DECISION OF THE UPPER TRIBUNAL
(ADMINISTRATIVE APPEALS CHAMBER)

The DECISION of the Upper Tribunal is to allow the appeal by the Appellant (“the father”).

The decision of the Basildon First-tier Tribunal dated 30 July 2012 under file reference 919/09/01118 involves an error on a point of law. The tribunal’s decision is therefore set aside.

The Upper Tribunal is not in a position to re-make the decision on the father’s appeal against the decision of the Secretary of State (formerly the Child Maintenance and Enforcement Commission) dated 19 December 2008. 

It therefore follows that the father’s original appeal against the Secretary of State’s decision is remitted to be re-heard by a different First-tier Tribunal, subject to the Directions below.

This decision is given under section 12(2)(a) and (b)(i) of the Tribunals, Courts and Enforcement Act 2007.

DIRECTIONS

The following directions apply to the re-hearing:

(1)	The re-hearing should be at an oral hearing. 

(2)	The new tribunal should not involve the tribunal judge and financially qualified member who sat on the last tribunal on 30 July 2012.

(3)	If either parent has any further written evidence to put before the tribunal, this should be sent to the regional office of HM Courts and Tribunals Service in Birmingham, within one month of the issue of this decision. Such evidence will have to relate to the position as it was at the time of the Agency’s original decision under appeal (i.e. 19 December 2008).

(4)	The Secretary of State should be represented at the new hearing by a presenting officer.

(5)	The new tribunal must consider all the evidence afresh and is not bound in any way by the decision of the previous tribunal.  

These directions may be supplemented as appropriate by later directions by a District Tribunal Judge in the First-tier Tribunal (Social Entitlement Chamber).  

REASONS FOR DECISION

The Upper Tribunal’s decision in summary
1.	The father’s appeal to the Upper Tribunal is allowed. The decision of the First-tier Tribunal (FTT) involves an error on a point of law. The tribunal’s decision is therefore set aside as having no effect. Unfortunately the Upper Tribunal is not in a position to re-make the original decision under appeal. It follows that there will need to be a fresh hearing of the mother’s original appeal but before a different FTT.

2.	To avoid confusion, I refer to the three parties as simply the father, the mother and the Secretary of State. The father is the non-resident parent and is the Appellant before the Upper Tribunal. He worked as a self-employed driving instructor at the material time. The mother is the parent with care and was the Appellant before the FTT, but is now the Second Respondent. The Secretary of State is the First Respondent in these proceedings. For convenience I sometimes refer to the Secretary of State (previously the Child Maintenance and Enforcement Commission) as just “the Agency”.

The father’s application for an oral hearing of the appeal to the Upper Tribunal
3.	The father has asked for an oral hearing of his appeal before the Upper Tribunal, but has not given a reason. Neither the mother nor the Secretary of State’s representative has requested such a hearing. I have considered the father’s request and all parties’ views under rule 34 of the Tribunal Procedure (Upper Tribunal) Rules 2008 (SI 2008/2698). I refuse the father’s application for an oral hearing of the appeal for the following reasons.

4.	It is important to realise that the Upper Tribunal’s role is confined to correcting the FTT on issues of law. It is not the job of the Upper Tribunal to embark on a further investigation of the facts of the case. In addition, the FTT (but not the Upper Tribunal) can sit with a specialist financially qualified panel member. An oral hearing before the Upper Tribunal is both unnecessary and disproportionate. It would cause further delay and inconvenience, in a case which has certainly suffered more than its fair share of delays, and would not give the father what he ultimately seeks. He will, of course, have the opportunity, as is just and fair, to have his say at a re-hearing before a different FTT as a result of my decision.

The background to the appeal to the First-tier Tribunal
5.	On 10 November 2008 the mother applied for child support. On 25 November 2008 the Agency promptly sent out a maintenance enquiry form (MEF) to the father, which he duly (and also promptly) returned. The father had just resigned from full-time employment and had become a self-employed driving instructor.

6.	On 19 December 2008 the Agency made a maintenance calculation. Its decision was that the father was liable to pay £0.00 a week in child support, on the basis that his income was less than £5 a week. The mother, not surprisingly, appealed. She also applied for a variation on the basis of (i) assets, (ii) inconsistent lifestyle and (iii) income not taken into account. That application for a variation was refused.

