[2008] UKSSCSC CIS_1137_2006 (03 January 2008)

CCS/1137/2007
   CCS/1138/2007

DECISIONS OF THE CHILD SUPPORT COMMISSIONER
  
1.	These are appeals, brought with my permission, against decisions of an appeal tribunal sitting at Basildon and made on 18 January 2007. Those decisions were in my judgment erroneous in law and I set them aside. In exercise of the power in section 24(3)(d) of the Child Support Act 1991 I substitute the following decisions for those made by the Tribunal:

(1)	In respect of the appeal against the decision made on 14 November 2005 the maintenance assessments are to be recalculated with effect from 1 September 2005 on the basis of (a) the earnings from self-employment shown in Mr. W’s tax return for 2004/5, subject to the points made in paragraph 35 below and (b) the points made in relation to earnings from employment and “other income” set out in paragraphs 27 to 30 of the submission dated 6 July 2007 of the Secretary of State in these appeals and (c) spousal maintenance payable to Mrs W of £700 per month and (d) the other corrections, so far as applicable, mentioned in the Secretary of State’s initial submission to the Tribunal.

(2)	In respect of the appeal against the decision made on 5 June 2006 the maintenance assessments are to be recalculated with effect from 31 January 2006 on the basis of (a) the earnings from self-employent shown in Mr. W’s tax return for 2005/6, and (b) the points in relation to earnings from employment and “other income” set out in paragraphs 27 to 30 of the submission dated 6 July 2007 of the Secretary of State in these appeals and (c) spousal maintenance payable to Mrs. W of £700 per month until 1 April 2006 and thereafter increased by RPI in accordance with the Order at p. 243 of [1037] and (d) the other corrections (so far as applicable) mentioned in the Secretary of State’s initial submission to the Tribunal and (e) reconsideration of the calculation of Mrs W’s exempt income, as directed by the Tribunal. 

(3)	Any dispute in relation to the recalculations pursuant to these decisions may be referred to me by any party within one month from the date when the recalculation is notified to that party. 

2.	I held an oral hearing of the appeals at which the parent with care (Mrs W) and the non-resident parent (Mr W) appeared in person, and the Secretary of State was represented by Mr. Leo Scoon of the Office of the solicitor to the Department for Work and Pensions. 

The facts.
3.	The adjudication history is unfortunately of some complexity. I set it out only in so far as directly relevant to the appeals. 

4.	Mr and Mrs. W separated in 2000. They have four children, the eldest of whom has not at any time material to these appeals been a child for child support purposes. Of the other three children, one (Mulbah) is now 19 and the others are twins now aged 15. 

5.	On 8 September 2004 the Secretary of State made a decision, by way of supersession of the then subsisting child support maintenance assessment, that the child support maintenance payable by Mr W be assessed at £407.89 per week with effect from 31 August 2004. 

6.	Following applications for supersession made by Mrs W (on the ground that Mr. W’s income had, as she contended, increased) the Secretary of State decided, on 11 August 2005, that child support maintenance be assessed at £385.07 per week with effect from 2 August 2005. 

7.	On 1 September 2005 Mrs. W made a further application for supersession. 

8.	On 18 October 2005 the Secretary of State made what appear to be two decisions. They were made on the footing that Mulbah had not in fact been a qualifying child (because not in full-time non-advanced education) since the end of 2004. It is common ground that that understanding was wrong, and that he was throughout the period material to these appeals a qualifying child. The first decision was that child support maintenance in respect of the other two children be assessed at £289.34 per week from 4 January 2005, and the second decision was that maintenance be assessed at £297.55 per week with effect from 2 August 2005. The intention behind those decisions was that there should be a retrospective reduction in the maintenance assessments in order to reflect the fact that Mulbah had not been a qualifying child. 

9.	On 11 November 2005 Mrs. W informed the CSA that Mulbah was no longer in receipt of incapacity benefit in youth and was in full-time education. 

10.	On 14 November 2005 a further decision was made, by way of supersession, that maintenance be assessed at £385.07 per week with effect from 8 November 2005. That brought Mulbah back into the calculation, but only with effect from 8 November 2005. 

