down in R(SB) 2/83, R(SB) 35/83 and R(IS) 3/93, did not metamorphose into capital until the end of the period to which they were to be attributed as income and until income tax liabilities had been identified and deducted. He argued that receipts in each of his financial years (July to July) could not metamorphose into capital until an income tax assessment was carried out in the following tax year (ie 2002/2003 for receipts in the period 1 July 2001 to 31 July 2002). There was also discussion of the periods for which payments of royalties were to be attributed in accordance with regulation 30(2) of the Income Support Regulations, before the deduction of expenses, particularly in the light of what was said in R(IS) 3/93 about income not becoming capital until the period to which it is attributed for income support purposes has elapsed.

28.	With respect to the subtlety of the claimant's arguments, I do not try to set them out in full, as I take a simple view of the legal position, which rather short-circuits the submissions made.

29.	First, in relation to the deduction of income tax liabilities, I agree that at first sight the decision of Mr Commissioner Rice in R(SB) 35/83 appears to be strongly in the claimant's favour. It concerned earnings from self-employment, rather than from employment, and the issue mattered to the decision. That is in distinction to the decision of the Tribunal of Commissioners in R(SB) 2/83, where the statements about metamorphosis from income to capital were rather general and the case proceeded on the basis that the assets in question were capital. Mr Commissioner Rice said of the amounts in the bank accounts of a self-employed landscape gardener who was temporarily without work (paragraph 5):

	"if the monies in question did arise out of earnings, I do not see how they could properly be regarded as capital until income tax and other proper deductions had been taken into account. In my judgment, capital represented by savings of past earnings can only arise out of income from which all relevant liabilities have been deducted."

However, it must be noted that the Commissioner talked of relevant (ie allowed under the regulation on calculating earnings) "liabilities". He then, in discussing what could be deducted in calculating earnings from self-employment under the supplementary benefit legislation, concluded that a deduction could be made of what the person was liable to pay, before actual payment was required at some later date. Then, in saying in paragraph 9 what the appeal tribunal should have done, he appears to say that it should have deducted from any capital that arose from past earnings income tax that the claimant was liable to pay (meaning income tax that he would become legally liable to pay). That seems to allow the metamorphosis to take place once it can be said that income tax will have to be paid.

30.	There are difficulties in working out the consequences of Mr Commissioner Rice's approach (and it may be that I have misinterpreted what he said), but I have concluded that I do not need to deal with all of those in the present case. That is because the income tax assessment dated 23 October 2002 for the tax year 2001/2002 (page 103) showed net income from self-employment of only £3,471, well below the level of the personal allowance even after some income from interest was added, so that there was no income tax payable. The tax calculation for 2002/2003 provided by the claimant (page 106) shows net income from self-employment of only £1,003, so that no income tax was payable. It is plain that throughout the period with which I am concerned the claimant's income tax liability would be nil. Amounts that would otherwise be treated as capital at any particular date in that period should not be regarded as income on the basis of any argument about deduction of income tax liabilities. There was nothing to deduct.

31.	In relation to the period of attribution of income and the metamorphosis into capital, my judgment is that the principle does not apply to income in the form of earnings from self-employment. The principle, in particular as set out in R(IS) 3/93, can apply sensibly to payments of earnings from employment and to income other than earnings, and I do apply it below in relation to the claimant's incapacity benefit and DLA and the salary payments to the claimant's wife. However, the overall treatment of earnings from self-employment in the Income Support Regulations is such that the principle cannot be applied in that context. That is primarily because the calculation of earnings from self-employment does not turn on when particular receipts come in, but is, under regulation 30(1), to be calculated as average weekly earnings (net profit, subject to deductions for income tax and social security) over a period of normally a year. Those average weekly earnings will then be taken into account for income support purposes for an equivalent period into the future. There is therefore no period of attribution to be attached to any particular business receipt and the basis of the R(IS) 3/93 principle does not exist. It would be entirely artificial and wrong to regard all the business receipts within the period used in accordance with regulation 30(1) as retaining a character as income until the expiry of the period for which the earnings calculated over the whole period are taken into account. Instead, the protection for self-employed earners in relation to the capital rules lies in paragraph 6 of Schedule 10 to the Income Support Regulations and the disregard of the value of assets of the business. The existence of that special protection for the self-employed is a further indication that the R(IS) 3/93 principle is not to apply.