The First-tier Tribunal’s final hearing and decision
7.	For reasons which are unclear, the matter then regrettably took three years to come on for hearing. Be that as it may, on 30 July 2012 a FTT (consisting of a tribunal judge and an accountant member) sat in Basildon to hear the mother’s appeal. The father but not the mother attended. The Agency was also represented. The tribunal judge kept a full record of proceedings. The tribunal issued a very full Decision Notice on the Day, which was followed by an extended Statement of Reasons.

8.	The FTT’s decision, in summary, was that the mother’s appeal was allowed in part. The decision and maintenance calculation under appeal were set aside and the Agency was directed to recalculate the liability. The assets and inconsistent lifestyle variation applications were not allowed. However, the tribunal directed that the father’s earnings be recalculated. The father then appealed to the Upper Tribunal.

The proceedings before the Upper Tribunal
9.	Initially District Tribunal Judge refused permission to appeal on the basis that the father was seeking to re-argue the facts. I later gave permission to appeal, noting as follows:

“Introduction
1. I recognise that the First-tier Tribunal (FTT) held a lengthy and detailed hearing and issued a full decision notice and statement of reasons. I also recognise that in certain respects the Appellant is seeking to re-argue the facts. That is not possible on an appeal which is limited to a point of law.

2. However, there is sufficient for me to give permission to appeal here. I do not have to be satisfied that the father will necessarily win this appeal to the Upper Tribunal. At this stage I should give permission if I think he has an arguable case that should be explored further.

Why I am giving the father permission to appeal
3. Obviously the FTT’s decision notice (DN) and statement of reasons (SoR) have to be read together. The mother, who did not attend the FTT hearing, had (i) appealed the formula-based maintenance calculation and (ii) appealed the refusal of her variation application (DN at [5]). Any material inconsistency between the DN and SoR may point to a possible error of law. It may be arguable that what the FTT actually decided is unclear.

4. On one view the FTT simply examined the formula-based calculation (as it was entitled to do), found that it was factually wrong, and made certain adjustments, ruling that the decision-maker was unaware of certain matters (DN [10]-[13] and SoR [10]-[14]). In other words, it just directed a re-assessment of the formula-based calculation. 

5. However, on another (better?) view the FTT both did that and also made a variation. It certainly seems clear that the lifestyle variation was refused (see DN [14] and SoR [19]-[21]). But the FTT seems to have made a variation on the basis of regulation 19, income not taken into account or diversion. The (fleeting?) reference to the just and equitable test (DN [19] and SR [25]) undoubtedly indicates that a variation was applied. But on what basis? Has the FTT adequately differentiated between adjusting the formula calculation and a variation based on regulation 19(1A)? Or was the FTT relying on regulation 19(4)? Either way, has it actually explained the basis for the variation?

6. I would also just make the point that the CSA and the FTT are not, as matter of law, bound by figures which HMRC may happen to accept for income tax purposes. The FTT is perfectly entitled to investigate a self-employed person’s income and expenses and is not bound by the tax return figures. However, has the FTT dealt properly with the issue of deductions for income tax (see e.g. Commissioner’s decision CCS/814/2010 at paragraph 35)? The DN at [11] refers to gross earnings yet rental income was treated as net (DN at [13]). Or was that unnecessary?

7. It seems to me, provisionally at least, that the FTT was quite entitled to take a longer period and assess income over that period, for the reasons it gave. The father makes a number of complaints about how his income has been re-assessed. As indicated, these may simply be challenges to the fact-finding. However, the FTT do seem to have only allowed business expenses for mileage for the actual lessons, not for travel between lessons. Was this a failure to make sufficient findings of fact on a material issue?”

10.	Mr Kevin O’Kane, on behalf of the Secretary of State (for the Agency) has provided a detailed written submission on the father’s appeal. His arguments can be summarised thus: (i) the father is seeking to re-argue the case on its facts; (ii) the FTT was not bound by the income figures accepted by Her Majesty’s Revenue and Customs (HMRC); (iii) however, the FTT had erred in law by failing to take into account business mileage as an instructor when travelling between lessons, as opposed to mileage during lessons; (iv) the FTT had also erred in law by failing to allow for the deduction of tax and national insurance from the additional driving instructor income it found; and (v) the FTT had further erred in law by not explaining the basis for the variation which was imposed.

