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[2008] UKSSCSC CCS_3834_2007 (20 May 2008)

 


CCS/3834/2007

DECISION OF THE CHILD SUPPORT COMMISSIONER

1. This is an appeal by the non-resident parent (Mr. S) against a decision of an appeal tribunal sitting at Derby on 22 August 2007. For the reasons set out below that decision was in my judgment erroneous in law and I set it aside. I refer the matter to a differently constituted appeal for redetermination. I draw the attention of Mr and Mrs S to my Direction in paragraph 28 below.
2. Mr S and the parent with care (Mrs S) were married in May 2003, and a daughter, Megan, was born to them in December 2003.
3. The adjudication history is unfortunately not entirely clear, but it appears that Mrs. S applied for child support maintenance in about October 2004, and that on 13 January 2005 a decision was made assessing maintenance in the sum of £5 per week from 29 October 2004.
4. On 17 January 2005 Mrs. S wrote to the CSA enclosing information as to what she contended were Mr S's assets and income, and stating: "as you can see the information he's given you is untrue." On 14 February 2005 a decision was made that Mr S had properties with a total net value slightly in excess of £65,000 and that in principle a variation should be made under reg. 18 of the Child Support (Variations) Regulations 2000 adding £100.83 to his net income. The CSA therefore did not require Mrs S to apply for a variation in writing, and treated her as having applied for a variation under reg. 18.
5. It is not clear what then happened. According to the "sequence of events" set out in the Secretary of State's written submission to the Tribunal, on 6 April 2005 Mr S disputed the calculation made on 13 January 2005 and "the decision maker became aware that the assets had been added twice to [Mr S's] income and therefore the maintenance calculation was incorrect." I do not think that the calculation which Mr S disputed can have been that made on 13 January 2005, because that was for only £5 per week. I think it more likely that what happened was that at some time after 14 February 2005 a decision was made purporting to implement the variation, and that that decision appears to have been in some respect wrong.
6. At all events, what then appears to have happened was that eventually on 27 September 2005 a decision was made, by way of revision of the decision of 13 January 2005, that Mr S was liable to pay £27 per week from 14 January 2005. That sum was arrived at on the basis of a net income of Mr. S of £87.39 per week by way of earnings, to which was added the notional income of £100.83 from assets by way of variation under reg. 18.
7. Mr. S appealed on the ground that the properties belonged to a company of which he was a 50% shareholder, and so should not have been treated as his assets. By a letter dated 9 December 2004 Mr S stated that his earnings should be calculated on a gross income of £10,320. He arrived at that sum by adding the sum of £4680 per annum salary paid to him by the joinery company (see below) in the year 2003/4 to a dividend of £5640 which he said that he had received in respect of that year. (In fact, however, the accounts of that company show no dividend paid by that company in any relevant year, and I assume that it is for that reason that the Tribunal in its decision (see below) therefore did not treat a dividend as part of his income under reg. 19(1A) of the Variations Regulations 2000).
8. On 22 March 2006 directions were made by the appeal tribunal at a hearing which was adjourned. The directions required the CSA to make a further submission, after obtaining further information. The directions included a statement that "the CSA needs to establish the totality of [Mr S's] income both for the purposes of the main formula and also under any head of the variations scheme."
9. On 11 October 2006 detailed further directions for the disclosure of documents and information by Mr. S were made
10. On 27 February 2007 there was a hearing at which Mr. S appeared and gave a substantial amount of oral evidence. However, that hearing was eventually adjourned again, because Mr. S had not provided a significant amount of the documentary information which had previously been directed. The Decision Notice included the following: "Mr S should also note the tribunal can replace the agency's decision with a new decision which may result in either a lesser or greater amount of maintenance liability in respect of Megan."
11. The final hearing took place on 22 August 2007, at which neither Mr. S nor Mrs. S appeared or was represented. The Tribunal's decision was as follows:

(1) As regards the variation on the ground of assets, the Tribunal found that the value of Mr. S's assets falling within reg. 18 totalled only some £36,000, and therefore that reg. 18 did not apply. It considered that the properties which the decision maker had treated as assets of Mr S should not be so treated, because they belonged to a limited company (although the tribunal did include in his assets what it considered to be the value of his interest in that company). The evidence before the tribunal showed that Mr S was one of two directors of the property company, each of whom held one share, the other director and shareholder being his brother. The Tribunal would appear to have been right to hold that there was insufficient evidence that Mr. S had the "ability to control" the properties, within reg. 18(1)(a), and therefore right to conclude that the variation under reg. 18 should not have been made.

