UK Social Security and Child Support Commissioners' Decisions

 


[2007] UKSSCSC CIB_4174_2003 (26 January 2007)

R(IB) 3/07

Mr R J C Angus Commissioner 26 January 2007

CIB/4174/2003

Income – Computation of Earnings Regulations – treating as capable of work –calculation of earnings from provision of board and lodging accommodation

The claimant was in receipt of incapacity benefit and had an income from student lodgers. Regulation 16 of the Social Security (Incapacity for Work) (General) Regulations 1995 provides that a claimant should be treated as capable of work, and therefore not entitled to incapacity benefit, on each day of every week during which he does any work, subject to exemptions set out in regulation 17. The claimant appealed to the Commissioner against the decision of an appeal tribunal that her earnings from self-employment exceeded the limit for exempt work set out in regulation 17. The Commissioner calculated the claimant's earnings on a week-by-week basis rather than averaged over a one-year (or shorter) period as would have been required by the Social Security Benefit (Computation of Earnings) Regulations 1996. He held that the Computation Regulations did not govern the calculation of the claimant's earnings. The Secretary of State appealed to the Court of Appeal. The Court of Appeal allowed the appeal, holding that the Computation Regulations applied, and referred the case back to the Commissioner for redetermination. The decision of the Court of Appeal is reported as R(IB) 1/06.

In issue before the Commissioner was the correct interpretation of regulations 12 and 13(2) and (4) of the Computation Regulations. Regulation 12(2) provides that a self-employed person's "earnings" means gross receipts excluding disregards in paragraphs 1, 2 and 3 of Schedule 1. Paragraph 3 of Schedule 1 provides for a fixed disregard in the calculation of income from boarders. Regulation 13(4) provides that the earnings to be taken into account are the net profit, after deducting the actual expenses, while regulation 13(2) provides that there shall be disregarded or deducted as appropriate from a claimant's net profit any sum, where applicable, specified in Schedule 1. The Secretary of State argued that the disregard in paragraph 3 of Schedule 1 was meant to cover the claimant's outgoings and therefore it would be double counting to apply both regulation 13(2) and 13(4)(a).

Held, allowing the appeal, that:

1. there is nothing in the wording of paragraph 3 of Schedule 1 to warrant the assumption that the disregard there specified is in respect of the claimant's expenses (paragraph 14);
2. there is nothing in the wording of paragraphs (2) and (4) of regulation 13 read by themselves to imply that the paragraph (4) defrayals and the Schedule 1 disregards are not both to be taken into account (paragraph 15);
3. regulations 12, 13(1), (2) and (4) read with paragraph 3, as they are written, plainly provide that the income side of the claimant's profit and loss calculation under regulation 13(4) does not include the Schedule 1 disregards and that the same disregards will be deducted from the net profit as calculated under 13(4) and although that effect may be anomalous, there was no scope for a purposive interpretation (paragraphs 16 to 18);
4. in the claimant's case the application of the paragraph 3 of Schedule 1 disregards to her gross receipts in terms of regulation 12(2) alone resulted in weekly earnings below the limit in regulation 17(2)(a) of the 1995 Regulations, and therefore she was not to be treated as capable of work (paragraphs 19 to 23).

DECISION OF THE SOCIAL SECURITY COMMISSIONER

5. The decision of the incapacity benefit appeal tribunal dated 3 July 2003 is erroneous in law. I set that decision aside and, as empowered by section 14(8)(a)(ii) of the Social Security Act 1998, I give my own decision which is:

The claimant is not to be treated as capable of work from and including 1 February 2002 because although she was working the work was exempt work within the meaning of regulation 17 of the Social Security (Incapacity for Work) (General) Regulations 1995.

6. The claimant appeals, with my leave and the support of the Secretary of State's representative, against the tribunal's decision that the claimant is to be treated as capable of work from 1 February 2002 because she was working and the work was not in an exempt category.

History of the appeal

7. This is an appeal which has been remitted to me for redetermination by the Court of Appeal. When the appeal was last before me it was supported by the Secretary of State's representative and the only issue which had not been resolved in the claimant's favour before I made my decision was the calculation of her earnings for the purposes of paragraph (2)(a) of regulation 17 of the Social Security (Incapacity for Work) (General) Regulations 1995 (SI 1995/311). The Secretary of State's representative's view was that the calculation of the claimant's earnings was governed by the Social Security Benefit (Computation of Earnings) Regulations 1996. I decided on 3 March 2005 that the Computation of Earnings Regulations (SI 1996/2745) were not relevant. My decision was erroneous in law and was set aside by the Court of Appeal (Secretary of State for Work and Pensions v Doyle [2006] EWCA Civ 466 (reported as R(IB) 1/06).
8. The claimant's solicitors and the Secretary of State's representative have, in submissions directed by a Legal Officer in the Office of the Social Security Commissioners, attempted to reach agreement as to the claimant's net weekly earnings. They are in substantial agreement about the claimant's gross receipts although the representative thinks that the solicitors' figure is rather too high. The representative thinks that the calculation of the claimant's outgoings is still not sufficiently accurate to enable the claimant's net profit in the relevant period to be ascertained. However, for the reasons given below I think that there is now enough information for me to make my own decision.

