IN THE UPPER TRIBUNAL	Appeal No.  CA/1546/2008
ADMINISTRATIVE APPEALS CHAMBER

Before Upper Tribunal Judge E A L Bano

Decision:  My decision is that the tribunal’s decision did not involve the making of an error of law.  I therefore dismiss the appeal.

REASONS FOR DECISION

1.  This is an appeal, brought with my leave, from the decision of the tribunal dismissing the claimant’s appeal against the disallowance of a claim for carer’s allowance, on the ground that the claimant was gainfully employed.  As a result of the coming into force on 3 November 2008 of the Transfer of Tribunals Functions Order 2008 (SI 2008 No 2833) the appeal continues as an appeal to the Upper Tribunal under the Tribunals, Courts and Enforcement Act 2007, but that has no bearing on the substantive issues in this case.

2.  The claimant cares for her son, who tragically sustained severe injuries in a road accident in 2001.  The claimant was awarded carer’s allowance from 7 October 2002, but the award was terminated from 11 September 2006 because of the suspension of her son’s qualifying benefit.  The claimant re-claimed benefit on 2 March 2007, and it is the refusal of that claim which is the subject of this appeal.

3.   Under section 70(1)(b) of the Social Security and Benefits Act 1992 (“the 1992 Act”), a person who is gainfully employed is not entitled to carer’s allowance, and by regulation 8(1)(e) of the Social Security (Invalid Care Allowance) Regulations 1976 (SI 1976 No 409) a person is treated as gainfully employed if the person’s earnings exceed the earnings limit, which at the relevant time was £84.00 per week.  Entitlement to care allowance is on an ‘all or nothing’ basis, so that in some cases it will be necessary for earnings to be calculated very precisely in order to decide whether a claimant is entitled to benefit.

4.   Section 3 of the 1992 Act defines “earnings” as including “any remuneration or profit derived from an employment” and confers on the Secretary of State a regulation making power for prescribing how the amount of a person’s earnings for any period is to be calculated or estimated.  The relevant regulations are the Social Security Benefit (Computation of Earnings) Regulations (SI 1996 No 2745) (“the 1996 Regulations”), which apply to carer’s allowance by virtue of regulation 3(1).   Regulations 10(1) and (4) of the 1996 Regulations (which are in similar terms to the corresponding provisions in regulation 37 of the Income Support (General) Regulations 1987 (SI 1987 No 1967)) provide:

“(1) For the purposes of regulations 3 (calculation of earnings) and 6 (calculation of earnings of employed earners) the earnings of a claimant derived from employment as an employed earner to be taken into account shall, subject to paragraphs (2) and (3) be his net earnings.

(4) for the purposes of paragraph (1) net earnings shall be calculated by taking into account the gross earnings of the claimant from that employment less-
(a) any amount deducted from those earnings by way of-
(i) income tax;
(ii) primary Class 1 contributions under the Contributions and Benefits Act; and
 (b) one half of any sum paid by the claimant in respect of a pay period by way of a contribution towards and occupation or personal pensions scheme.”

Although a deputy Social Security Commissioner expressed doubts in CG/6329/1997 as to whether the 1996 Regulations were intended to apply to the 1976 Invalid Care Allowance Regulations, in CG/734/2003 the Commissioner regarded those doubts as unfounded, and in CG/1054/2004 another Commissioner adopted the reasons in CG/734/2003 for reaching the same conclusion as the Commissioner in the earlier case.  I too am satisfied that computation of earnings for the purposes of care allowance is validly governed by the 1996 Regulations, for the reasons given in paragraph 11 of CG/734/2003.

5.  The claimant was employed part-time by a local authority at a gross wage of £312.75 payable every four weeks, and deductions from her wages were made in respect of occupational and personal pension contributions, together with trade union subscriptions.   The claimant’s weekly earnings were calculated under regulation 8 of the 1996 Regulations and a deduction from net earnings of 50% of occupational and personal pension contributions was made under regulation 10(4)(b). However, because the resulting figure of net weekly earnings of £86.26 per week exceeded the earnings limit by £2.26, the claimant was found to be in gainful employment and therefore not entitled to benefit.

