UK Social Security and Child Support Commissioners' Decisions

[2003] UKSSCSC CIS_521_2002 (25 March 2003)

 


DECISION OF THE SOCIAL SECURITY COMMISSIONER

1. The claimant's appeal to the Commissioner is allowed. The decision of the Bournemouth appeal tribunal dated 20 November 2001 is erroneous in point of law, for the reason given below, and I set it aside. It is expedient for me to give the decision which the appeal tribunal should have given on the facts found (Social Security Act 1998, section 14(8)(a)(i)). That decision is that the claimant is entitled to income support at the weekly rate of £52.50 from and including 1 November 2000.
2. The decision under appeal to the appeal tribunal disallowed the claim for income support from 1 November 2000. That was because the claimant's share of partnership earnings from the provision of board and lodging accommodation in the hotel (or at least ex-hotel premises) in which she lived was said to exceed her applicable amount. A first appeal tribunal allowed the claimant's appeal, but on an appeal by the Secretary of State a district chairman of the Appeals Service set the decision aside under section 13(2) of the Social Security Act 1998. The rehearing took place on 20 November 2001. The second appeal tribunal dismissed the appeal. The full statement included a detailed analysis of the relevant legislation.
3. The claimant now appeals to the Commissioner with the leave of the chairman of the second appeal tribunal. The appeal was not supported by the representative of the Secretary of State in the written submission dated 17 April 2002. The claimant's representative, from Bournemouth CAB, made no comments on that submission. Unfortunately, there was a long delay in the Commissioners' office before the file was referred to me after the time for the claimant's representative to reply expired. I caused enquiries to be made of the claimant's representative (in case any document had gone astray), but he confirmed that he had no comments.
4. Following written submissions on one point of law raised in a direction of 30 September 2002, I directed an oral hearing on a further point on the interpretation of the crucial provision in this case. The claimant was represented by Mr Williams of Bournemouth CAB. The Secretary of State was represented by Mr Lewis of the Office of the Solicitor to the Department for Work and Pensions. Mr Lewis submitted that the newly-raised point of interpretation should be decided in the claimant's favour, with the result that I could substitute a decision that she was entitled to income support from 1 November 2000. I agree with that submission.
5. The claimant was one of four partners in the business of running what had formerly been a fully-fledged hotel in providing bed and breakfast accommodation for the homeless. There were 16 letting bedrooms. Most, if not all, of boarders were in receipt of housing benefit and a substantial payment was made direct to the partnership by the local authority. In April 2000, the claimant, who had been living in a cottage in the hotel grounds, moved into a room in the hotel. She had a private bathroom and used the hotel kitchen. She had been working for at least 16 hours a week in the business, but stopped in July 2000 because of incapacity for work. She claimed income support when her husband moved out. The business made a small profit (£7,800 for the year ending 31 March 2000) after including notional contributions from the partners for their own accommodation. The payments made by or on behalf of the 16 boarders in residence on 1 November 2000 totalled £920.55 per week.
6. It may be helpful to set out the overall position under the Income Support (General) Regulations 1987, at least briefly. Normally, as the claimant was a partner in a business, her earnings, as earnings from self-employment, would be her share of the net partnership profits after deducting her personal income tax liability, social security contributions and half of pension contributions (regulation 38(1)(b)). The calculation would be based on the last annual accounts, although some deductions commonly allowed for accounting purposes (such as depreciation) are not allowed for income support purposes. However, regulation 37(2) of the Income Support (General) Regulations 1987 expressly excludes from counting as earnings from self-employment:

"(a) where a claimant is involved in providing board and lodging accommodation for which a charge is payable, any payment by way of such a charge;"

Such payments have to be taken into account as income other than earnings in accordance with regulation 40(4)(a). Those rules have to apply as much to a case where the involvement of the claimant is through a partnership as to a case where the claimant is operating on her own account. It may be that if a partnership has a number of sources of income, including the provision of board and lodging accommodation, there has to be some apportionment, with some income taken into account as part of the partnership profits and some as income other than earnings. However, in the present case, the evidence was that the whole of the receipts of the partnership consisted of payments from the boarders and what was I think a standard figure for the accommodation used by the partners.

7. Regulation 37(2)(a) only operates when what is provided is board and lodging accommodation as defined in the regulations. The definition covers the provision of bed and breakfast accommodation (and indeed ordinary hotel accommodation), but there is an exception where the accommodation is provided other than on a commercial basis. The appeal tribunal of 20 November 2001 concluded that in the present case the provision was on a commercial basis. That conclusion cannot be faulted in law. Thus regulation 37(2)(a) had to be applied.
8. That leaves the receipts from tenants to be treated as income other than earnings under regulation 40(4)(a). The basic rule in regulation 40(1) is that gross income is to be taken into account, subject to any disregard set out in Schedule 9, as applied by regulation 40(2). If the claimant is regarded as living in the whole hotel as her home, then paragraph 20 of Schedule 9 would apply to disregard:

"Where the claimant occupies a dwelling as his home and he provides in that dwelling board and lodging accommodation, an amount, in respect of each person for whom such accommodation is provided for the whole or any part of a week, equal to--

(a) where the aggregate of any payments made in respect of any one week in respect of such accommodation provided to such person does not exceed £20.00, 100% of such payments; or

(b) where the aggregate of any such payments exceeds £20.00, £20.00 and 50% of the excess over £20.00."