11.	The assessments made on 11 August 2005, 18 October 2005 and 14 November 2005 were all made on the basis of the figures for Mr W’s earnings from self-employment shown in his self-assessment tax return for the tax year 2003-4. The bulk of Mr. W’s earnings come from self employment as a doctor, and the earnings shown in that tax return were in respect of the accounting period 1 April 2003 to 31 March 2004. 

12.	Mrs W appealed (“the first appeal”) against the decision made on 14 November 2005. 

13.	On 3 February 2006 Mrs W requested a further supersession. 

14.	On 5 June 2006 a decision was made, by way of supersession, that maintenance be assessed at £420 per week with effect from 31 January 2006. That assessment was purportedly made on the basis of the earnings shown in Mr W’s tax return for the year 2004-5, which were based on his accounting period 1 April 2004 to 31 March 2005. 

15.	Mrs W appealed (“the second appeal”) against the decision made on 5 June 2006. 

16.	The two appeals were heard by the Tribunal on 18 January 2007. By its Decision Notice the Tribunal allowed the appeals, and remitted the decisions under appeal for recalculation by the Secretary of State in accordance with the directions set out. In particular, the Tribunal directed that Mr. W’s net income was to be calculated (in relation to both decisions under appeal) on the basis of the 2004-5 tax return. 

17.	The Secretary of State’s recalculations, in accordance with the Directions of the Tribunal, resulted in assessments of £405.97 per week with effect from 8 November 2005 and 31 January 2006. (See [1138] p.138). 

18.	Mrs W has appealed against the Tribunal’s decisions in respect of both the first appeal (allocated file no. CCS/1137/2007 in this Office) and the second appeal (allocated file no. CCS/1138/2007). 

19.	On 8 May 2007 further assessment decisions were apparently made. They are referred to at [1137] p.358 and 409. The main purpose of these recalculations appears to have been to reinstate Mulbah as a qualifying child with effect from 4 January 2005. The recalculations were for assessments of £383.11 per week with effect from 4 January 2005 and £393.97 per week with effect from 2 August 2005. As I understand it, although I am not sure about this, those recalculations would have been based on the 2003-04 tax return.

20.	The fact that Mulbah has, in the recalculations performed on 8 May 2007, been reinstated (correctly as both Mr and Mrs W agree) as a qualifying child with effect from 4 January 2005 (the date from which he was removed by the decision of 18 October 2005) means that it is no longer necessary to consider that issue.

The scope of the decisions under appeal
21.	One of Mrs. W’s complaints is that the principle, directed by the Tribunal, that the earnings in the 2004-05 tax return be used, has not been carried sufficiently far back in the calculations. As I understand it, the return for that year has probably been used only in the calculations taking effect from 8 November 2005 onwards. In order to determine whether that is correct it is necessary to start by deciding exactly what was under appeal in the first appeal. 

22.	On the face of it the appeal was simply against the decision made on 14 November 2005, which took effect only from 8 November 2005. On the face of it, the Tribunal could therefore not in that appeal alter decisions which took effect from any earlier date. However, the decision of 14 November 2005 was made within a month of the decisions of 18 October 2005, and on 14 November 2005 there was therefore power to revise the decisions of 18 October 2005 on any ground. In my view the Tribunal, in the first appeal, was therefore entitled to consider also the correctness of the decisions of 18 October 2005. The purpose of the decisions of 18 October 2005 was to remove Mulbah with effect from 4 January 2005, but that should not have been done. However, as at 18 October 2005 there was an outstanding application by Mrs. W (made on 1 September 2005) for supersession, which should have been dealt with in the decision of 18 October 2005 (or if not by the decision of 14 November 2005). In my judgment, therefore, in the first appeal the Tribunal was required to consider the position back to 1 September 2005 (but not any earlier). 