6.  The claimant was not liable to pay income tax or National Insurance contributions on her earnings, but she had a colleague who was in a similar position to herself and who also received carer’s allowance.  According to the claimant’s letter of appeal, that person’s carer’s allowance was treated as taxable, and the income tax to which she was liable was collected by her employer through PAYE, resulting in a net weekly wage below the carer’s allowance earnings limit.  The claimant submitted that her entitlement to carer’s allowance should be determined on the same basis, but the tribunal rejected that contention and dismissed her appeal.

7.  The claimant’s representative submits that carer’s allowance is taxable and that, if it was paid to the claimant, the income tax which would be deducted from her wages through PAYE would bring her earnings below the earnings limit.  The main plank of that argument is R(IS) 4/05, in which deputy Commissioner Nicholas Paines QC held that the words “any amount paid by way of tax” on “other income” in paragraph 1 of Schedule 9 to the Income Support (General) Regulations 1987 (SI 1987 No 1967) should be construed as extending to income tax for which the claimant was liable on a retirement pension, but which had not been paid at the date of the decision under appeal.  In CG/1054/2004 the Commissioner declined to apply the approach in R(IS) 4/05 to regulation 10 of the 1996 Regulations, drawing attention to the very extensive powers of the Inland Revenue under the PAYE system to collect tax due in respect of income from several different sources, and even in respect of different tax years.  The tribunal in this case followed CG/1054/2004 and held that the claimant could not reduce her earnings by the amount of any tax liability resulting from receipt of carer’s allowance, because no such tax had in fact been paid.

8.  In paragraph 9 of CG/1054/2004 the Commissioner stated that carer’s allowance is exempt from income tax, and the Secretary of State has relied on that statement throughout this appeal in submitting that the claimant’s liability to income tax is therefore irrelevant (even asserting that the tribunal’s statement to the opposite effect was wrong).  However, Table A of section 660 of the Income Tax (Earnings and Pensions) Act 2003 specifies carer’s allowance payable under section 70 of the Social Security (Contributions and Benefits) Act 1992 as a taxable benefit, and section 677 of the 2003 Act, to which the Commissioner referred in CG/1054/2004, does not specify carer’s allowance as a benefit which is tax exempt.  I therefore agree with the claimant’s representative that this appeal must be approached on the basis that carer’s allowance is a taxable benefit.

9.  However, I do not agree with the claimant’s representative that any tax to which the claimant would be liable if she received carer’s allowance should be treated as having been deducted from her earnings under PAYE.  As the Commissioner pointed out in paragraph 29 of CG/1054/2005, as a result of the very wide powers conferred on the Inland Revenue to collect tax due in respect of different sources of income through PAYE deductions, the tax code applied to an individual, and the amount of tax deducted from earnings, may have little or nothing to do with the tax liability of that individual because of those earnings.  In many cases the amount of a person’s PAYE deductions cannot be predicted for a future period with any certainty, and in my view it cannot have been intended that regulation 10(4) of the 1996 regulations should apply to liabilities for tax which could be paid by means of the PAYE system, but in respect of which no deduction has in fact been made, particularly in a case such as this where the liability to tax which is relied on is predicated on the existence of the very entitlement to benefit which is in question.

   10.  In CG/1054/2005 the Commissioner considered that one solution to the problems of under counting and double counting resulting from the interaction of the 1976, 1996 and the PAYE regulations was to apply the provisions in regulation 8(3) of the 1996 regulations, which allow for the averaging of fluctuating earnings.  However, the 1996 Regulations have been made under section 3 of the 1992 Act for the purpose of enabling the amount of a person’s earnings for any period to be calculated or estimated.  If PAYE deductions in respect of income other than earnings can be taken into account under regulation 10(4) of the 1996 Regulations, in some cases the effect of an increase in a person’s non-employment income (which might relate to an earlier period) would be actually to reduce the person’s earnings for benefit purposes.  The provisions of regulation 8(3) will only be applicable in cases of fluctuating earnings, and for my part I therefore regard it as more consistent with the overall statutory scheme to take into account under regulation 10(4) of the 1996 Regulations only PAYE deductions which have been made in respect of employment income.  However, it is unnecessary to express a concluded view on that matter since, for the reasons I have given, I do not consider that PAYE deductions which have not in fact been made can be taken into account under regulation 10(4).

11.  For those reasons, I consider that the decision of the tribunal was correct, and I therefore dismiss the appeal.

E A L Bano
Judge of the Upper Tribunal

3 February 2009