The point of law

9. When I made my decision of 3 March 2005 I did not have to deal with a point as to the interpretation of regulation 13(2) and (4)(a) of the Computation of Earnings Regulations which the Secretary of State's representative raised in his submission of 1 October 2004. In paragraph 7 of that submission the representative said:

"I should also like to mention that there is one key point of law the Commissioner may need to decide in connection with the claimant's earnings. Regulation 13(2) of, and paragraph 3 of Schedule 1 to, the Computation of Earnings Regulations provides for a fixed-rate deduction to be made from earnings from board and lodging accommodation. The question that arises is whether this deduction is in addition to the disregard for expenses in regulation 13(4)(a). In my submission the deduction in paragraph 3 of Schedule 1, being based on the number of residents and whether heating is provided, has to do with the claimant's expenses. As it cannot have been contemplated that a claimant would in effect have the same expense deducted once under regulation 13(4)(a) and then a second time under paragraph 3 of Schedule 1, I submit that to the extent that a deduction can be made under regulation 13(4)(a), a further deduction would not be 'appropriate' under regulation 13(2) and hence would not fall to be made under paragraph 3 of Schedule 1. Alternatively, I would submit that expenses that can be deducted under paragraph 3 of Schedule 1 are thereby wholly removed from the calculation of the claimant's earnings and hence are not to be available to be disregarded under regulation 13(4)(a). In effect, the only sums to be disregarded under regulation 13(4)(a) are those incurred in addition to the amounts deductible under paragraph 3 of Schedule 1."

As the Computation of Earnings Regulations do apply I now have to deal with that point.

10. Following the Court of Appeal's decision the claimant's solicitors, in a letter of 14 July 2006 in response to a direction of 25 May 2006 by the Legal Officer, said that they agreed with the submission which I have quoted above. In a further letter of 21 September 2006 the solicitors said that in their view the claimant's earnings should be calculated by applying regulation 13(4)(a) and agreed with the Secretary of State's representative that to apply also the disregard specified in paragraph 3 of Schedule 1 would result in unfair double counting.

The legislation

11. Regulation 16(1)(a) of the Social Security (Incapacity for Work) (General) Regulations 1995 provides that a person who works shall be treated as capable of work (notwithstanding that she has been determined to be incapable of work under regulations 10 to 15 or 27) unless the work she does is exempt work under regulation 17(1) and done within the limits specified in regulation 17(2).
12. Regulation 17 as in force at the times relevant to this appeal and insofar as relevant to the appeal provides:

"(1) The categories of exempt work referred to in regulation 16(1)(a) are –

(a) Work undertaken on the advice of a doctor which –

(i) helps to improve, or to prevent or delay deterioration in, the disease or bodily or mental disablement which causes that person's incapacity for work; …

…

…

(2) The weekly limits in relation to exempt work are –

(a) that earnings from work referred to in paragraph (1)(a) do not exceed [£66.00 until 1 October 2002 and £67.50 thereafter];

(b) that subject to paragraph (3), the combined total of the number of hours spent doing work referred to in paragraph (1)(a)(i) is less than 16;

(c) … ."

13. Regulation 2(1) of the Computation of Earnings Regulations enacts certain definitions for the purposes of those regulations. Those, in so far as relevant to this appeal, are:

"'board and lodging accommodation' means –

(a) accommodation provided to a person … for a charge which is inclusive of the provision of that accommodation and at least some cooked or prepared meals which both are cooked or prepared (by a person other than the person to whom the accommodation is provided …) and are consumed in that accommodation or associated premises;

…

'earnings' has the meaning prescribed in regulation 9 or, as the case may be, 12 … ;

…

'employment' includes any trade, business, profession, office or vocation;

…

'net profit' means such profit as is calculated in accordance with regulation 13(4);"

…

'self-employed earner' means a person who is in gainful employment in Great Britain otherwise than as an employed earner … ;"

