[2007] UKSSCSC CCS_137_2007 (23 October 2007)

CCS/137/2007

DECISION OF THE CHILD SUPPORT COMMISSIONER
  
1.  My decision is that the decision of the tribunal is wrong in law.  I set aside the tribunal’s decision and because I consider at expedient to do so I make findings of fact on the basis of which I decide that payments of £300 per month made to the non-resident parent by his employers were in respect of expenses wholly, necessarily and exclusively incurred in the performance of the non-resident parent’s duties of his employment, and accordingly were not ‘earnings’ for the purposes of paragraph 1(1) of Schedule 1 to the Child Support (Maintenance Assessment and Special Cases) Regulations 1992.  I refer the case to the Secretary of State to recalculate the maintenance assessment in accordance with my decision.

2.  This is an appeal by the non-resident parent, brought with my leave, against the decision of the tribunal dismissing the non-resident parent’s appeal against a maintenance assessment of £112.82 per week, based on earnings which included payments by the non-resident parent’s employers in respect of the expenses of a car used for his work.  I held an oral hearing of the appeal on 11 October 2007 at which the non-resident parent was represented by his father and the Secretary of State was represented by Mr Leo Scoon, Solicitor.  The parent with care took no part in the proceedings either before the tribunal or before me.

3.  The non-resident parent is an insurance sales manager and is required by his employers to provide a car in order to carry out his work.  He is paid a car allowance of £300 per month, which forms part of his taxable pay, and leases a car at a total cost which I was told amounts to £510.00 per month.  The employers’ personnel manager has provided the following information about the car allowance:

“I would confirm that the cost relating to (the non-resident parent’s) car, which he has on lease, are wholly exclusively and necessarily incurred in carrying out his employment with the company in respect of his job as a Sales Manager.

The allowance he receives of £300 per month before tax does not form part of his annual salary and is paid to offset the costs of the lease.  From the £300 he also has to pay the insurance and also any repairs or servicing.  This amount is not given as salary and not used as part of any calculation.

It should be noted that the car must not be more than one year old at the commencement of the lease agreement and have a minimum value of £14,000.”  

5.   Under paragraph 1(1)(d) of  Schedule 1 to the Child Support (Maintenance Assessment and Special Cases Regulations 1992, “earnings” includes:

“any payment made by the…employer in respect of any expenses not wholly exclusively and necessarily incurred in the performance of the duties of the employment, including any payment made by the…employer in respect of-
(i) travelling expenses incurred by the parent between his home and place of employment, and
(ii)  expenses incurred by that parent under arrangements made for the care of a member of his family owing to that parent’s absence from home.”

Paragraph 1(2) 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…”

6.  The tribunal, which comprised a legally qualified panel member sitting alone, rejected the argument that the payments of £300 per month fell within paragraph 1(2), for the following reasons:

“I accept that in practice the appellant applies the money towards the cost of providing the car which he is obliged to do by his employer and that in practice the use of the car is confined to his employment.  However, the payment is taxable which suggests it is not directly related to an expense.  If it were then it would be directly and fully reimbursable without deduction of tax in the same way as business petrol.  Further it is not a condition of the payment that use of the vehicle is limited as the appellant chooses to do.  It is not paid in respect of an expense which is ‘wholly’ and/or ‘exclusively’ incurred for the performance of his duties.  It is provided to help him defray the expense of a car that is required to be used for his duties but does not have to be used wholly in that way.”

I gave leave to appeal because I considered that it was arguable that the tribunal should have carried out an apportionment of the running costs of the car between business and personal use in order to decide whether the car allowance was in respect of expenses wholly, exclusively and necessarily by the non-resident parent in the performance of the duties of his employment. 

7.  In CCS/318/1995 the Commissioner expressly refrained from commenting on whether apportionment of expenses was appropriate in the context of child support, but in CCS/2822/1996 Mr Commissioner Williams, whilst acknowledging that a strict application of the former Schedule E income tax rules would not allow apportionment of any expenses incurred partly for work and partly for personal purposes, directed the tribunal rehearing the case to apportion motoring expenses between business and private use. The Secretary of State has supported this appeal on the ground that the non-resident parent’s car leasing costs should have been apportioned on that basis.

8.  In IRC v Richards’ Executors [1971] 1 WLR 571 the House of Lords held that the words “wholly and exclusively incurred” in paragraph 4(1) of Schedule 6 to the Finance Act 1965 should be construed so as to produce a reasonable result in its statutory context, and I see no reason not to take the same approach in construing the words “wholly, exclusively and necessarily incurred” in the context of the provisions of the 1992 MASC Regulations governing the computation of the earnings of employed persons.  The statutory purpose of those provisions was described by Mr Commissioner Mesher in R(CS) 2/96 as follows (para. 24):

“On the statutory purpose of the calculation of the amount of earnings, I accept entirely the unique purpose of the child support scheme and recognise that the scheme may require painful reallocations of financial priorities for parents.  However, I do not see how that undermines the fundamentals of Slade LJ’s approach (in Parsons v Hogg [1985] 2 All ER, reported as an appendix to R(FIS) 4/85).  The purpose of ascertaining a parent’s earnings under Schedule 1 to the MASC Regulations is to determine what income is available from both the parent with care and the absent parent to provide for the care of the children concerned.  If a parent necessarily has to incur expenditure in the performance of the duties of employment from which earnings are derived, I cannot see how, on any footing and on any view of the appropriate priorities between personal expenditure and support for the children, the earnings spent on that expenditure can be said to be available for the support of the children.”

