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[1991] UKSSCSC CIS_329_1990 (17 January 1991)

R(IS) 13/91

Mr. V. G. H. Hallett CIS/329/1990
17.1.91

Income – earnings of self-employed earner – whether motoring expenses and telephone expenses for both business and personal use may be apportioned

The claimant, a single man aged 60 at the relevant time, worked in a self-employed capacity for less than 24 hours a week. The adjudication officer allowed a proportion of petrol and telephone costs as business expenses, but refused to allow apportionment of his car tax, insurance, maintenance, and personal petrol costs. On appeal the social security appeal tribunal decided that all those costs, with the exception of personal petrol, could be apportioned between personal and business expenses, under regulation 38(3) of the Income Support (General) Regulations 1987. The adjudication officer appealed to the Commissioner.

Held that:

motor licence, car or van insurance, maintenance charges and telephone rental charges can be apportioned on a time, or mileage basis; Caillebotte v. Quinn [1075] 1 WLR 731 at page 734 followed (para. 14);

the percentage apportioned between personal and business use is a matter of fact for the tribunal (para. 14).

The adjudication officer's appeal was dismissed.

Note: The case law is considered in detail in R(FC) 1/91, quod vide.

DECISION OF THE SOCIAL SECURITY COMMISSIONER

Decision

My decision is that the decision of the social security appeal tribunal dated 13 February 1990 is not erroneous in law.

Representation

See decision CFC/25/1989 (to be reported as R(FC) 1/91) (Bulman), a copy of which accompanies this decision.

Nature of this appeal

This is the third of the three appeals referred to in Bulman. It is the only appeal relating to income support.

Income support is a means tested benefit which replaced supplementary benefit in 1988. It is available to a claimant and the partner of a claimant who are in work for less than 24 hours a week. The income from work is taken into account. Unlike family credit, there is no specific provision for accounts. Earnings are calculated on a receipts basis: see regulations 30, 37 and 38 of the Income Support (General) Regulations. The allowable expenses must be "wholly and exclusively defrayed [my emphasis]" in the period for the calculation of the earnings of self-employed earners (regulation 30) for the purposes of the employment: see regulation 38(3). There are similar provisions for persons in partnership.

The sole question in this appeal is the question of the extent to which motor and telephone expenses are apportionable.

The period in issue

This is the period from 24 March 1989. Income support is an open-ended benefit and is not for a fixed period.

The relevant law

The law in point is contained in the Income Support (General) Regulations 1987 as in force on 24 March 1989. The relevant provisions are set out in the appendix.

The claim for income support

Income support was claimed on 24 April 1989 backdated, I was told, to 24 March 1989.

The following facts are not in dispute. The claimant was a single man then aged 60, living in local authority rented accommodation. He is self-employed and works less than 24 hours weekly. The adjudication officer allowed the claimant 75% of his telephone and 80% of his petrol costs as the proportion wholly attributable to his business.

The adjudication officer's decision

The adjudication officer apparently made three decisions; one on 16 May 1989, that the claimant was not entitled to income support because his resources exceeded the applicable amount; a second decision issued on 14 September 1989 that the claimant was entitled to income support of £3.03 a week from 24 March 1989 increasing to £5.08 from 11 April 1989; and a third issued on 12 November 1989 on the basis of revised accounts produced by the claimant that the claimant was entitled to income support of "£6.18 a week from 24 March 1989 increasing to £8.23 from 11 April 1989". It is this last decision which was in issue before the appeal tribunal and is referred to in the written submission to them as representing the correct decision.

The adjudication officer stated, on form AT2 (the written submission to the appeal tribunal) that the claimant had agreed in his previous claim that business usage of his telephone amounted to 75%. He had allowed £810 which was 75% of the £1,080 shown in the claimant's accounts. As regards motor expenses he had allowed 80% of petrol costs and disallowed car tax, insurance, maintenance and personal petrol costs.

The appeal tribunal's decision

The appeal tribunal heard the appeal on 13 February 1990. The claimant did not attend. Their decision was:

"Appeal allowed. Adjudication officer to recalculate the amount of income support."

Their recorded findings of fact were:

"The amounts to year ended 3 December 1988 are accepted but 80% of the costs of telephone, motor expenses, tenancy and insurance should be allowed.

