Northern Ireland - Social Security and Child Support Commissioners' Decisions

[1997] NISSCSC C1/97(FC) (19 March 1998)

 


Decision No: C1/97(FC)

SOCIAL SECURITY ADMINISTRATION (NORTHERN IRELAND) ACT 1992 SOCIAL SECURITY CONTRIBUTIONS AND BENEFITS (NORTHERN IRELAND) ACT 1992 SOCIAL SECURITY (CONSEQUENTIAL PROVISIONS) (NORTHERN IRELAND) ACT 1992 FAMILY CREDIT Appeal to the Social Security Commissioner on a question of law from the decision of the Newry Social Security Appeal Tribunal dated 27 February 1997 DECISION OF THE SOCIAL SECURITY COMMISSIONER
1. This is an appeal by the claimant against the decision of a Social Security Appeal Tribunal and it relates to claimant's entitlement to family credit.
2. I arranged an oral hearing at which claimant was represented by Mr Stockman of the Law Centre (NI) and the Adjudication Officer was represented by Miss Finlay of Counsel on behalf of the Departmental Solicitor. The case relates to an entitlement to family credit and it hinges on whether or not claimant's income as a self-employed person exceeded the level at which family credit is payable in accordance with the Family Credit (General) Regulations (Northern Ireland) 1987. The relevant Regulation as far as is applicable reads:-

"15.-(1) Subject to regulation 17 (periods to be disregarded), where a claimant's income consists of earnings from employment as a self-employed earner, his normal weekly earnings shall be determined, subject to paragraph (2), by reference to his weekly earnings from that employment -

(a) - (aa) N/A

(b) where the claimant provides in respect of the employment a profit and loss account and, where appropriate, a trading account or a balance sheet or both, and the profit and loss account is in respect of a period of at least 6 months but not exceeding 15 months and that period terminates within the 12 months preceding the date of claim, over that period; or

(c) to (2) N/A."

Regulation 22(3A) reads:-

"22.(3A) For the purposes of paragraph 1(a), in a case where the assessment period is determined under regulation 15(1)(b), the net profit of the employment shall ... be calculated by taking into account the earnings of the employment relevant to that period (whether or not received in that period), less -

(a) subject to paragraphs (5) to (7), any expenses relevant to that period (whether or not defrayed in that period) and which were wholly and exclusively incurred for the purposes of that employment;

(b) [not in dispute] and

(c) [not in dispute]."

3. As the claimant furnished a profit and loss account the Adjudication Officer used it as a basis of his calculations. The point at issue is a narrow one and is concerned with the meaning of the term "any expenses relevant ... which were wholly and exclusively incurred for the purpose of that employment". The dispute centres on whether or not that phrase, the closing stock (or in this case the work in progress) can be deducted from the opening stock to arrive at claimant's earnings as an expense in accordance with regulation 22(3A)(a)
4. The Tribunal held that the closing stock could not be taken into account by virtue of a decision of the Northern Ireland Chief Commissioner R3/92(FC) in which the Commissioner in dealing with the meaning of Regulation 22 said that ".."net profit ... shall be his earnings (ie gross receipts) less the specified deductions. Those deductions do not in my view include any allowance in respect of a reduction in stock values which, for family credit purposes, cannot be taken into account. ..." Since that decision was given two contradictory decisions have been given by Great Britain Commissioners. The first being CFC/019/1993 (starred as 36/94) given in March 1994 and a further decision CFC/041/1993 (starred as 92/94). In CFC/019/1993 the Commissioner refers to the Northern Ireland Commissioner's decision, and commented -

"He would seem to have sought to justify his decision on the ground that there was no provision expressly stating that differences in stock must be taken into account. However, that misses the point that such differences are, as explained above, incorporated in "expenses" within regulation 22(3A)(a). The view of the Chief Commissioner of Northern Ireland has been followed by certain Commissioners in England, but they too, in my judgment, failed to appreciate the full significance of "expenses."

