UK Social Security and Child Support Commissioners' Decisions



CH 4258 2004

Hearing and Decisions

1. I grant leave to appeal. In accordance with the provisions of regulation 11(3) of the Social Security Commissioners (Procedure) Regulations 1999 I treat this application as an appeal. The parties have each agreed to this course of action. However, the appeal does not succeed and I confirm the decisions of the Fox Court (London) tribunal of 2^nd July 2004 (reference U/42/160/2004/00503). These are to the effect that the claimant is not entitled to housing benefit or council tax benefit from 9^th August 1999 or thereabouts in respect of claims made on or about 7^th August 1999 and approximately one year later, nor is she entitled to housing benefit or council tax benefit in respect of a new or renewal claim made for the period from August 2001.
2. I held an oral hearing of this application on 22^nd March 2005. The claimant attended in person with her husband, and was represented by Mr M M Posen from A I Community Services. The housing authority ("the authority") was represented by Mr Atkinson of counsel and Mr Roberts. I am grateful to all of them for their assistance.

Background and Procedure

3. The claimant was born on 2^nd January 1959 and lived and lives with her husband, who was born on 24^th June 1953. For many years they have owned and run what I shall refer to as "the retail business". This consisted of the ground floor and basement of a 5 storey building (counting the basement), including shop premises. The top 3 floors each consisted and consists of a self-contained flat, each with its own access separate from the access to the retail business, and each let furnished. The claimant describes them as "pokey" and "not luxurious". Originally the claimant and her husband rented the premises of the retail business from the owner of the freehold of the whole building, Mr B. They themselves lived and live nearby but in a different street in a building rented from a private landlord.
4. In 1987 Mr B wanted to sell the freehold of the 5 storey building, but was only prepared to sell the whole building and not to sell separately the part occupied by the retail business. In December 1987 the claimant and her husband purchased the freehold of the whole building from Mr B for £79,000. They did this with the help of a commercial loan of about £55,000, which has been gradually repaid. It is expected that the loan will be fully paid off during the course of 2005. The arrangement has remained the same – the ground floor and basement being the premises of the retail business and the upper floors being rented out, each as a self contained furnished flat. There has been no recent valuation of any of the relevant premises but it is agreed that throughout the relevant periods the relevant capital value of the 3 flats has exceeded (and in my estimation well exceeded) the capital threshold of £16,000.
5. In August 1999 the claimant made claims for housing benefit and council tax benefit and these were awarded from then and renewal awards were made in August 2000. The claim forms that I have seen from August 1999 disclose the fact that there were tenants upstairs the shop who were paying rent. In January 2000 the authority requested further information (see page 8 of the bundle of papers before me). These queries were answered. Renewal claims were not made in August 2001 but were made in February 2002 with backdating requested to 6^th August 2001. In August 2002 the authority refused to award either benefit on the basis that it now regarded the rented flats as constituting capital in excess of the capital limit for entitlement to benefit. The claimant was informed of this in a letter of 28^th August 2002 (which also, for some strange reason, bears the date "17^th February 2004" – see page 27). This letter also stated: "We have also amended your benefit back to 1999 to reflect this decision and details of the overpayment will follow shortly".
6. I do not know whether that was the most effective way of conveying decisions to claimants – but in technical terms there were at least 4 separate decisions: to refuse the claim for housing benefit from August 2001; to refuse the claim for council tax benefit from August 2001; to revise the decisions awarding housing benefit from August 1999 and August 2000; to revise the decisions awarding council tax benefit from August 1999 and August 2000. The file does not contain copies of the actual decisions – I do not know whether this reflects lazy procedural practices by the authority in making the decisions or inefficiency or worse in preparing papers for tribunal hearings. As I said in CH/4004/2004:

". This standard of adjudication records and appeal preparation is simply not good enough. Apart from any action that might be taken by any other body, tribunals could not be blamed for drawing adverse inferences in any case where a local authority simply does not provide adequate documentation".

7. The authority had the power to revise the earlier decisions on the basis that (in its view) it had previously been mistaken as to the nature of the rented accommodation (see regulation 4(2)(b) of the Housing Benefit and Council Tax Benefit (Decisions and Appeals) Regulations 2001). Mr Posen did not challenge the legal power of the authority to revise those decisions if it was now taking the correct view of the nature of the rented accommodation, although he argued that it was not taking the correct view.
8. Of course, the recoverability from the claimant of any overpayment is a different question and the procedure for that is governed by different regulations. The file contains no further information about overpayment recoverability. The claimant and Mr Posen, who were both at the tribunal hearing, told me that Mr Roberts, who was also at the hearing, had told the tribunal that recoverability of any overpayment would not be pursued. Mr Roberts told me that as far as he could recall, no overpayment decision had yet been issued. He undertook to check this and, if a decision were issued, he would ensure that proper notice would be sent to the claimant, which would also inform her of her further rights of appeal. The question of the recoverability from the claimant of any overpayment is not before me today but I am bound to observe that, so far as I can tell on the material that I have, any error was made by the authority and did not arise through any fault of the claimant.
9. On 10^th September 2002 the claimant appealed to the tribunal against the decisions of the authority. I do not understand why the authority delayed processing the appeal in the way that it did, but it took about 18 months for the appeal to be forwarded to the tribunal Appeals Service. This practice is also unacceptable.
10. The tribunal finally considered the matter on 2^nd July 2004 and confirmed the decisions of the local authority. On 3^rd November 2004 the District Chairman of the tribunal refused the claimant leave to appeal to the Commissioner against the decision of the tribunal. She renewed her application to the Commissioner and on 27^th January 2005 I directed that there be an oral hearing of the application.