32.	Does it, though, make a difference that the self-employed earnings in the present case take the form of royalties, advances on royalties and similar payments for which a special rule on attribution is provided in regulation 30(2)? There seem to me to be great difficulties in applying that rule, if it is not impossible to apply, as the claimant submitted. But regulation 30(2) does provide a rule for the spreading of the amounts of such payments over a period, before prescribed deductions are made. My conclusion is that that does not make a difference in relation to capital. First, there is still the protection of the disregard of the value of assets of the business in paragraph 6 of Schedule 10. Second, the attribution rule in regulation 30(2) is an artificial one, not linked to any assessment of the period in respect of which any particular payment was made. The rationale for the operation of the R(IS) 3/93 principle is therefore missing in this case also.

33.	Accordingly, I conclude that, apart from the VAT receipts, the business receipts of the claimant had the character of capital as soon as they came into one of his accounts.

Disregard of the value of assets of the business
34.	This is the last issue of law relevant to the claimant's position as a self-employed earner. The conditions of paragraph 6(2) of Schedule 10 to the Income Support Regulations were met throughout the period in issue in relation to any assets which were assets of his business. There is no dispute that money in bank and other accounts can be an asset of a business. The approach set out in R(SB) 4/85 must be applied.

35.	In relation to the Lloyds TSB current account and savings  account, the claimant did not seek to argue before me that they were not personal assets. I think that that was realistic. Although business receipts and payments moved through the current account, that is not the test for paragraph 6 of Schedule 10. It appears to have been a joint account with his wife (as her salary was paid directly into it), and appears to have been used for all the ordinary personal and domestic purposes of the two of them, as well as for receiving and paying out business cheques. The small balance on the savings account had been static for some time. The claimant told me that it was the vestige of a provision for putting away business money before he took out the ISA. However, by the dates that I am looking at it seems reasonable simply to treat the savings account in the same way as the current account.

36.	In relation to the ISA, the claimant's argument was essentially that this constituted a long-term reserve fund which underwrote and underpinned his business. In the nature of his business, which involved both incurring expenses and receiving advances a long time before actual revenues began to come in from sales of books, it was only prudent to maintain such a reserve fund. And putting it in a form in which withdrawals could not be made easily would guard against the temptation to spend the money imprudently. The ISA had been bought, with an original investment of £7,000, with the intention of securing the best return. I accept those explanations, but I find the nature of the investment an insuperable stumbling-block for the claimant. It was a Maxi ISA. These are designed for personal savings by investment on a medium or long-term basis. According to the valuation statement on page 61, the investment was in a tracker fund and the claimant's evidence was that it was for a fixed-term (although I do not know the length). That makes it even more plain that the investment was money put away for a period of several years at the least. In my judgment the only conclusion is that the investment in the ISA represented money taken out of employment and risk in the claimant's business and then employed in the personal sphere as the proceeds of the business. Of course, as has already been mentioned, the claimant himself was the business and if things went very badly for any reason, he might have needed to draw on the value of the ISA investment. However, in my judgment that would have represented a putting back into the business of resources from the claimant's personal sphere.

37.	In relation to the Tesco instant access account, the claimant submitted that it was fed by business receipts. He said that when business cheques could be paid direct into that account they were or otherwise they might have to go via the current account. The account was to hold temporary cash flow surpluses and advances out of which business expenses would be paid, and which would eventually become subject to income tax assessment. The limited evidence of the transactions shown on the statements (covering, in all, the period from 20 September 2002 to 3 December 2002) does not help much in verifying that. There was only one payment-in (of £739.87 on 17 October 2002) that does not seem to have come from the Lloyds TSB current account and two payments-out (of £1,500 on 20 September 2002 and of £500 on 3 December 2002) for purposes that I do not have full knowledge of. In his comments attached to a letter of 3 March 2003, the claimant described having had to transfer £2,500 out of the Tesco account in September 2002 to meet domestic and living expenses, plus some legal costs. There was a suggestion that the £500 had to be taken out to cover living expenses in the absence of an award of income support.