(2) However, the Tribunal went on to say that it "did consider the whole case as it considered it just and equitable to ensure the correct decision has been made with regards to the calculation of maintenance for …. Megan." It stated that it found that Mr. S's income had been incorrectly calculated and that "as the fresh evidence shows that Mr. S's income increases by over £100 per week, the tribunal can consider this under regulation 19." The Tribunal found that Mr. S had income (in addition to the sum of £87.39 per week earnings which had been taken into account by the decision maker) of (i) £4713.85 per annum by way of a benefit in kind (i.e. a car provided for his use by another of his companies, a company providing joinery services) shown on his tax return in respect of the tax year 2004/05 and (ii) £450 per month received from renting out a property at 2 Manor Road (which was vested in Mr. S himself, and not in the property company).

(3) The Tribunal therefore directed that those two additional sums, converted to weekly amounts, should be added to the sum of £87.39 per week, although in stating the weekly amount of £450 per month a typographical error was made: the figure stated was £203.85 per week, when it should have been £103.85 per week.

12. Mr S appeals against the Tribunal's decision, contending that neither the sum in respect of the car nor that in respect of 2 Manor Road should have been added to his income.

The car

13. As far as the benefit consisting of provision of a car is concerned, it is apparent from p.202 that the sum of £4713.85 shown on Mr. S's tax return was arrived at by dividing the original capital value of the car by 23%. That sum was, therefore, in respect of having a car provided by the joinery company.
14. As pointed out by Mr. S in his grounds of appeal, a benefit in kind is by reg. 4(2)(d) of the Schedule to the Child Support (Maintenance Calculations and Special Cases) Regulations 2000 expressly excluded from the definition of "earnings" of an employed earner, nor can it fall within the very limited types of "other income" set out in para. 15 of that Schedule. The value of the use of the car cannot therefore properly be taken into account as income under the main formula.
15. However, the Secretary of State's representative submits that the Tribunal was entitled to make a variation under reg. 19(1A) of the Variations Regulations. That applies 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."

16. However, the Tribunal made no express finding that Mr S had the ability to control the amount of income which he received from the joinery company (although I note that Mr S appears to have given evidence to the tribunal on 27 February 2007 (p.186), which is confirmed in the accounts at p.145, that his one "A" share in that company has voting rights, whereas the one "B" share issued to his brother does not, which may well have given Mr S the necessary control).
17. More significantly, in my judgment the free use of a car does not constitute "income" within the meaning of reg. 19(1A)(b). Even for income tax purposes, (and in the absence of special statutory provisions such as those for taxation of use of cars belonging to companies), a benefit in kind is only taxable if it is in a form which could be converted into money (see e.g. Heaton v Bell (1969) 46 T.C. 211). It is not difficult to infer that it was an implied term of the agreement between Mr. S and the joinery company for use of the car that he would not permit anyone other than members of his family to use the car. If that is so, it is not a benefit which he could have turned into money by permitting someone else to use the car in exchange for payment to him. Income tax under Schedule E is assessed on the "emoluments" referable to that year, which are defined as including "all salaries, fees, wages, perquisites and profits whatsoever". That seems to me to be, if anything, wider than the simple word "income" used in reg. 19(1A). I do not therefore think that the value of the use of the car can be "income" within reg. 19(1A). Even if it were, it is not obvious that that value would be the sum of £4713.85 which Mr S was required by the special tax provisions to show in his tax return.
18. It is noted in the Secretary of State's submission in this appeal that it has been held in CCS/1769/2007, in relation to the old child support scheme, that taking a benefit in the form of use of a car, rather than earnings, could constitute a "diversion of income" for the purposes of reg. 24 of the Child Support (Departure Direction etc.) Regulations 1996. The equivalent provision under the new scheme is reg. 19(4) of the Variations Regulations. In the form in which it was prior to 6 April 2005 (which is what in my judgment must be looked at for present purposes) that provision read as follows:

"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, including earnings from employment or self-employment, whether or not the whole of that income is derived from the company or business from which his earnings are derived, and

(b) the Secretary of State is satisfied that the non-resident parent has unreasonably reduced the amount of his income which would otherwise fall to be taken into account under the Maintenance Calculations and Special Cases Regulations by diverting it to other persons or for purposes other than the provision of such income for himself in order to reduce his liability to pay child support maintenance."