The Relevant Law

11. The issues in this case are governed by the Housing Benefit (General) Regulations 1987. The provisions relating to claims for council tax benefit are in similar terms and I need not reproduce them here.
12. Regulation 37, taken together with section 134(1) of the Social Security Contributions and Benefits Act 1992 (and formerly section 22(6) of the Social Security Act 1986), provides that no person is entitled to benefit if his or her capital exceeds £16,000.
13. Schedule 5 to the regulations lists various types of capital that are to be disregarded for the purposes of calculating whether capital exceeds £16,000. Paragraph 7(1) of the schedule lists:

7(1) The assets of any business owned in whole or in part by the claimant and for the purposes of which [s]he is engaged as a self-employed earner …

Paragraph 7(2) deals with certain situations where "[s]he is not engaged as a self-employed earner in that business".

Arguments of the Parties

14. Mr Posen's argument is that if the (self-employed) business owns an asset, then the asset is disregarded for benefit purposes. The regulation does not require that the asset be used for the purposes of the business. So long as the business engages the claimant as a self-employed earner, there is no requirement that the particular asset has to engage the claimant as a self-employed earner. He relied on the decision in R(SB) 4/85 to show that the 3 flats are business assets. In that case, Mr Commissioner Monroe said in the case of a capital asset that "it has to be considered whether the asset is part of the fund employed and risked in the business … the manner in which the item is treated or not treated in the accounts of the business (if any) of the business is not conclusive" (paragraph 11). In the present case, the claimant had the choice in 1987 of moving to other premises "at great expense" or purchasing the 5 storey property in its entirety. Business sense demanded the latter course. The whole property supported and was risked in the retail business. There was one business loan covering the whole of the 5 storey building. The 3 flats were intricately linked with the retail business. Alternatively, the 3 flats were assets of a separate property business.
15. Mr Atkinson argued that the 3 flats were unrelated to the business. They are tenanted and cannot be used for the purposes of the retail business. Since there was no link between the 3 flats and the retail business before the purchase in 1987, and there was no evidence that there had been a change in the use of the flats since the purchase, they could not now be said to be used for the purposes of the retail business. They cannot be assets for the purposes of which the claimant is engaged as a self-employed earner. There was no evidence that the 3 flats were purchased with funds from the business or were part of a fund employed and risked in the business.
16. Mr Posen replied that the test was whether the claimant was self-employed in relation to the business, not in relation to any particular asset which was owned by the business.

Conclusions

17. I am not quite sure that the submissions of either party quite dealt with the wording of the provision in question. Paragraph 7(1) of the schedule refers to the assets of any business owned by the claimant (my emphasis). It does not matter in the present case whether the 3 flats are part of the retail business or part of some other business, so long as they are part of a business owned by the claimant and for the purposes of which she is engaged as a self-employed earner. Mr Posen is correct that this relates to the purposes of the business, not to the purposes of the asset. However, it seems to me that Mr Atkinson is correct insofar as he implies that the use of the asset indicates whether it is owned by the business.
18. With all due respect to Mr Commissioner Monroe I do not find the whole formulation in paragraph 11 of his decision to be particularly helpful. If, as in the present case, the business is owned personally be the claimant and, for example, there is no limited company which owns or operates any business or asset of the claimant, then virtually all of the claimant's assets are at risk if the business fails, whether or not they are used for business purposes.
19. Paragraph 7(1) of the schedule must refer to any asset used for the purposes of any business owned by the claimant, except for any asset owned by a business in respect of which the claimant is not engaged as a self-employed earner. There can be little justification for disregarding large amounts of capital or valuable assets owned by a claimant for a means tested benefit and if capital is not used in a business then (subject to other statutory disregards) there can be no justification for disregarding it.

The answers to the questions inherent in this test will mainly be matters of fact and degree. In the present case I see no basis for saying that the 3 flats are in any way used for the retail business and the facts that they are covered by the same business loan as the retail business, and that the freehold covers the retail business as well as the 3 flats, do not affect this. That leaves the question of whether the 3 flats are assets of some other business in respect of which the claimant is engaged as a self-employed earner.

20. In R(FC) 2/92, a case concerning a similar provision, having reviewed earlier authorities in different contexts, Mr Commissioner Goodman said (in paragraph 12) that:

"In my judgment … it cannot be said that the carrying of a business is constituted by the ownership of an individual of a tenanted house, the collection of the rent, the execution of repairs, and the carrying out of other landlord's duties."

I agree with that. There would come a point where a tribunal would be entitled to find that the scale of the operation would make such activities a business, but the facts of the present case come nowhere near that point. The tribunal was correct to find in effect that the 3 flats were not assets of any business in respect of which the claimant was engaged as a self-employed earner.

21. For the above reasons this appeal by the claimant does not succeed.

H. Levenson

Commissioner

29^th March 2005