Thus telephone - £ 810.00
motor expenses - £2,248.08

licence and insurance - £ 92.90"

Their recorded reasons for their decision were:

"We do not accept the argument by the adjudication officer that repairs costs, licence and insurance payments cannot be apportioned between business and private use. In our view 80% of these expenses is wholly and exclusively defrayed for the purposes of the employment (Income Support (General) Regulations 1987, Section 38(3)(a)).

This follows the accepted practice of the Inland Revenue in dealing with business accounts."

The adjudication officer appealed, with the chairman's leave, on the following grounds:

"The tribunal misdirected themselves as to the application of regulation 38 of the Income Support (General) Regulations 1987. Regulation 38(4) provides that the net profit of the employment shall be calculated by taking into account the earnings of the employment over the period determined under regulation 30 less, …, any expenses wholly and exclusively defrayed in that period for the purposes of that employment.

The tribunal found that 80% of the costs of telephone, motor expenses, licence and insurance were wholly and exclusively so defrayed. However I ground my appeal on the premise that in order for the claimant to benefit from the provisions of regulation 38(4) it is necessary for those costs to have been 100% incurred for the purposes of the business. Thus it is the fact that under the tribunal's interpretation 20% of those costs were expended for other than business purposes which is fatal."

Was the appeal tribunal's decision erroneous in law?

No, it was not. The tribunal wrote that 80% of telephone expenses should be allowed but this was clearly a slip of the pen since the amount to be allowed was given as £810, which was the 75% of the total telephone expenses of £1,080 which the adjudication officer had accepted and allowed, as appears from his written submission to the appeal tribunal. Motor licence, car or van insurance, maintenance charges and telephone rental charges, all of which were contended before me by Mr. Butt not to be apportionable can clearly be apportioned on a time, or mileage basis. This was made clear by Templeman J, as he then was, in Caillebotte v. Quinn [1075] 1 WLR 731 at page 734. The tribunal were quite correct in holding that apportionment was appropriate. The percentage apportioned was a question of tact for them and the actual proportions of 80% for motor and 75% for telephone costs were questions of fact, on which they had evidence on which they could act, and should not be disturbed: see my decision in Bulman (to be reported as R(FC) 1/91) at paragraph 35. The expenses provisions relating to income support are contained in different regulations from those relating to family credit. The family credit provisions are, so far as relevant, set out in the third appendix to Bulman. The relevant income support provisions are set out in the appendix to this decision. There is no significant difference in the wording of the relevant regulations in the two cases; and the reasoning as to why apportionment is permissible in respect of the expenses in issue in Bulman, where the case law is considered in detail, apply to income support as well as to family credit.

For these reasons, my decision is as set out in paragraph 1.

Date: 17 January 1991 (signed) Mr. V. G. H. Hallett
Commissioner

APPENDIX

The following are the relevant provisions of the Income Support (General) Regulations 1987 as in force at the date of claim:

Calculation of earnings of self-employed earners

- (1) Except where paragraph (2) applies, where a claimant's income consists of earnings from employment as a self-employed earner the weekly amount of his earnings shall be determined by reference to his average weekly earnings from that employment -

(a) over a period of 52 weeks; or

(b) where the claimant has recently become engaged in that employment or there has been a change which is likely to affect the normal pattern of business, over such other period of weeks as may in any particular case, enable the weekly amount of his earnings to be determined more accurately.

(2) Where the claimant's earnings consist of royalties or sums paid periodically for or in respect of any copyright those earnings shall be taken into account over a period equal to such number of weeks as is equal to the number obtained (and any fraction shall be treated as a corresponding fraction of a week) by dividing the earnings by the amount of income support which would be payable had the payment not been made plus an amount equal to the total of the sums which would fall to be disregarded from the payment under Schedule 8 (earnings to be disregarded) as is appropriate in the claimant's case.

(3) For the purposes of this regulation the claimant's earnings shall be calculated in accordance with Chapter IV of this Part.

Earnings of self-employed earners

- (1) Subject to paragraph (2), "earnings", in the case of employment as a self-employed earner, means the gross receipt of the employment and shall include any allowance paid under section 2 of the Employment and Training Act 1973 to the claimant for the purpose of assisting him in carrying on his business.

(2) "Earnings" shall not include, where a claimant is employed in providing board and lodging accommodation for which a charge is payable, any payment by way of such a charge [. . ].