11.	Both parents have also made further written submissions which I have taken into account. Where relevant, I deal with their respective points below. 

The Upper Tribunal’s analysis
Introduction
12.	I can start by saying that I accept the analysis of Mr O’Kane as regards the three errors of law which he identifies (points (iii) to (v) inclusive in paragraph 10 above). For the benefit of the parents, and also for both the previous and the next tribunal I should explain briefly why.

(A) Business mileage
13.	The FTT dealt with this issue at paragraphs [10] and [11] of the Decision Notice and at paragraph [11] and [12] of the Statement of Reasons. It is clear that the tribunal arrived at its assessment of the gross income from driving instruction by (i) identifying the total business mileage; (ii) dividing that figure by 20 miles (being the average mileage per one hour lesson) and then (iii) multiplying the number of hours arrived at by the hourly lesson rate. This produced a figure which was almost £9,000 higher than the figure in the accounts. The father and the Secretary of State’s representative, but not the mother, have dealt with this point in their written submissions.

14.	As noted above, the FTT was not bound by the income figure disclosed by the accounts and as reported to (and accepted by) HMRC. However, the tribunal had to provide a proper justification for its revised figures. The tribunal, in effect, approached the calculation on the basis that every mile of business mileage was a “profitable” mile. However, it must be recognised that driving instructors will have a certain amount of “down time”, in particular when they are driving from one appointment to the other. Such business mileage is, obviously, not directly reimbursed by a particular learner driver. Rather, it forms part of the general overheads of the business, a cost that has to be borne out of what would otherwise be profit.

15.	In approaching the matter as it did, the tribunal erred in law by failing to take account of a relevant consideration on the evidence. This means that I have to set aside the tribunal’s decision. I am not in a position to decide this matter myself, and so the issue will have to go back to a new tribunal.

16.	The new tribunal will see that the father has set out a number of factors which he says the tribunal failed to take into account when assessing his business mileage (see especially the letter of 4 November 2012 at p.311, points 1-7). These are not limited to the issue of mileage between lessons. He has also produced a detailed expert witness report on driving instructor income by Mr J R Lepine MBE, the General Manager of the Motor Schools Association. Mr Lepine’s report is obviously concerned with the features of, and trends in, the income of driving instructors generally, rather than the financial position of the father in particular. However, it is obviously written from a position of some experience and knowledge, but the actual weight to be attached to it is a matter for the new tribunal. The father has also enclosed examples of the furthest locations of his pupils and the relevant mileage involved. On the other hand, he has not included those pupils closest to him (or to each other). These are all issues of fact on which the new tribunal will have to take a view.

17.	It is therefore entirely a matter for the new tribunal to form a reasoned view, where necessary taking a broad-brush approach, on both the total hours worked and charged out to learner drivers and the total business mileage, including the “non-directly profit making proportion” of that mileage that has to be met from general income. The new tribunal may come up with a figure which is the same as, or close to, the figure for self-employed earnings in the father’s accounts. It may come up with a figure somewhere between that figure and the figure arrived at by the previous tribunal. It all depends on the facts that the new tribunal finds.

(B) The deduction for tax and national insurance
18.	Naturally the self-employed earnings declared to and accepted by HMRC were subject to the relevant deductions for tax and national insurance. As we have seen, the previous FTT found that there was an extra amount of self-employed income, in the sum of almost £9,000, which did not appear in the accounts. The tribunal dealt with this throughout as a gross figure, and did not make any mention of any deduction for income tax or national insurance.

19.	The mother makes the point that as the father had not paid tax and national insurance on such extra income found by the tribunal, it is reasonable that those liabilities are not taken into account. That was certainly the view that was taken in the previous case law of the Child Support Commissioners and the Upper Tribunal (see e.g. unreported decision CCS/814/2010). However, as Mr O’Kane explains, the Court of Appeal has now taken a different approach – see Gray v Secretary of State for Work and Pensions [2012] EWCA Civ 1412 at paragraph 30. The Court of Appeal ruled that a deduction should be made for income tax and national insurance in such situations.