23.	The second appeal was against the decision of 6 June 2006, which took effect from 31 January 2006. 

The relevant  year’s earnings from self-employment: general
24.	For the purposes of the decision of 18 October 2005 the decision maker used the earnings from self-employment shown in the 2003/4 tax return, but the Tribunal directed that the earnings shown in the 2004/5 return be used. For the purposes of the decision of 6 June 2006 the decision maker used the earnings from self-employment shown in the 2004/5 return, and the Tribunal upheld that. Mrs. W contends that the Tribunal should have directed that the earnings in the 2005/6 return be used in relation to both decisions. The approximate amounts of self-employed earnings (before tax, national insurance or pension contributions), and the dates of preparation of the relevant accounts and return, were as follows:

2003/4		£115,000	Return prepared July 2004
2004/5		£170,000	Return prepared March 2006
2005/6		£234,000	Return prepared (?) January 2007

25.	The provisions relating to earnings of a self-employed earner are set out in paras. 2A to 5A of the Child Support (Maintenance Assessments and Special Cases) Regulations 1992. They are of some complexity. The primary provisions are paras. 2A and 5A. Para. 2A provides that “earnings” means the total taxable profits as submitted to the Inland Revenue, less income tax, national insurance and one half of pension contributions. Para. 5A provides as follows:

“(1)	Subject to subparagraph (2) of this paragraph, the earnings of a self-employed earner may be determined in accordance with the provisions of paragraph 2A only where the total taxable profits concerned relate to a period of not less than 6, and not more than 15 months, which terminated not more than 24 months prior to the relevant week. 

(2)	Where there is more than one total taxable profit figure which would satisfy the conditions set out in subparagraph (1), the earnings calculation shall be based upon the figure pertaining to the latest such period.

(3)	Where, in the opinion of the [Secretary of State], information as to the total taxable profits of the self-employed earner which would satisfy the criteria set out in subparagraphs (1) and (2) of this paragraph does not accurately reflect the normal weekly earnings of the self-employed earner, the earnings of that earner can be calculated by reference to the provisions of paragraphs 3 and 5 of this Schedule.”

The relevant year’s earnings from self-employment: the first appeal
26.	“The relevant week” is the week before 1 September 2005 (the date of the relevant application for supersession). As noted above, the decision maker’s calculations in respect of the period from the effective date (1 September 2005) were based on the earnings shown in the 2003-4 tax return. The Tribunal directed that the 2004-5 return be used. By s.20(7)(b) of the Child Support Act 1991, in deciding an appeal an appeal tribunal shall not take into account any circumstances not obtaining at the time when the decision or assessment appealed against was made. In my judgment, for the purposes of paras. 2A and 5A the submission to the Revenue of a tax return is a “circumstance” and an assessment based on the earnings shown in a tax return cannot therefore be justified under the primary provision in 5A(1) unless that tax return had been submitted by the date of the decision under appeal (see also my decision in CCS/1741/05 at para. 25). I reach that conclusion partly because, where para 2A applies, the parties cannot dispute the amount of earnings shown in the tax return. The submission to the Revenue of the tax return therefore fixes not only the period to be taken into account but also the amount of the earnings. At the date of the decision (14 November 2005 or, perhaps more accurately, 18 October 2005) under appeal, Mr W’s tax return for the year 2004-5 had not been submitted to the Revenue. It was not drawn up until 24 January 2006 (p.198). The Tribunal’s decision to use the 2004/5 return therefore cannot properly have been based on 5A(1). 

27.	However, under para. 5A(3) it was in my judgment permissible for the Tribunal, in determining whether the earnings shown in the 2003/4 return (used by the decision maker) accurately reflected Mr W’s “normal weekly earnings”, to look at the earnings in the 2004/5 return, and indeed the 2005/6 return. It is not clear at what date the “normal weekly earnings” are to be assessed, but the most appropriate date would appear to be the effective date of the decision in question (here 1 September 2005). That was some 18 months after the end of the 2003/4 accounting year, some 6 months after the end of the 2004/5 accounting year, and half way through the 2005/6 accounting year. 

28.	Both Mrs W and Mr W told me at the hearing that a copy of the 2005/6 return was before the Tribunal. Mr. W said that he produced it on the day, and that it was offered to the Tribunal, but that the Tribunal decided not to look at it. Mrs W said that she was not shown it. The Tribunal said in the Statement of Reasons that it “was given sight of the 2006 tax return”. A copy of the pages relating to the Land and Property Section, but not the rest of it, was added to the papers at the Tribunal’s direction. The position therefore appears to have been that the 2006 return was before the Tribunal, but that the earnings figures were not looked at by it. Mrs W did not see those figures until the day before the hearing before me, when Mr W posted them through her letter box in compliance with a Court Order that he disclose them to her. At the hearing I directed that Mr W send copies to the Commissioner’s Office, which he has done. 

