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[1993] UKSSCSC CIS_317_1992 (12 January 1993)

R(IS) 16/93

Mr. A. T. Hoolahan QC CIS/317/1992
12.1.93

Income - employer's deduction from earnings in respect of private usage of a car - whether to be included in earnings and whether allowable as expense

On 13 June 1991 the claimant applied for income support. The claimant's wife was employed by a County Council as a home care organiser with specific responsibility for the meals on wheels service. She worked for 19½ hours per week. A deduction of £86 per month was made from her salary by her employer being her contribution towards the cost of hiring a car which was used for work but which was also available for private use. The adjudication officer decided that the sum of £86 per month could not be deducted in the calculation of the monthly gross earnings of the claimant's wife, nor could this amount be disregarded. On appeal the tribunal upheld the adjudication officer's decision. The claimant appealed to the social security Commissioner who allowed the appeal, remitting the case for rehearing by a fresh tribunal.

Held that:

as the deductions in respect of part payment for the hire charges on the car were payments made by the claimant's wife and not payments by her employer, they were not covered by regulation 35(1)(f) nor by regulation 35(2)(c). Although regulation 35(2)(c) does not explicitly refer to payments by an employer or third party, it must nevertheless be so confined: decision R(FC) 1/90 followed (para. 8);

there is no express provision in the Income Support (General) Regulations 1987 for the deduction of earnings paid out by an employee but the use of the word "earnings" in regulation 36 brings into play the principle laid down by the Court of Appeal in Parsons v. Hogg [1985] 2 All ER 897, CA (included in the appendix to R(FIS) 4/85). Consequently in ascertaining what the claimant's wife's earnings were under the provisions of regulation 36 there must be allowed the deduction of expenses wholly, exclusively and necessarily incurred by the claimant's wife in the performance of the duties of her employment: decision R(FC) 1/90 followed (para. 10);

in determining whether the whole or part of the £86 was paid by the claimant's wife in respect of expenses "wholly, exclusively and necessarily incurred in the performance of the duties of the employment" the new tribunal may have regard to any agreement made by the claimant (or his wife) with the Inspector of Taxes. The income tax cases relating to that wording "wholly, exclusively and necessarily incurred" etc. form a useful guide to the interpretation and practice of the regulations on this point; decision R(FC) 1/90 followed (para. 13);

the question of whether and to what extent the hire costs of the car should be attributed between work and private use was one of fact for determination by the new tribunal but the tribunal would need to take account not only of the claimant's wife's actual private use of the car but also of the fact that the claimant's wife had the "facility" of the car for private use; that is to say, the car was available for her private use even if she did not take advantage of that facility (paras. 11 and 13).

DECISION OF THE SOCIAL SECURITY COMMISSIONER

I allow this appeal by the claimant. The decision of the social security appeal tribunal dated 20 October 1991 was erroneous in law and I set it aside. The case must be reheard and redetermined by a differently constituted tribunal.

On 13 June 1991 the claimant signed a claim form for income support which was received in the local office an 17 June 1991. In his claim form he declared that his wife worked part-time for an employer for 19½ hours per week. By a decision issued on 13 June 1991 the adjudication officer decided:

"The sum of £86, being a part contribution by the wife of the claimant towards the cost of her hire car, cannot be deducted from the monthly gross earnings of the claimant's wife, nor can it be disregarded from her net weekly earnings in order to determine the claimant's entitlement to income support."

The claimant appealed. On 25 October 1991 the social security appeal tribunal in a majority decision decided that the claimant's entitlement to income support "must be calculated to take into account £86 per month deducted from his wife's monthly salary by her employer in respect of a leased car". The claimant appeals with leave of the tribunal chairman.

On 12 October 1992 I held an oral hearing. The claimant attended and presented his own case. The adjudication officer was represented by Mr. Heath of the Solicitor's Office of the Department of Social Security. The claimant has requested a continuation of the oral hearing but I am satisfied that I can properly determine this appeal without any further hearing.