19. However, Mr. S submits that on the facts of the present case that provision cannot apply, because the car was ordered in January 2004 and purchased in February 2004, before any question of child support maintenance liability arose. I do not know precisely when the parties separated and when the possibility of having to pay child support maintenance may first have been in Mr. S's mind. It would appear from the fact that they had a joint bank account until at least 10 February 2004 (p.25) that the separation was not until some time after that date. Mrs. S stated in her letter dated 8 November 2005 (p.79) that Mr S was arrested on 18 March 2004 in connection with alleged sexual abuse, and I therefore assume that the separation had taken place by then. If the separation occurred at some time between 10 February and 18 March 2004, it seems unlikely that the car can have been purchased by the joinery company as a means of reducing Mr S's liability for child support purposes.

Rent from 2 Manor Road

20. If the letting of this property (when it occurred) was not a business venture, the rent was not income of a nature which could properly be included as income for the purpose of the main formula assessment. Further, there would appear to be no applicable ground of variation which would permit the income to be taken into account.
21. However, Mr S accepts that the letting of this property should be regarded as a business venture (p.297). On that footing, rent from the property, less allowable expenses, would constitute earnings from self-employment, and so be taken into account under the main formula. However, Mr S contends that the property was purchased in 2003 in Mrs. S's sole name (she having previously lived there as a council tenant) and that, although it was let during his wife's ownership, it was unoccupied by the time when it was transferred to him in March 2005 as a result of the matrimonial proceedings, and that it was not let again until late 2006 (p.267), which was well outside the period which could have been taken into account in the decision now under appeal.
22. The Tribunal simply accepted Mrs. S's evidence, in her letter dated 3 February 2006 (p.90), that 2 Manor Road was let at £450 per month. In her submission in reply in this appeal (p.294) Mrs S says that it was rented out from March 2005, as her old next door neighbour and a close friend who lives across the road so informed her, and that they are both willing to make statements to that effect. The Tribunal further found that, as the property had not been mortgaged by Mr. S until August 2006, no sums should be deducted from the rent.
23. The Tribunal's decision was in my judgment wrong in law in relation to this aspect in that it did not, at the hearing on 27 February 2007, or in the Directions which it made at that hearing, seek any information from Mr S (which it could easily have done) as to when he in fact first let 2 Manor Road. Although it is true that Mr. S was aware of the assertion by Mrs S in her letter of 2 February 2006 that the property was (at any rate by then) being let, the Tribunal should in my view have sought specific further information as to this.

Conclusions

24. The Tribunal's decision must therefore be set aside as erroneous in law.
25. The new tribunal will need to consider (a) whether the car arrangement was entered into in order to reduce Mr S's income for child support purposes (see para. 18 above) and (b) the date when 2 Manor Road was first let by Mr S (see para. 22 above).
26. I referred in para. 7 above to Mr. S's letter of 9 December 2004. The fact that it appears to have been intended, as at 11 November 2004, that the joinery company would declare a dividend of £10320 to Mr. S (stated in the letter to be in respect of 2002/3, but surely means 2003/4 – see p.66), but that none were declared in that or subsequent years, may raise issues as to whether there was a diversion of income by not declaring dividends. It will be open to the new tribunal to consider that.
27. Mrs S has in letters and submissions contended that Mr S is in a position to pay much more than £5 per week. Reg. 20 of the Variations Regulations 2000 enables a variation to be made on the ground that the non-resident's income which has been taken into account for the purposes of the maintenance calculation is substantially lower than the level of income required to support his overall life-style. However, no specific contentions as to Mr. S's overall lifestyle were made by Mrs. S in her initial letter of 17 January 2005, and the tribunal has at no stage conducted any investigation of Mr. S's lifestyle. It would not in my judgment be right to treat this as being an issue in this appeal or as having been before the Tribunal. The new tribunal should therefore not consider it. If Mrs. S wishes this to be considered, she would have to make a separate application for a variation on this ground, which would need to be the subject of a separate decision by the Secretary of State.
28. I give the following DIRECTION in relation to the rehearing:

Mr S and Mrs. S may each, within one month from the date when this decision is issued, submit to the Tribunals Service at Nottingham such further information and evidence as they may wish, particularly in relation to the points referred to in paragraphs 19 (whether the car arrangement was entered into in order to reduce Mr. S's income for child support purposes), 23 (the date when 2 Manor Road was first let by Mr S) and 26 (diversion by not declaring dividends) above. Mr S must in any event within that time send to the Tribunals Service copies of his current account bank statements for the period March to July 2005 (these may show receipt of rent, if there was any).

29. In an e-mail sent to this Office on 13 April 2008 Mrs. S has put forward facts relevant to the issues which the new tribunal will have to determine.

(Signed on original)

Charles Turnbull

Commissioner

20 May 2008