38.	I do not doubt the explanations that the claimant has given. Again, it must be stressed that the test in accordance with R(SB) 4/85 is not the source of the amounts in an account, but whether the fund in the account is employed in and risked in the business. The claimant did not have separate accounts used exclusively for business purposes. The Tesco account was a joint account with his wife. That is a factor pointing against all the funds in the account at any time being employed and risked in the business. However, it is not necessarily inconsistent with such a conclusion, if, say, the intention on opening the account was for it only to hold funds employed in the claimant's business and his wife was a joint account-holder merely for convenience in handling the account. It is plain from what the claimant has said that money from the account was used to meet ongoing joint domestic and personal living expenses and as a topping-up of the current account to leave a margin for writing cheques safely. That could be analysed as taking money out of the assets of the business for personal use. However, I do not on balance accept that the claimant made such a clear separation between assets employed in the business and personal assets. That would not be unnatural in the situation where the business was him and he was the business. However, if a claimant who wishes to benefit from the disregard in paragraph 6 of Schedule 10 in relation to money in the bank and similar financial assets has not maintained separate accounts expressly for business purposes, he must show that there is some positive demarcation between assets of the business and personal assets. In my judgment, the claimant has failed to show such a demarcation in the case of the Tesco instant access account.

39.	The result is that none of the amounts standing from time to time in the four accounts are to be disregarded as capital under paragraph 6 of Schedule 10 to the Income Support Regulations.

The Human Rights Act 1998
40.	The Human Rights Act 1998 did not feature in the issues discussed at the oral hearing. The claimant had mentioned the arguments in some of the written submissions in the appeal to the Commissioner. I merely say here that in so far as the claimant rested his arguments on Article 6 of the European Convention on Human Rights and discrimination contrary to Article 14 and Article 6 in combination, the appeal tribunal was right in its explanation of why that did not work. In so far as the claimant rests his argument on discrimination between the treatment for income support purposes of authors and the treatment of other self-employed people, I have difficulty in seeing where the discrimination lies. And if he sought to combine Article 14 with article 1 of Protocol 1 on the protection of property, there is on current case-law, a fundamental problem that gaining entitlement to an award of a means-tested benefit like income support has not been accepted as within the ambit of that provision.

Metamorphosis from income to capital and earnings and benefit income
41.	Amounts paid in to the Lloyds TSB current account included the claimant's incapacity benefit and DLA and his wife's monthly salary (see the figures in paragraph 8 above). So far as the calculation of capital is concerned, the principle of R(IS) 3/93 clearly applies.

42.	In relation to the claimant's wife's salary, she appears to have been paid monthly. The payment of £722.26 on 27 September 2002 would therefore be taken into account for income support purposes for a month from that date. I assume, for simplicity, that the same amount would have been paid in August 2002 and would have been taken into account in the period down to 26 September 2002. The final payment of £504.84 on 25 October 2002 would also be taken into account for a month (as the claimant's wife was working part-time and ceased work after the date of claim, there would be no disregard of that amount as earnings from employment under paragraph 2 of Schedule 8 to the Income Support Regulations). Where payment is in respect of a month, the whole amount should be regarded as not having the character of capital until the expiry of the period of attribution. So for each week in the period from 18 September 2002 to 24 October 2002 I shall leave out £722.26 from the calculation of capital. For the period from 25 October 2002 to 4 November 2002, I shall leave out £504.84.

43.	The treatment of the claimant's incapacity benefit and DLA is a little more difficult, because, although they are weekly benefits, they were paid four-weekly. If each week's payment had been made on its due date, one would have said that it could not have become capital until the expiry of one week from the due date. One could therefore (as a rough and ready rule: there may be exceptions) have deducted the weekly amount from the balance in a bank account in calculating capital throughout a longer period. Is a claimant to be treated differently because for convenience payment is made four-weekly? Arguably yes, because a lump sum constituting four weeks' benefit is actually received on one day and it would be unfair to treat three weeks' worth as capital immediately. My inclination in these cases would be to deduct the average amount that would be held over the four weeks assuming an absolutely uniform use, ie the equivalent of two weeks' benefit. However, I do not need to decide this knotty little question as, on the calculations I have made, it makes no difference to the result except for a trivial period of a few days which I propose to ignore. Thus I shall make my calculation below on the assumption that £283.80 incapacity benefit is to be left out of the calculation throughout and £307.80 DLA from 25 October onwards.