The claimant's wife was, and so far as I know still is, employed by a County Council as a home care organiser with specific responsibility for the meals on wheels service. In the course of her work she is required to visit clients in their home for which she needs a car, see the letter dated 8 March 1991, from the domiciliary home care manager to the manager of the local office. The Council operated a car hire scheme and the claimant's wife agreed to hire a Volvo and paid to the Council the monthly sum of £86 by way of deduction from her salary "being the employee contribution to the gross rental inclusive of VAT and insurance charges" and the hire charge was expressed to be "payable by the employee as a condition of the car being made available for private use", see clause 2(a) of the agreement between the County Council and the claimant's wife dated 6 November 1990.

In their findings of fact in form AT3, box 2 the appeal tribunal stated:

"… [the claimant's wife] works for … County Council as home help organiser. For this she is required to use a car. [The claimant's wife] accepted her employer's offer of a leased car, for which she paid a certain sum to her employer, deducted from her salary, to reflect the benefit to her of (actual or potential) private use of this car. Various makes of car were offered, for which varying amounts of deduction would be made. [Claimant's wife] chose a Volvo. The deduction from her salary was therefore £86 per month. We accepted that [the claimant's] actual private mileage was low, principally the journey between home and office: say 50 miles per week. She did her shopping en route."

In their reasons for their decision the majority stated in form AT3, box 4:

"The only issue before us was to what extent the £86 per month, representing the private use of [the claimant's wife's] leased car, was to be added back to her salary in calculating [the claimant's wife's] earnings. Regulation 36, Income Support (General) Regulations directs that net earnings are calculated by subtracting specified deductions from gross earnings, subject to matters specified in paragraphs 1-13, Schedule 8 to the regulations. Neither the specified deductions nor paragraphs 1-13 availed the claimant. By regulation 35 'earnings' of employed earners means (subject to the provisions of regulation 35(2) and (3), not here material) 'any remuneration or profit derived from that employment'. [The claimant's wife] profited from her employment to the extent of £86 per month, reflecting the benefit to her of the use of the Volvo."

At the oral hearing before me Mr. Heath submitted that the majority decision of the appeal tribunal was erroneous in law. He submitted that it was wrong to say that regulation 35(2) and (3) were not material. He referred to regulation 35(1)(f) and to regulation 35(2) and submitted that they gave rise to an apportionment of the £86 and he referred to R(FIS) 4/85 and to CFC/23/1989 (to be reported as R(FC) 1/90).

Regulation 35(1)(f) of the Income Support (General) Regulations provides:

"35. (1) Subject to paragraphs (2) and (3), 'earnings' means in the case of employment as an employed earner, any remuneration or profit derived from that employment and includes-

…

(f) any payment made by the claimant's employer in respect of expenses not wholly, exclusively and necessarily incurred in the performance of the duties of the employment, including any payment made by the claimant's employer in respect of-

(i) travelling expenses incurred by the claimant between his home and place of employment;

(ii) [not relevant];

..."

Regulation 35(2) provides:

"(2) 'earnings' shall not include-

(a) any payment in kind;

(b) [not relevant];

(c) any payment in respect of expenses wholly, exclusively and necessarily incurred in the performance of the duties of the employment;

(d) [not relevant]."

Any payment in kind is disregarded under regulation 40(2) and paragraph 21(1) of Schedule 9. Payments of necessary expenses are disregarded under paragraph 3 of Schedule 9.

In CFC/23/1989 (to be reported as R(FC) 1/90), the Commissioner dealt with regulation 19(1)(d) and regulation 19(2) of the Family Credit (General) Regulations which are in the same terms as regulation 35(1)(b) and regulation 35(2) of the Income Support Regulations. The claimant in that case was a student nurse and the adjudication officer had allowed a deduction from her earnings of money spent on work shoes, a job watch, a stethoscope, books and scissors. The social security appeal tribunal held that those expenses should be disregarded entirely. In paragraphs 7 and 8 of that decision, the Commissioner said:

"7. I deal first with the question of the payment by the claimant of expenses for e.g. watch, stethoscope etc. It must be borne in mind that these were payments by her and not payments by the employer to her in reimbursement of expenses or to enable her to incur expenses. If they had been payments by the employer to her they would have come within the provisions of regulation 19(1)(d) and 19(2)(b), according to whether or not they were 'wholly, exclusively and necessarily incurred in the performance of the duties of the employment'.