8.  The non-resident parent in this case necessarily has to incur the costs of leasing a car in order to perform the duties of the employment from which the earnings used to maintain the relevant child are derived.   I consider that it cannot have been intended in the context of the child support legislation that any personal use of a car by a non-resident parent should result in the whole of the amount paid by the employer in respect of the expenses of leasing the car being treated as available for the support of the relevant children.  Furthermore, a self-employed earner would undoubtedly be able to apportion the leasing costs of a car between business and personal use and unless employed persons are permitted to do likewise, there would be the sort of discrimination between employed and self-employed persons which the Court of Appeal in Parsons v Hogg (reported as an Appendix to R(FIS) 4/85) considered was unlikely to be intended by the legislation.

9.  The principles governing apportionment of expenses as a means of determining what part of a payment has been wholly and exclusively incurred for business purposes were considered in detail by Mr Commissioner Hallett in R(FC) 1/91, and I can see no reason not to apply those principles to the earnings of employed persons in child support cases in order to decide whether a payment made by an employer is in respect of expenses wholly, exclusively and necessarily incurred in the performance of the duties of a parent’s employment.  However, it must be borne in mind that the term “wholly exclusively and necessarily” is narrower and more restrictive than the term “wholly and exclusively”.  In addition to being wholly and exclusively incurred in the performance of the duties of the employment, the expenses must be “ necessarily” incurred, that is, it must be essential to incur the expense in order to perform the duties of the employment-see Owen v Burden [1972] 1 All ER 356.
  
10.  I agree with the Secretary of State’s submission that any payments by the employer relating to capital expenditure payments made by the non-resident parent fall outside paragraph 1(2)(a) of Schedule 1 and must therefore be treated as earnings.  However, I do not agree that any of the car leasing costs in this case were of a capital nature.  Of the many cases concerning the difference between capital and revenue expenditure, it is necessary to refer only to Atherton v British Insulated and Helsby Cables Limited [1926] AC 205, in which Viscount Cave held:

“...when an expenditure is made, not once and for all, but with a view to bringing into existence an asset or an advantage for the enduring benefit of a trade...there is very good reason (in the absence of special circumstances leading to an opposite conclusion) for treating such as an expenditure as properly attributable not to revenue but to capital.”

12.  The leasing agreement in this case is not in evidence, but the non-resident parent told me that it did not contain any provisions relating to the purchase of the vehicle.  He said that at the end of the term of the lease he was simply required to return the car to the leasing company and was not entitled to purchase the car from the company in accordance with any pre-determined formula or at a reduced price.  Mr Scoon submitted that the leasing charges must have covered the cost of the depreciation of the car and were therefore at least in part in the nature of capital payments, but I do not accept that argument.  Although the leasing charges no doubt covered the leasing company’s costs of depreciation of the vehicle and interest on capital, the effect of the leasing agreement from the standpoint of the lessee was in my view to impose a liability for revenue expenditure alone.  In terms of Viscount Cave’s test, the leasing agreement conferred on the non-resident parent neither an asset nor any enduring advantage, and I therefore do not consider that any part of the payments made under the agreement were of a capital nature.

13.   For the reasons I have given, I consider that the tribunal erred in law in failing to apportion the non-resident parent’s car expenses between business and personal use in order to decide whether the car allowance paid by the employers fell within paragraph 1(2)(a) of Schedule 1 to the 1992 MASC Regulations.  Both parties agreed that no purpose would be served by remitting the case to a new tribunal and asked me to give my own decision on the appeal.

14.  As the Commissioner pointed out in R(CS) 2/96, paragraph 1(2) of Schedule 1 to the 1992 MASC Regulations is concerned with payments to, not payments by, an employee.  The first step is therefore to ascertain what the payments by the employers were in respect of.  There seems to be no doubt from the information supplied by the employers that the car allowance in this case was paid solely to defray the non-resident parent’s car leasing costs to the extent that those costs were necessarily incurred by the non-resident parent in the performance of the duties of his employment.  In accordance with the approach in F(FC)1/ 91, the expenses which were wholly and exclusively incurred in the performance of those duties can then be ascertained by apportioning the costs between business and personal use on a mileage basis.   The tribunal found that in practice the non-resident parent’s use of the car was confined to business use, and he told me that his business use of the car exceeded 80%.  On that basis, out of the monthly leasing charges of £510.00 per month, £408.00 must be considered as incurred wholly and exclusively in the performance of the duties of the non-resident parent’s employment.  Since the monthly car leasing costs attributable to the business use of the car exceeded the employers’ car allowance, I consider that the whole of that allowance should be considered as a payment in respect of expenses wholly, exclusively and necessarily incurred in the performance of the non-resident parent’s employment.

15.  For those reasons, my decision is as set out in paragraph 1.

	(signed on the original)	                                   E A L Bano
                                                                                               Commissioner
		
                                                                                               23 October 2007