20.	The Court of Appeal’s decision in Gray was not published until November 2012, after the FTT hearing in this case. The tribunal can therefore hardly be criticised for failing to make such a deduction, as is required by law. Its omission to mention the point is entirely understandable given the law as it was then thought to be. However, this is an inadvertent error of law. Had this been the only point at issue, I would have been able to decide the case myself. However, the case has to go back for re-hearing because of the business mileage point discussed above.

(C) The basis for the variation
21.	As I noted when giving permission to appeal, the underlying basis for the FTT’s decision on the self-employed earnings point is less than transparent. It is clear that the FTT refused the mother’s appeal against the decision to refuse an application for a variation on the basis of assets and inconsistent lifestyle. The tribunal made careful findings of fact on those two grounds and gave clear and extensive reasons. There is absolutely no arguable error of law on either of those points.

22.	It is also reasonably clear that the tribunal regarded itself as making a variation. I say this as it applied the “just and equitable” principle (Decision Notice at [19] and Statement of Reasons at [25]), which is irrelevant to a purely formula-based appeal. Beyond that, matters become much less clear. The Decision Notice simply states (at [15]) that “on the issue of income not accounted for, this has been addressed by the Tribunal in looking at the income of [the father] and nothing further can usefully be added”. This could mean that the increase in self-employed earnings was found to apply simply on the basis of the formula, and so any variation ground was redundant. Alternatively, it could mean that those findings were being used to support a variation by way of a diversion under regulation 19(1A). The Statement of Reasons is also ambiguous. This found as a fact that excess income had to be added to the income figure “in order to show a true picture of the NRP’s income” (p.307 at [5E]), but without explaining whether that was by way of an adjustment to the standard formula income or through a variation. The Statement of Reasons also referred back to the Decision Notice on how that figure had been calculated (p.308 at [13]). It also referred to “income not taken into account” at [18] (on p.309), referring back in turn to both the extra self-employed income found together with the rental income for a property that I shall call simply No 7 B Close.

23.	Mr O’Kane for the Secretary of State makes two points. First, he argues that the tribunal cannot have been making a variation under regulation 19(4). Mr O’Kane says there is no evidence that the father was diverting any income to other persons or for other purposes (this is a quite separate point to the mother’s argument that the father was deliberately hiding income). I agree with Mr O’Kane’s analysis on this point. It follows that if it was applying a variation, as on balance I conclude the tribunal was (for, as noted above, the tribunal considered the “just and equitable” issue, albeit very briefly), then the variation must have been under regulation 19(1A).

24.	This leads to Mr O’Kane’s second point. He submits that the tribunal failed to explain adequately the basis for its findings on applying regulation 19(1A). He also points out that if the regulation 19(1A) variation was applied solely because of the rental income, then that was impermissible. The rental income was found to be £2,113 a year or £41 a week. However, regulation 19(2) provides that the relevant income stream must amount to more than £100 a week in order for regulation 19(1A) to bite. The mother argues that, even if the income from that property is just £41 a week, the father has more than £100 a week in income from his business and other property. This is related to her general point that he has not disclosed his true income position.

25.	The uncertainty surrounding the basis for the variation is a further error of law. As I see it there are two potential problems with the tribunal’s approach. The first and most fundamental is that it failed to make it clear whether the father’s self-employed income was being adjusted under the standard formula or under a regulation 19(1A) variation. If the latter – as the tribunal’s reasoning appears to suggest – it is unclear why that approach was taken. The second was that if the former scenario applied, then the tribunal erred by not having regard to the £100 weekly limit in regulation 19(2). I shall deal with these points in reverse order.

26.	As to the £100 weekly limit, the position is clear. If the extra self-employed income was dealt with under the formula, then regulation 19(2) meant that the rental income alone at £41 a week could not be taken into account. That weekly limit of £100 applies not to the father’s total income from all sources, but only to the income which falls within the terms of regulation 19(1A). That would include rental income, as rental income is income “which would not otherwise fall to be taken into account” (within regulation 19(1A)(b)) under the standard formula provisions. The mother says that the father has other such income. However, that is a matter of fact for the next tribunal to determine.