In CFC/041/1993 the Commissioner refers again to the meaning of regulation 22 and accepts the reasoning in CFC/019/1993 when the Commissioner said:-

".. in calculating the net profit of a business for the purpose of determining a claimant's earnings, and hence his or her entitlement to Family Credit, it is necessary to take into account both the opening and closing stock of the relevant year."

The Commissioner went on to say that having considered the Chief Commissioner of Northern Ireland's decision and Commissioner Rice's decision he preferred to follow Commissioner Rice's decision. Mr Stockman argued that the Chief Commissioner of Northern Ireland in his decision merely set out that the deductions mentioned in regulation 22 did not in his view include any allowance in respect of the reduction in stock values which cannot be taken into account but did not give any specific reason for arriving at that decision and did not give any definitive explanation of the term "any expenses relevant to that period which were wholly and exclusively incurred for the purpose of that employment".

5. Miss Finlay argued that the Tribunal was obliged to follow the Northern Ireland decision and that I should be slow to reject it.
6. I have considered all that has been said and I have read all the decisions relevant to this matter. I can see the dilemma in which the Tribunal found itself. It considered as it said that its hands were tied and that it was obliged to follow the Northern Ireland decision but I think it misinterpreted what it said, because if one reads it carefully the Commissioner did not at any time direct his mind to the important question raised relating to Regulation 22(3A)(a). Although the Chief Commissioner said that the terms "earnings" and "net profit" must be given the meaning assigned to them by the General Regulations he did not make any decision on whether Regulation 22(3A)(a) could assist the claimant in that regard. I am satisfied that there is not necessarily an inconsistency with the Great Britain Commissioners decisions. In CFC/019/1993 the Commissioner refers to regulation 22 and then goes on to say and I quote:-

"... In this case the original stock, which was, of course essential to generate the earnings (regardless of when it was paid for) was consumed during the relevant year as also were all the purchases of that year less only what remained by way of closing stock."

and went on to say -

""Expenses" is a wide term, well known in the accountancy and commercial world, and fully understood by the Inland Revenue. Unless given a special meaning in the regulations, it must, in my judgment, bear its normal meaning. Regulation 22(3A) sets out how net profit is to be calculated. Such profit relates to a particular year, and is arrived at by taking the earnings for the year, and deducting therefrom the expenses of that year. The position is looked at at the end of the year. The sales figure for that year constitute the earnings of the business, and there must be taken therefrom to reach the 'net profit' all the expenses that have been incurred in producing the sales of that year. In the present case, the sales took the form of sales of groceries and newspapers etc. In order to produce such sales stock consisting of those items had to be consumed, and such stock constituted an inevitable expense. And such stock comprised both the opening stock and purchases made during the year less the closing stock. The sales figure had to be reduced by the expense of the stock so consumed. The opening and closing stock therefore had to be taken into account. If the term "expenses" was to be construed in the way contended for by Ms M ,the draughtsman would have so provided in the regulations."

7. I am satisfied that in his decision the Chief Commissioner did not give a definitive opinion or made a finding on the relevant term, namely the expense relevant to the period wholly and exclusively incurred for the purpose of the employment, but merely directed his mind to the fact that the closing stock was not a specified deduction. I accept the reasoning in CFC/019/1993 which was also followed in CFC/041/1993 and hold that the closing stock must be taken into account in deciding the net profit thus calculating a claimant's income. It follows from this therefore that the two decisions of the English Commissioners which I have referred to above are can be distinguished from the Northern Ireland decision and that Commissioner Rice's decision should be followed in this instance.
8. For the reasons set out above I allow the appeal because I am satisfied that the Tribunal was misled in its findings and erred in considering that R3/92(FC) was to be followed. I am satisfied therefore that the decision of the Tribunal should be set aside. As there is only the one point in this appeal it would be necessary for the Adjudication Officer to reassess claimant's entitlement in the light of this decision and if agreement cannot be made on the figures then I direct that the matter be relisted before me.

(Signed): C C G McNally

COMMISSIONER

19 March 1998