Calculation of net profit of self-employed earners

- (1) For the purposes of regulation 30 (calculation of earnings self-employed earners), the earnings of a claimant to be taken into account shall be -

(a) in the case of a self-employed earner who is engaged in employment on his own account, the net profit derived from that employment;

(b) in the case of a self-employed earner whose employment is carried on in partnership or is that of a share fisherman within the meaning of the Social Security (Mariners' Benefits) Regulations 1975, his share of the net profit derived from that employment less -

(i) an amount in respect of income tax and of social security contributions payable under the Social Security Act calculated in accordance with regulation 39 (deduction of tax and contributions for self-employed earners); and

(ii) one-half of any qualifying premium payable.

(2) There shall be disregarded from a claimant's net profit any sum, where applicable, specified in paragraphs 1 to 13 of Schedule 8.

(3) For the purposes of paragraph (1)(a) the net profit of the employment shall, except where paragraph (9) applies, be calculated by taking into account the earnings of the employment over the period determined under regulation 30 (calculation of earnings of self-employed earners) less -

(a) subject to paragraphs (5) to (7), any expenses wholly and exclusively defrayed in that period for the purposes of that employment;

(b) an amount in respect of -

(i) income tax; and

(ii) social security contributions payable under the Social Security Act,

calculated in accordance with regulation 39 (deduction of tax and contributions for self-employed earners); and

(c) one-half of any qualifying premium payable.

(4) For the purposes of paragraph (1)(b), the net profit of the employment shall be calculated by taking into account the earnings of the employment over the period determined under regulation 30 less, subject to paragraphs (5) to (7), any expenses wholly and exclusively defrayed in the period for the purposes of that employment.

(5) Subject to paragraph (6), no deduction shall be made under paragraph (3)(a) or (4) in respect of-

(a) any capital expenditure;

(b) the depreciation of any capital asset;

(c) any sum employed or intended to be employed in the setting up or expansion of the employment;

(d) any loss incurred before the beginning of the period determined under regulation 30 (calculation of earnings of self-employed earners);

(e) the repayment of capital on any loan taken out for the purposes of the employment;

(f) any expenses incurred in providing business entertainment.

(6) A deduction shall be made under paragraph (3)(a) or (4) in respect of the repayment of capital on any loan used for -

(a) the replacement in the course of business of equipment or machinery; and

(b) the repair of an existing business asset except to the extent that any sum is payable under an insurance policy for its repair.

(7) An adjudication officer shall refuse to make a deduction in respect of any expenses under paragraph (3)(a) or (4) where he is not satisfied that the expense has been defrayed or, having regard to the nature of the expense and its amount, that it has been reasonably incurred.

(8) For the avoidance of doubt -

(a) a deduction shall not be made under paragraph (3)(a) or (4), in respect of any sum unless it has been expended for the purpose of the business;

(b) a deduction shall be made thereunder in respect of -

(i) the excess of any VAT paid over VAT received in the period determined under regulation 30 (calculation of earnings of self-employed earners);

(ii) any income expended in the repair of an existing asset except to the extent that any sum is payable under an insurance policy for its repair;

(iii) any payment of interest on a loan taken out for the purposes of the employment.

(9) Where a claimant is engaged in employment as a child minder the net profit of the employment shall be one-third of the earnings of that employment, less -

(a) an amount in respect of -

(i) income tax; and

(ii) social security contributions payable under the Social Security Act,

calculated in accordance with regulation 39 (deduction of tax and contributions for self-employed); and

(b) one-half of any qualifying premium payable.

(10) Notwithstanding regulation 30 (calculation of earnings of self-employed earners) and the foregoing paragraphs, an adjudication officer may assess any item of a claimant's income or expenditure over a period other than that determined under regulation 30 as may, in the particular case, enable the weekly amount of that item of income or expenditure to be determined more accurately.

(11) For the avoidance of doubt where a claimant is engaged in employment as a self-employed earner and he is also engaged in one or more other employment's as a self-employed or employed earner any loss incurred in any one of his employment's shall not be offset against his earnings in any other of his employments.

(12) In this regulation "qualifying premium" means any premium or other consideration payable under an annuity contract for the time being approved by the Board of Inland Revenue as having for its main object the provision for the claimant of a life annuity in old age or the provision of an annuity for his partner or for any one or more of his dependants and in respect of which relief from income tax may be given.