But as they were not payments by the employer, they are not in my view covered at all by regulation 19 … Regulation 19(1)(d) refers expressly to 'any payment made by the claimant's employer' (my emphasis). Regulation 19(2) states that earnings shall not include 'any payment in respect of expenses wholly, exclusively and necessarily incurred in the performance of the duties of the employment'. Unlike regulation 19(1), regulation 19(2) does not refer in express terms to a payment by an employer or possibly third party but in my view it must be thus confined. The whole of regulation 19 relates (as indeed the tribunal said) to payments in money or in kind to the employee. Regulation 19(2)(b) does not provide for deduction of expenses paid out by the employee himself or herself, nor indeed is there any express provision in the 1987 Regulations for such deduction."

In my judgment, those observations are equally applicable to regulation 35(1)(f) and to regulation 35(2)(c) of the Income Support Regulations, and it follows that the sum of £86 is not to be deducted from the earnings under those regulations.

However, the Commissioner went on to consider regulation 20 of the Family Credit (General) Regulations which is, far as is relevant, in the same terms as regulation 36 of the Income Support (General) Regulations; and in paragraph 9 of his decision he concluded that "a deduction for certain employment expenses incurred by the employee is in fact impliedly authorised by the fact that regulation 20 refers to the 'earnings' of a claimant, be they 'gross' or 'net'. There is no express provision". He went on in paragraph 9 to state that in his judgment "the use of the word 'earnings' brings into play the rules which were enunciated by the Court of Appeal in a decision (Parsons v. Hogg [1985] 2 All ER 897 CA; appendix to R(FIS) 4/85) on the Family Income Supplement Scheme which preceded the Family Credit Scheme". The Commissioner continued:

"10. In Parsons v. Hogg the Court of Appeal considered regulation 2(3) of the Family Income Supplements (General) Regulations 1980 [SI 1980 No. 1437] which provided that, "in so far as a person's earnings from any gainful occupation comprise salary, wages or fees related to a fixed period, the gross amount thereof shall be taken into account." (my emphasis)."

In Parsons v. Hogg Slade LJ said ([1985] 2 All ER at p. 901 f-j; R(FIS) 4/85, appendix, p. 136-B-F):

"It remains to consider the meaning of the word 'earnings' in reg. 2(3). Does it mean simply the remuneration actually received by the person in question? Or does it mean such receipts after payment of the expenses wholly and necessarily incurred in the course of winning them?

This point I find rather more difficult, since I do not think the drafting of reg. 2(3) is very happy or clear. Though the word 'earnings' may quite often refer simply to receipts, I think it is well capable of bearing either of the two meanings just mentioned, according to the particular context. If, for example, a barrister is asked what are his earnings at the Bar, he may well reply in either of these two senses, according to the identity of the questioner and the purpose of the question. In the face of this equivocal expression in regulation 2(3) I think the court is entitled to pay regard to the statutory purpose of the formula for ascertaining the amount of a person's 'earnings from a gainful occupation', which is contained in the regulation. This is to assist in ascertaining those resources of his family which are to be taken into account for the purposes of the legislation relating to family income supplements. If [an employed] earner, such as the claimant, has necessarily to incur expenditure of £103.59 per month in order to receive a pay packet of £425.59 per month, it seems to me inherently unlikely that the legislature would have intended that his 'earnings' should be treated as being the full sum of £425.59 for these purposes; the £103.59 simply does not form part of the resources which are available to him or his family. The improbability becomes even more apparent when it is seen that, for the purposes of ascertaining the resources of the family of a [self-employed] earner his receipts would be taken into account (undoubtedly) only after deduction of the expenses necessarily incurred in winning those receipts. There appears to be no reason in logic or justice why [employed] earners should have been subjected by the regulation to such harsh discrimination as is suggested."