14. Regulation 3(1) provides, in effect, that for the purposes of the Contributions and Benefits Act and regulations made thereunder the earnings of the claimant shall be calculated by determining in accordance with the Computation of Earnings Regulations the weekly amount of her earnings. Regulation 11(1) provides that in the case of a self-employed earner the weekly amount of earnings will be calculated by averaging over a year or, in certain other circumstances, such other period as gives a more accurate weekly figure.
15. Regulation 12, insofar as relevant, provides:

"(1) Subject to paragraph (2), 'earnings', in the case of employment as a self-employed earner, means the gross receipts of the employment …

(2) 'Earnings' shall not include –

(a) The payments to be disregarded in the calculation of earnings as referred to at paragraphs 1, 2 and 3 of Schedule 1;

(b) …"

16. Regulation 13, insofar as relevant, provides:

"(1) For the purposes of regulation … 11 (calculation of earnings of self-employed earners), the earnings of the 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;

…

(2) … , there shall be disregarded or deducted as appropriate from a claimant's net profit –

(a) any sum, where applicable, specified in Schedule 1; … and

(b) any relevant child care charges to which Schedule 2 applies …

(3) …

(4) For the purposes of paragraph (1)(a), the net profit of the employment shall, except where paragraph (10) applies, be calculated by taking into account the earnings of the employment over the period determined under regulation 11 (calculation of earnings of self-employed earners) less –

(a) … , any expenses wholly and exclusively defrayed in that period for the purposes of that employment;

(b) …

(c) …

…"

17. The heading and the relevant paragraphs of Schedule 1 to the Regulations are:

"Sums to be disregarded in the calculation of earnings

1. Any payment made to the claimant by a person who normally resides with the claimant, which is a contribution towards that person's living and accommodation costs, except where that person is residing with the claimant in circumstances to which paragraph 2 or 3 refers.

2. Where the claimant occupies a dwelling as his home and the dwelling is also occupied by another person and there is a contractual liability to make payments to the claimant in respect of the occupation of the dwelling by that person or a member of his family –

(a) £4 of the aggregate of any payments made in respect of any one week in respect of the occupation of the dwelling by that person or a member of his family, or by that person and a member of his family; and

(b) a further £9.25, where the aggregate of any such payments is inclusive of an amount for heating.

3. 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.".

4. … "

The heading to Schedule 2 is:

"Child care charges to be deducted in the calculation of earnings".

Consideration

18. There are three points on which I disagree with the Secretary of State's representative's interpretation of those somewhat elliptical provisions. The first point is that I think that he has overlooked the effect of regulation 2(1) as read with regulation 12. Together they provide that the earnings of a self-employed claimant are the gross receipts of her self-employment excluding the payments specified in paragraphs 1, 2 and 3 of Schedule 1. The second point is the assumption that the disregard specified in paragraph 3 of Schedule 1 applies only where heating is provided and is, therefore, in respect of the claimant's expenses. There is nothing in paragraph 3 itself to warrant that assumption and I do not think that the reference to heating in paragraph 2 carries any implication for paragraph 3. It seems to me that paragraphs 1, 2 and 3 refer to payments for three distinct forms of shared occupation of a home. These are, respectively:

(1) Any payment of a contribution towards the payer's living and accommodation costs under a non-contractual arrangement which does not come within the regulation 2 definition of board and lodging

(2) payment under a contractual obligation to pay for the occupation or accommodation or to pay for the occupation and the provision of heating

and

(3) payment for board and lodging accommodation provided by the householder but with no specification as to what is provided other than as specified in the definition of such accommodation in regulation 2.

There is, therefore, nothing in regulation 13(4) or Schedule 1 to warrant the calculation of net profit other than by the deduction of the outgoings of the business from the earnings.