27.	As to the more fundamental point, it is unclear why the tribunal felt that it had to rely on regulation 19(1A) to arrive at what it considered to be the father’s true self-employed earnings as a driving instructor. It is well established that the tribunal was not bound by the HMRC figures (see also Gray v Secretary of State for Work and Pensions on this principle). Furthermore, and in any event, it is by no means obvious that the extra income found by the tribunal in this case fell within the terms of regulation 19(1A). As the authoritative commentary to the legislation advises, regulation 19(1A) “deals with the case in which the non-resident parent organises the financial affairs of his business or company in order to take income in a form that would not be taken into account under the Maintenance Calculations and Special Cases Regulations” (E. Jacobs, Child Support: The Legislation, 10th edition 2011/2012, p.635). An example would be a company director who takes income as dividends rather than by way of salary. It is not well suited to the case where a tribunal simply finds the non-resident parent’s actual income (whether as an employed or self-employed person) to be higher than disclosed to HMRC because of, for example, undeclared cash receipts – that type of case should be handled under the formula.

Conclusion of Upper Tribunal’s analysis
28.	It follows that the tribunal’s decision involves an error of law for the three reasons identified above. I therefore set aside the tribunal’s decision. The case will have to go back for a fresh hearing before a new FTT. It would probably be best if this new tribunal were also constituted by a tribunal judge and accountant member sitting together, as before. It is to be hoped that this can be arranged as soon as possible, given the considerable delays that the parents have already had to endure.

29.	Although the mother has not made the point, I should add that the previous tribunal should have done more to explain why it had decided to proceed in her absence. The matter was dealt with by way of a brief narrative of what happened before and on the day (Decision Notice at [4]). The Statement of Reasons (at [2]) added nothing to this other than a passing reference to regulations 2 and 31 of the Tribunal Procedure (First-tier Tribunal) (Social Entitlement Chamber) Rules 2008 (SI 2008/2685). I do not criticise the tribunal for its decision to go ahead – the lengthy delays in the case alone justified this course of action. It is just that the tribunal should have gone a little further in explaining why it decided to proceed.

30.	There are a number of other related points which I should mention, if only for the benefit both of the next tribunal and the parents’ understanding of the process.

Other matters
31.	The new tribunal must decide the mother’s appeal against the Agency’s decision of 19 December 2008 afresh. It is not bound by any of the findings of the previous tribunal (although it might well, for example, and having considered the facts, come to the same decision on e.g. the assets and inconsistent lifestyle aspects of the variation application).

32.	The new tribunal will note that the father left his previous salaried employment and went self-employed in a different occupation on 17 November 2008. The tribunal is confined to the circumstances as they were at the date of the Agency’s decision on 19 December 2008. However, the tribunal may wish to draw the Agency’s attention to important developments after that date, as that may assist the Agency in making decisions about liabilities for subsequent years.

33.	Furthermore, the new tribunal may well think that in principle the last tribunal was right to look at the issue of income over a longer and more representative time span (see Statement of Reasons at [7] – I just note that the tribunal refer there to the wage slip at p.89, but that was actually a payslip for the father’s new partner, and not for him).

34.	The new tribunal should also make appropriate findings about the number of relevant children and the issue of shared care (see e.g. the previous FTT’s Decision Notice at [17] and [18] and the Statement of Reasons at [22] and [23]). If the parents are able to agree any of those marginal matters between themselves, and before the re-hearing, that would also be of great assistance to the next tribunal.

35.	Finally, I recognise that this has obviously been a bitter and protracted appeal. There have been a number of points of conflict between the parents and/or their new partners (e.g. over contact). In one sense this case appears to have started when the father decided to leave his previous salaried employment in the retail sector and take up self-employed work as a driving instructor. This involved, he says, a not insubstantial drop in his income. Although not required by law to do so, he warned the mother several months ahead of his plans. There are some circumstances in which family law takes into account not simply what a person actually earns, but what their potential earning capacity is. However, the child support scheme since 2003 includes no powers to make such wide-ranging assumptions. Rightly or wrongly, the child support system allows non-resident parents to make the career choices they wish, and for the reasons they wish, even if this impacts on the level of child support maintenance payable to a former partner for their joint children. In particular, the variations scheme does not readily accommodate such “lifestyle decisions”.

Conclusion
36.	For the reasons explained above, the Upper Tribunal allows the father’s appeal. The decision of the First-tier Tribunal is set aside. The Upper Tribunal directs a re-hearing of the case before a new First-tier Tribunal subject to the directions above.  

Signed on the original			Nicholas Wikeley
on 17 October 2013				Judge of the Upper Tribunal