9. The decision-maker on 18 December 2000 made the following calculation. The gross receipts from the 16 boarders were £920.55. £20 per boarder came to £320. 50% of the excess over £320 was £300.28. Therefore, a total of £620.28 could be disregarded under paragraph 20, leaving £300.27 to be taken into account. The claimant's quarter share of that was £75.06, which exceeded her applicable amount of £52.20. That calculation was accepted by the appeal tribunal of 20 November 2001. The chairman was understandably rather reluctant to apply a rule designed for owner-occupiers letting out one or two rooms in their own homes to a situation of extensive premises with considerable overheads. But having concluded that the only scope for a disregard from the gross receipts was under paragraph 20 of Schedule 9, he considered that the result was that the claimant was not entitled to income support. Nor was the calculation challenged in the appeal to the Commissioner before my direction of 29 January 2003.
10. In that direction I suggested that there might be an alternative way of applying paragraph 20 of Schedule 9, resting on the proposition that the disregards in Schedule 9, authorised by regulation 40(2), logically fall to be applied once a claimant's gross income has been calculated. The claimant's gross income, since regulation 40 requires the gross receipts from self-employment to be taken into account, would be her partnership share of £920.55, that is £230.13. Then, in the application of paragraph 20, its precise arithmetical formula is to be worked through. It makes no provision for cases of partnerships or for taking into account only a proportion of the total number of persons being provided with board and lodging. So the disregard to be set against the £230.13 would be £20, plus 50% of any excess for each of the 16 boarders. Simply using the £20 would give a disregard of £320, in excess of the claimant's gross income. On that basis, the claimant would have no income to be taken into account for income support purposes.
11. At the oral hearing, Mr Lewis for the Secretary of State submitted that that alternative argument was right and that the calculation of income made by the decision-maker was wrong. That would allow me to substitute a decision in the claimant's favour. Mr Williams for the claimant naturally aligned himself with that alternative argument.
12. I accept those submissions and now conclude that that alternative argument is correct in law. It seems to me to follow the logical structure both of regulation 40, governing income other than earnings, and regulation 37, governing earnings from self-employment. Under regulation 40, the structure is to identify the claimant's gross income before identifying any disregards applicable. Under regulations 37 and 38, which would have applied if it were not for the exception in regulation 37(2)(a), the structure for those in business in partnership is to identify the partnership share of net profits before identifying any disregards applicable. In both cases, the disregards are to be applied to the circumstances of the claimant as an individual (plus anyone else whose income is treated as the claimant's). In the present case the claimant is entitled to have the express words of paragraph 20 of Schedule 9 applied to her. She was taking a part, through the partnership, in providing board and lodging accommodation for 16 people. The appeal tribunal found as a fact that the provision was in the dwelling that the claimant occupied as her home, and that has never been disputed by the Secretary of State. In the absence of any words to qualify the express effect of paragraph 20 in cases of partnerships, the claimant is entitled to the disregard of the full amount provided for each resident.
13. I do not need to consider Mr Lewis' submission that the Income Support Regulations reflect a public policy to encourage the taking in of lodgers in claimants' homes. The difficulty is that, even if that is so, it does not indicate where in any particular case where the line is to be drawn in what he described as the tension between welfare and revenue. I base my conclusion on the express words of the regulations.
14. Nor do I need to consider the point raised in my first direction, on the disregard in paragraph 5 of Schedule 9 of:

"Any housing benefit including any amount of housing benefit to which a person is entitled by virtue of regulation 7B of the Housing Benefit (General) Regulations 1987 (entitlement of a refugee to housing benefit)."

Payments of housing benefit were made direct to the partnership by the local authority, in accordance with regulations 93 or 94 of the Housing Benefit Regulations. Such payments would come within the express words of paragraph 5. However, as the Secretary of State has pointed out, to apply the disregard to direct payments of housing benefit to landlords would draw a line between such landlords and those receiving rent from tenants who had full housing benefit paid to them. There would seem to be no reason for allowing such an advantage to landlords receiving direct payments, but I do not have to reach a conclusion on the scope of paragraph 5. For the moment, I draw attention to the potential problem in the wording of paragraph 5, as well as to the harshness of the rules on the taking into account of income from boarders in cases outside the casual letting out of rooms in an ordinary home. Apart from anything else it is many years since the figure of £20 was set.

15. As explained above, the appeal tribunal went wrong in law in applying paragraph 20 of Schedule 9 in a wrong way, in effect by applying it at the wrong point in the calculation of income to be taken into account. For that reason I set the appeal tribunal's decision aside. I substitute the decision that the claimant is entitled to income support at the weekly rate of £52.20 from and including 1 November 2000, as she had no income to be taken into account. I have only been able to consider the circumstances down to 18 December 2000, because of section 12(8)(b) of the Social Security Act 1998. There has been no suggestion of anything against her entitlement in the period from 1 November 2000 to 18 December 2000. It will be for the Secretary of State to consider and investigate any changes of circumstances after 18 December 2000 and whether there should be any supersession of my decision.

(Signed) J Mesher

Commissioner

Date: 25 March 2003