Having cited that passage of Slade LJ in Parsons v. Hogg the Commissioner continued in paragraph 11 of CFC/23/1989:

"11. In my judgment, that principle is equally applicable to the requirements of regulation 20 of the Family Credit (General) Regulations 1987 that what must be taken into account are the claimant's 'earnings'. Consequently I hold that in ascertaining what are a claimant's 'earnings' under regulation 20(l) of the Family Credit (General) Regulations 1987 there must be allowed to a claimant the deduction of expenses wholly, exclusively and necessarily incurred in the performance of the duties of the employment since such a deduction would be allowable under the income tax legislation (see now section 198(1) of the Income and Corporation Taxes Act 1988) …"

In my judgment, those observations of Slade LJ in the Court of Appeal in Parsons v. Hogg and of the Commissioner in CFC/23/1989 (to be reported as R(FC) 1/90) are equally applicable to regulation 36 of the Income Support (General) Regulations which, as I have said, is in the same terms, so far as relevant, to regulation 20 of the Family Credit (General) Regulations. Accordingly, the claimant is entitled to deduct from his wife's earnings expenses wholly, exclusively and necessarily incurred in the performance of the duties of the employment. That raises the question whether or not the sum of £86 per month represented "expenses wholly and exclusively and necessarily incurred in the performance of the duties of the employment". Mr. Heath submitted that the figure of £86 was not conclusive, and that the decision of the appeal tribunal (by a majority) was erroneous in law. I agree.

It is to be noted that in her reasons for dissenting from the majority, the chairman of the tribunal said in form AT3 box 4 that:

"the payment [of £86] should be added back only to the extent to which it reflected the actual private use of the car i.e. the cost of 50 miles per week, say £x. [The claimant's wife] did not receive the £86. She profited only to the extent of £x. If £x was less than £86, the balance was properly deductible in computing her gross earnings. The general principle which operates in income tax law, 'receivability without receipt is nothing', is equally applicable here."

In other words, the chairman of the tribunal would have apportioned the £86 between the expenses wholly etc. incurred in the performance of the duties and the advantage accruing to the claimant from private use of the car, namely (according to the chairman) the cost of 50 miles per week. I agree with the chairman save that the advantage accruing to the claimant's wife in having the private use of the car might not be limited to the actual cost per week. The claimant's wife has the "facility" of the car, that is to say, the car is available for her private use even if she does not take advantage of the facility.

For those reasons, the decision of the appeal tribunal (by a majority) was erroneous in law and I set it aside.

The new tribunal to whom this case is remitted will have to determine whether the whole or part of the £86 was paid by the claimant in respect of expenses "wholly, exclusively and necessarily incurred in the performance of the duties of the employment" or whether that sum or part of it represented payment by her for the private use of the car. In determining that question, the new tribunal may have regard to any agreement made by the claimant (or his wife) with the Inspector of Taxes: CFC/25/1989 (to be reported as R(FC) 1/91), in paragraph 30 of which the Commissioner pointed to the similarity of language in the Income Support Regulations and in the Tax Acts and said:

"In determining whether expenses are wholly and exclusively incurred for the purposes of an employment of a self-employed person or partner or, in the case of an employed person wholly, exclusively and necessarily incurred in the performance of the duties of that employment, the income tax cases on that wording form a useful guide to the interpretation and practice of the regulations."

In paragraph 35 the Commissioner said:

"35 … The question whether such expenses are apportionable at all is a question of law. If the adjudication officer had accepted that the disputed motor expenses were apportionable, I would have affirmed that actual apportionment on the basis that that was a question of fact on which the tribunal had adequate evidence on which to act and that they had not misdirected themselves. A professional chartered accountant had agreed the apportionment with the Inspector of Taxes. The tribunal could act on this as evidence of the proportion of business and professional user cf. decision R(FIS) 4/85 at paragraph 9. Since, however, the tribunal's decision must be set aside as erroneous in law …, I think that the adjudication officer should have an opportunity of considering whether there is any evidence to cast doubt on the 85% proportion of exclusive business motor user … If [there] is none, those proportions should be accepted by the adjudication officer."

In CFC/25/1989 the Commissioner agreed (para. 30) with the submission of Mr. Rowland (Counsel for the claimant in that case), set out in paragraph 28, that "the whole of the expenditure might be deductible even though there was some private advantage". On the other hand, the benefit to the claimant's wife was not necessarily restricted, as the chairman of the appeal tribunal stated in her dissenting reasons, to the cost of 50 miles per week, since the car was available for use by the claimant's wife, in other words, there was a potential private use. The car was there if and when she wanted it for private use. It is a question of fact for the new tribunal to decide on the whole of the evidence.

For those reasons, I allow this appeal.

Date: 12 January 1993 (signed) Mr. A. T. Hoolahan QC Commissioner