CCS/2703/2007

DECISION OF THE CHILD SUPPORT COMMISSIONER
  
1.	This is an appeal by the non-resident parent (Mr W), brought with the permission of a legally qualified panel member, against a decision of an appeal tribunal sitting at Southampton on 3 May 2007. For the reasons set out below that decision was in my judgment erroneous in law. I allow the appeal, set aside the Tribunal’s decision and remit the matter for redetermination by an entirely differently constituted appeal tribunal in accordance with the directions set out in paras. 17 and 18 below. 

Introduction
2.	Mr W and the parent with care (Mrs. G) have two children. It appears that Mrs. G applied for child support maintenance at some time in 2003, and that a maintenance enquiry form was sent to Mr. W on 21 August 2003 (p.6). The details of the maintenance calculation made pursuant to that application do not emerge from the papers; they were unfortunately not set out in the Secretary of State’s submission to the Tribunal, and the Secretary of State’s representative in this appeal says (para. 26 on p.150) that he has been unable to establish those details from the child support computer system. However, it appears that the calculation was made on the footing that Mr. W’s income was the sum of £104.28 per week, namely the weekly rate of his salary from the company (“the Company”) of which he is the sole shareholder and director. The Tribunal stated in para. 5 of the Statement of Reasons that the maintenance calculation was in the sum of £21 per week, although I have not been able to work out where it got that figure from. I do not think that it matters, for present purposes, what the amount of the original maintenance calculation was. 

3.	The Company’s accounts show that in respect of the year ended 31 July 2005 it made a profit on ordinary activities before taxation of £26,785. That was on a turnover (i.e. payments for acting as an information technology consultant) of £51,145. The accounts show that a dividend was paid in respect of that year of £27,400. The Tribunal found that a dividend of £30,444.44 was voted on 30 March 2005, and that £27,400 (i.e. the dividend less tax) was paid on 30 April 2005. That finding was on the basis of a letter to the Child Support Agency from the Company’s accountants dated 9 February 2006 (p.17), which so stated. However, the Tribunal made no mention of the fact that there is in the papers a later letter from those accountants dated 15 May 2006 (p.28) stating that the dividend was in fact paid on 30 March (not 30 April) 2005, and a voucher (p.29) purporting to show 30 March 2005 as the date of payment.  

4.	On 20 December 2005 Mrs G applied for a variation of the subsisting maintenance calculation on the ground that Mr. W’s lifestyle was inconsistent with his declared income. 

5.	On 4 April 2006 a decision was apparently made that Mr. W was liable to pay child support maintenance of £7.00 per week from 24 November 2005. That was not a decision made pursuant to the variation application, but seems to have been a decision pursuant to a separate application for supersession, presumably made by one of the parties on or about 24 November 2005.

6.	On 7 April 2006 the Secretary of State made a decision pursuant to Mrs G’s variation application. The decision was that there should be a variation, not on the ground which Mrs G had applied for, but on the basis, it seems, of either reg. 19(1) or reg. 19(1A) of the Child Support (Variations) Regulations 2000 (“the Variations Regulations”) – i.e. owing to the dividend income. The decision was that there should be a variation to the effect that Mr. W was liable to pay maintenance of £110 per week from 15 December 2005. That sum was arrived at by dividing the dividend of £27,400 by 52 (giving £526.92 per week) and adding that to Mr. W’s salary from the Company in order to arrive at a total weekly income of £631.20. That would have produced a maintenance liability of £126.00 per week, but a so-called “better buy” calculation was applied, purportedly under reg. 26 of the Variations Regulations, which resulted in the lower sum of £110 per week. In the Secretary of State’s written submission to the Tribunal it was stated (p.3) that the application of the better buy calculation was an error as it only applies to non-resident parents who are on a £5 flat rate of maintenance payment owing to being in receipt of a prescribed benefit, which Mr. W was not. 

7.	In respect of the year ended 31 July 2006 the Company’s accounts show a profit on ordinary activities before taxation of £25,125, on a turnover of £81,942. No dividend is shown as having been paid in respect of that year. Those accounts show current assets (i.e. cash at the bank and in hand) of £70,057 as at 31 July 2005 and £94,027 as at 31 July 2006, with amounts falling due to creditors within one year of £28,737 as at 31 July 2005 and £31,591 as at 31 July 2006. 

8.	Mr. W’s contention to the Tribunal, and in this appeal, has been that the dividend should not have been taken into account as a ground for variation in the decision made on 7 April 2006, which was the decision under appeal to the Tribunal. His primary ground for that contention has been that reg. 19(1A) was added by amendment with effect from 6 April 2005, and the dividend had been paid on 30 March 2005. (It is common ground that the decision of 7 April 2006 was not capable of being justified under reg. 19(1), because the maintenance payable by Mr. W was not at any material time the flat rate owing to receipt by him of a prescribed benefit).

9.	The Tribunal’s decision was that the dividend had rightly been taken into account under reg. 19(1A), but that the maintenance calculation should be £126 per week rather than £110, owing to the inapplicability of the “better buy” provision. 

Did the ground of variation in regulation 19(1A) apply?
10.	Regulation 19(1A) provides as follows:

“Subject to paragraph (2), a case shall constitute a case for the purposes of paragraph 4(1) of Schedule 4B to the Act where – 

(a)	the non-resident parent has the ability to control the amount of income he receives from a company or business, including earnings from employment or self-employment; and 

(b)	the Secretary of State is satisfied that the non-resident parent is receiving income from that company or business which would not otherwise fall to be taken into account under the Maintenance Calculations and Special Cases Regulations.” 