The calculation of the claimant's capital
44.     I start as at 18 September 2002 and assume that the opening balance of the Lloyds TSB current account on 26 September 2002 applied on that date. The total value of the accounts was then as follows:

	Tesco ISA				£ 4610.83
	LTSB savings			             £  109.99
	Tesco instant access			£ 4864.24
	LTSB current				£ 2877.58
	Total					£12462.64

The amounts to be left out as not representing capital were VAT (£837.07), wife's earnings (£722.26) and the claimant's incapacity benefit. Thus even taking the incapacity benefit figure as £283.80 would leave the amount of capital more than £2,000 over £8,000, excluding the claimant from entitlement to income support.

45.	The next potentially significant date is 20 September 2002, when £1,500 came out of the Tesco instant access account. If that is assumed to have all been immediately spent, the claimant's capital would still have been over £8,000. The same would have applied if it was said that as at 18 September 2002, the amount in the Lloyds TSB account is too high, as the 26 September 2002 amount included the addition of the £1,500 taken out of the Tesco instant access account.

46.	The next potentially significant date is 1 October 2002, which I run together with 2 October 2002. By those dates there had been a number of transactions, including the VAT payment. The total value of the accounts was then as follows:

	Tesco ISA				£ 4610.83
	LTSB savings			              £  109.99
	Tesco instant access			£ 3373.77
	LTSB current				£ 1662.81
	Total					£ 9757.40

However, the amounts to be left out as not representing capital no longer included the VAT payment of £837.07. Leaving out the claimant's wife's earnings (£722.26) and the claimant's incapacity benefit (£283.80), £1006.06 in total, would not reduce the amount of capital below £8,000.

47.	By 9 October 2002, the balance in the current account had gone down to £891.11, reducing the total in the accounts to £8,985.70, so that leaving out £1,006.06 would take the figure down to £7,978.64. However, I propose to ignore that, not only because my inclination is that too much incapacity benefit has been left out, but also because the margin is slim, my calculations must have a lot of rough edges and these circumstances only obtained for a few days.

48.	By 14 October 2002 there was a further change, the payment-in of the royalties from the claimant's agent. The balance in the current account, after other transactions, was £1,412.80, making the total amount £9,507.39. From that date the amount to be left out had to be increased by £39 for VAT, but there was still a clear margin over £8,000. A sufficient margin remained, despite other payments, until the next significant date.

49.	This was 25 October 2002, when not only was the claimant's wife's final payment of salary received, but so was a payment of DLA to the claimant. That took the current account balance at the end of that day to £2,198.54 and the total amount to £11,033. The amounts to be left out as capital changed. On the assumptions I am making, they were claimant's wife's earnings (£504.84), claimant's incapacity benefit (£283.80) and DLA (£307.80) and VAT (£139), in total £1,235.44. The margin over £8,000 therefore increased significantly.

50.	Finally, on 4 November 2002, the last date that I can take into account in accordance with section 12(8)(b) of the Social Security Act 1998, the total value of the accounts was as follows:

	Tesco ISA				£ 4610.83
	LTSB savings			             £  109.99
	Tesco instant access			£ 4121.00
	LTSB current				£ 1774.82
	Total					£10616.64

Leaving out £1,235.44 still produced a clear margin over £8,000.

51.	My conclusion is accordingly that, throughout the period that I can look at, the claimant's capital exceeded the statutory limit of £8,000, so that he was not entitled to income support. My decision giving effect to that conclusion is set out in paragraph 1 above.

52.	I therefore do not need to consider whether the claimant would also have been excluded from entitlement to income support on the ground that his income exceeded his applicable amount. I do not have the information to know whether his applicable amount included any housing costs. But if it did not and on the assumption that he qualified for the disability premium and the enhanced disability premium, I suspect that he would have been excluded on income grounds in the period for which his wife's earnings had to be taken into account, subject to a disregard, in addition to his own incapacity benefit. That period might well, on the information I have (which is far from complete), have extended over the whole period from 18 September 2002 to 4 November 2002. In a sense that might make all the above complicated discussion of capital academic, but that was the issue on which the appeal against the decision of 4 November 2002 was based and which I had to determine.

	(Signed)    J Mesher    
	Commissioner

	Date:   26 August 2004