29.	The effect where para. 5A(3) applies is that earnings can be calculated by reference to paras. 3 and 5. Under para. 3 “earnings” means receipts less allowable expenses, and the primary position under para. 5(1) is that they are to be determined “by reference to the average of the earnings which he has received in the 52 weeks ending with the relevant week.” By para. 5(2), where a self-employed earner provides a profit and loss account in respect of a period of between 6 and 15 months, and that period ends within the 24 months immediately preceding the effective date, the earnings shall be determined by reference to the average of the earnings to which the profit and loss account relates. I note that, under para. 5(2) the drawing up of the accounts fixes (subject to para 5(3)) the period to be used in calculating earnings, but is not stated to be conclusive as to the amount of those earnings. It is open to a decision maker to find that the earnings were different. I nevertheless incline to the view that the provision of the accounts is a “circumstance” for the purpose of s.20(7)(b) of the 1991 Act, so that the fact that a later set of accounts is drawn up after the decision under appeal does not entitle a tribunal to adopt, under para. 5(2), a later period for calculating earnings: see para. 26 above. In the present case, that would take one back to the 2003/4 accounting period, because the 2004/5 accounts had not been drawn up by the date of the decision under appeal in the first appeal. 

30.	However, by para. 5(3):

“Where a calculation would, but for this subparagraph, produce an amount which, in the opinion of the Secretary of State, does not accurately reflect the normal amount of the earnings of the person in question, such earnings, or any part of them, shall be calculated by reference to such other period as may, in the particular case, enable the normal weekly earnings of that person to be determined more accurately and for this purpose the Secretary of State shall have regard to 

(a)	the earnings received, or due to be received, from any employment in which the person in question is engaged, or has been engaged, or is due to be engaged;

(b)	the duration and pattern, or the expected duration and pattern, of any employment of that person.”

31.	In determining matters arising under para. 5(3), an appeal tribunal can in my judgment look at tax returns submitted or accounts drawn up after the date of the decision under appeal, in so far as they relate to earnings arising before that date. In the present case it was therefore permissible for the Tribunal, in determining whether it should apply para 5(3), to look at the figures in both the 2004/5 and the 2005/6 returns. 

32.	In its Statement of Reasons the Tribunal said:

“In computing maintenance for both November 05 and January 06 decisions the decision maker had used figures other than the income figures for the tax year 04/05. This resulted in a considerable under-assessment of [Mr W’s] income as per the effective dates. The tax return commencing at page 58 of the bundle dealing with the decision effective from January 06 …………clearly indicate an all round increase in [Mr W’s] earnings arising from his medical activities and the gross figure for his annual earnings and interest income before tax should have been £173,961 and not the lower figures used in the calculations. In consequence [Mr W’s] net income after permissible deductions needs to be recalculated taking into account his level of income more proximate to the two effective dates.” 

33.	The Tribunal did not refer to the possibility of using the 2005/6 return. It did not consider whether the figures in that return enabled Mr W’s “normal weekly earnings” as at the effective dates to be “determined more accurately.” In that respect its decision in the first appeal was in my judgment erroneous in law, and must be set aside. In my judgment the earnings shown in the 2003/4 tax return did not accurately reflect Mr W’s normal earnings at around the effective date of 1 September 2005. In my judgment those earnings were more accurately reflected by the earnings shown in the 2004/5 return. I do not consider it appropriate to use the 2005/6 return in relation to this decision, because about half of the period covered by that return fell after the effective date. 

34.	I therefore on this point reach the same result as that arrived at by the Tribunal. However, the maintenance figure arrived at must be carried back to the effective date of 1 September 2005, and not merely to 8 November 2005 as the Tribunal in effect directed.