11	Mrs. G’s variation application took effect as an application for supersession of the existing maintenance assessment (see section 28G of the Child Support Act 1991). Reg 9(8) of the Variations Regulations empowered the Secretary of State to treat an application for a variation made on one ground as if it were an application made on a different ground. The decision by the Secretary of State to agree to a variation under reg. 19 (i.e. by reason of the dividend income) took effect as a supersession of the existing maintenance assessment on the ground of a change of circumstances (i.e. receipt of the dividend income). Such a decision takes effect from the beginning of the maintenance period (i.e. week) in which the application for a variation was made: s.17(4) of the 1991 Act. 

12.	Regulation 19(1A) does not expressly state at what date or during what period the conditions in (a) and (b) must be satisfied. However, it is framed in the present tense (“the non-resident parent has the ability to control ….”; “the Secretary of State is satisfied ….”). In my judgment the natural meaning, in a case (like this one) where the application is for a variation of a subsisting maintenance calculation, is that one is to look at the period from the effective date of the application for the variation down to the date of the decision (i.e. in this case the period between 15 December 2005 and 7 April 2006). 

13.	If dividends had been treated by the legislation as “other income” (as they are under the old child support regime) the material period for determining the amount of that income would have been the period of 26 weeks ending with the “relevant week” – i.e in this case the period of 26 weeks ending on about 15 December 2005 (see para. 16(1) of the Schedule to the Child Support (Maintenance Calculations and Special Cases Regulations) 2000). There might therefore have been some logic if the legislation had taken that as the period during which, or some part of which, conditions (a) and (b) in reg. 19(1A) of the Variations Regulations must be satisfied. However, I do not think that reg. 19(1A) admits of that construction. 

14.	It follows, in my judgment, that if the conditions in Reg. 19(1A) have ceased to be fulfilled by the date of the application for a variation, reg 19(1A) cannot apply. 

15.	In his submission in this appeal the Secretary of State’s representative accepts (in para. 10) that the material period is that from 15 December 2005 to 7 April 2006. He then goes on to submit as follows in para. 16;

“The tribunal therefore had to ask itself whether a payment that had a clear relationship to a year paid on 30 March 2005 meant that [Mr W] was “receiving income” at the relevant dates. The answer was clearly yes he was. The dividend payment was in respect of a year and therefore fell to be regarded as income being received from 30 March 2005 until 29 March 2005 (these dates might be later if time is allowed for a cheque to clear).”

16.	Condition (b) in reg. 19(1A) is that the Secretary of State is satisfied that the non-resident parent is receiving income from the company or business. In my judgment there was no satisfactory basis for the Tribunal’s finding that the dividend was actually paid on 30 April 2005. The material before the Tribunal in my judgment made it clear that it was paid on 30 March 2005. That is the basis on which the Secretary of State’s representative is proceeding. That being so, I do not see how it can be said that, during the material period between 20 December 2005 and 7 April 2006, Mr W was receiving dividend income from the Company. The Secretary of State’s submission, set out in para. 15 above, appears to be that the dividend should be regarded as having been in respect of the period of one year following the date on which it was paid (I take the reference to “29 March 2005” to have been intended to read “29 March 2006” – see para. 30(a) of the submission). However, I do not see any basis for that submission. There seem to me to be only two possibilities, namely (i) that one treats the dividend as paid in respect of the Company’s accounting year of 1 August 2004 to 31 July 2005, or (ii) that one treats it as paid in respect of Mr. W’s tax year 6 April 2004 to 5 April 2005. Both those periods had ended long before 20 December 2005. In my judgment reg. 19(1A) was therefore not applicable. The Tribunal’s decision must therefore be set aside on that ground. 

Directions to the new tribunal
17.	There was on the face of it justification for Mrs. G’s contention, in her application for a variation, that Mr. W’s lifestyle was inconsistent with his declared income of some £5500 per annum. For one thing, he had a mortgage of some £146,000 (p.42), under which the interest payments were some £650 per month (about £7,800 per annum). The new tribunal should therefore consider whether a variation should be directed under reg. 20 of the Variations Regulations. 

18.	As noted in para. 7 above, no dividend was declared by the Company in respect of the year ended 31 July 2006, despite a profit of some £25,000 in respect of that year and a substantial increase in bank deposits, and despite the fact that substantial dividends had been declared in respect of the two previous years. In my judgment that does give rise to at least the possibility of an argument that reg. 19(4) of the Variations Regulations applied. That possibility must therefore also considered by the new tribunal if either it does not direct a variation under reg. 20, or if it does do so but such a variation would result in less than about £27,000 (i.e. the potential maximum likely amount of a dividend in respect of the year 2005/6) being added to Mr. W’s net income. The Tribunal had given detailed directions on 19 January 2007 requiring Mr. W to provide information relevant to the cost of his lifestyle. 

19.	It should be apparent from what I have said in paras. 17 and 18 above that if Mr W wishes seriously to contest the making of a variation under regs. 20 and/or 19(4), he should appear at the rehearing. 

	(signed on the original)	Charles Turnbull
		Commissioner
		9 January 2008