35.	In paras. 24 and 25 of his submission in these appeals, the Secretary of State’s representative makes some points about the precise calculation of the earnings from self-employment, by reference to the 2004/5 return. He submits that the Tribunal’s figure of £173,961 is not correct. The Tribunal was right to point out that, in its calculations (in respect of the 2006 decision) by reference to the 2004/5 accounts, the CSA appeared to have used too low a figure for earnings (p.14 of [1138]. I think that was because it only took into account Mr W’s self-employed earnings from his practice, and not from the out of hours work. As I understand it, the correct figure for earnings would be £16,156 (out of hours earnings - p. 71 of [1138]), plus £153,276 (GP earnings – p.75 of [1138] plus £5028 (disallowable expenses), giving a total of £174,460.

The relevant year’s earnings from self-employment: the second appeal
36.	The decision was made on 6 June 2006, and the effective date was 31 January 2006. The decision maker used the 2004/5 tax return (not the 2003/4 return as the Tribunal indicated in the passage quoted above), and the Tribunal’s direction was to the same effect. The earnings in the 2005/06 return could not have been used under the primary provisions in paras. 2A and 5A(1), because the 05/06 accounting period ran until after the “relevant week”. However, the Tribunal in my judgment again erred in not in not considering whether it should direct that the 05/06 accounts be used under paras. 5A(3) and 5(3).

37.	Again, I am in a position to substitute my own decision on the information now before me. The effective date of 31 January 2006 is only two months before the end of the 2005/6 accounting period. In my judgment the 2005/6 earnings figures more accurately reflected Mr W’s normal earnings at the effective date than the 2004/5 figures, which were nearly a year out of date by then, and so did not accurately reflect his normal earnings. In my judgment the 2005/6 figures should therefore be used. 

38.	I appreciate that (like the Tribunal in relation to the first appeal) I have directed that the calculation should be based on figures in a return/accounts which had not been drawn up at the date of the decision under appeal (and so could not have been used by the decision maker, unless the primary data were required to be supplied especially for CSA purposes). The decision maker will usually no doubt be justified in using the figures in the latest available tax return or accounts then available. If there is an appeal, later returns/accounts may be drawn up during the appellate process. This decision should not be seen as giving encouragement to parties to appeal simply in the hope that later (possibly more advantageous) figures will become available during the appellate process. 

Spousal maintenance
39.	The Tribunal directed in the Decision Notice that “[Mrs W’s] weekly spousal maintenance of £311.53 is to be taken into account.” That figure was used in the recalculations consequent upon the Tribunal’s decision ([1037] p.277). It was Mrs. W’s second ground of appeal, and it is common ground, that that was a mistake in that the spousal maintenance was reduced from £1400 per month to £700 per month (equivalent to £161.53 per week) with effect from 1 April 2005, to be increased in line with increases in the RPI on 1 April 2006 and each subsequent anniversary ([1037] p.243). The correct figure should therefore be used in the recalculations carried out in consequence of this decision. 

Debts of the relationship
40.	Mrs W’s third ground of appeal relates to debts which she says she has had to pay. However, this could only have been taken into account, if at all, by way of departure direction, and there was no appeal against a departure direction decision before the Tribunal. 

Proof of Mr W’s mortgage
41.	Mrs W’s fourth ground of appeal was that the Tribunal should have insisted upon additional proof that Mr W had a mortgage on the house in which he currently lives. However, the Tribunal was in my judgment entitled to treat the statement from Abbey at p. 86 of [1138], showing a mortgage of £135,000 and a monthly repayment of £736.30,  as sufficient proof of that. 

General
42.	Both parties have made points as to the correct calculation of the amount of any arrears of maintenance payments, and Mr W submits that it is unfair that retrospective alterations should be made to the assessments if substantial arrears would then result. The only jurisdiction of the Tribunal was to decide whether the decisions under appeal, which related to the amount of the relevant assessments, were correct. Neither the Tribunal nor I had jurisdiction to decide the amount of any arrears – i.e. whether sufficient payments have been made to cover the assessments (as revised pursuant to this decision). Nor could the Tribunal (or I) take into account, as a ground for not making an assessment which would otherwise be appropriate, the fact that arrears covering a past period would arise. 

Conclusion
43.	It follows from my reasoning above that the Tribunal’s decision must be set aside and  decisions to the effect set out in paragraph 1 above substituted. 

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