19. The third point on which I disagree with the Secretary of State's representative is the significance of the word "appropriate" in 13(2). The appropriateness in question is not that of applying or not applying the Schedule 1 disregards to the net profit as calculated under paragraph (4). "Appropriate" has to be read with Schedules 1 and 2 which provide for disregards and deductions respectively. It is appropriate to disregard Schedule 1 sums under head (a) of paragraph (2), but not appropriate to deduct them, and it is appropriate to deduct Schedule 2 charges under head (b), but not appropriate to disregard them. There is, therefore, nothing in the wording of paragraphs (2) and (4) of regulation 13 read by themselves to imply that the paragraph (4) defrayals and the Schedule 1 disregards are not both to be taken into account.
20. Where the regulations do provide for what is plainly double counting is in the joint effect of regulations 12(2) and 13(2). 12(2) provides that the income side of the claimant's profit and loss calculation under regulation 13(4) does not include the Schedule 1 disregards but 13(2) provides that the same disregards will be deducted from the net profit as calculated under 13(4). That may be anomalous and neither that double counting nor the inclusion of the regulation 13(4) calculation in the assessment of earnings is compatible with the corresponding provisions in the Income Support (General) Regulations. In those regulations the effect of regulations 37(2), 38 as read with Schedule 8 and 40 as read with paragraph 20 of Schedule 9 is that, for the purposes of assessing entitlement, board and lodging payments are not taken into account as earnings but are taken into account as income other than earnings. There is applied to that income a disregard similar to that specified in paragraph 3 of Schedule 1 to the Computation of Earnings Regulations. There is no provision for the claimant's outgoings in the provision of board and lodging accommodation to be taken into account in the calculation of net profit, which calculation is in any case irrelevant to the calculation of income other than earnings. That could suggest that in the Computation Regulations the double counting of the Schedule 1 disregards as between regulations 12(2) and 13(2) and the counting of both the regulation 13(4) defrayals and the Schedule 1 disregards are not intended.
21. On the other hand it is not totally improbable that it is intended that claimants for non-means tested benefits are to be treated more generously than those claiming means tested benefits and that regulations 12(2), 13(4) and 13(2) constitute a three-stage progressive test at any stage of which earnings can be found to be below the relevant statutory limit, the last stage being a second application of the Schedule 1 disregard. The effect would be that a claimant would require to earn substantial amounts from board and lodging to exceed the earnings limit prescribed in regulation 17(2)(a) of the Incapacity for Work (General) Regulations: but a claimant who was earning such amounts would probably be caught by the 16 hours work limit.
22. Whatever may or may not be the legislative intention, the regulations say in black and white that the Schedule 1 disregards have to be applied to gross receipts to arrive at earnings and also to the net profit which constitutes the earnings to be taken into account. They also say that the net profit is to be calculated by deducting defrayals from earnings. The purposive approach to the interpretation of legislation is now wholly accepted but I do not think that that method of interpretation can be used to override the plain words of a provision. The claimant is entitled to rely on the text of the regulations rather than anything which I might deduce from an examination of background papers or from the consideration of seeming anomalies in or suspected unintended consequences of the provisions. If the regulations as enacted do not reflect the legislative intention they can be amended or revoked and replaced.

Application of the Regulations in the claimant's case

23. However, in the claimant's case the proper interpretation of regulations 12(2) and 13(2) and (4)(a) as read together is not significant because, as I shall show below, when the paragraph 3 of Schedule 1 disregards are applied to the gross receipts in terms of regulation 12(2) the weekly earnings are less than the weekly earnings allowed by regulation 17(2)(a) of the Incapacity for Work (General) Regulations. There is therefore no need for a regulation 13(4) calculation and no scope for the application of 13(2).
24. In paragraph 5 of his submission of 1 October 2004 the Secretary of State's representative explains that if at the date of claim in February 2001 the fact of the claimant's board and lodging business had been known to the Department for Work and Pensions her entitlement to benefit would have been assessed by averaging her earnings over the period from the commencement of the business in May 2001 until the date of claim in accordance with regulation 11(1)(b) of the Computation of Earnings Regulations. He argues, therefore, that to calculate the claimant's entitlement accurately throughout the period relevant to her appeal it is necessary to do both that calculation under head (b) and the calculation under head (a) of the same provision in respect of the claimant's first complete year in business. The claimant's solicitors have supplied weekly figures for the gross receipts in the 35 weeks from the week beginning on 3 June 2001 to the week beginning on 27 January 2002 inclusive and the gross receipts for the 52 weeks of the claimant's first financial year.
25. As regards the 35-week period the Secretary of State's representative remarks that, assuming that all the invoices for those weeks have been produced, the total of the gross receipts is £4,516.43 and not the £4,775.72 calculated by the claimant's solicitors. In applying regulation 12(2) to those gross receipts I have erred on the side of non-entitlement by taking the solicitors' figure. From that I have deducted the £12.14 received in the week beginning 30 December 2001 leaving £4,763.58. To simplify the rest of the calculation, and because there is plenty of margin for error, I have treated the claimant as having had only one boarder, rather than 1.2, in the week beginning 23 September 2001. On that basis there were 60 boarders in the 35 weeks, which represents 60 disregards of £20 per week totalling £1,200 to be deducted from the £4,763.58, leaving £3,563.58. 50 per cent of that last figure is £1,781.79. The total disregard applicable in the 35-week period is therefore £2,981.79 which when deducted from the £4,763.58 leaves £1,781.79. Thus for the 35-week period £1,781.79 would be the income side of the net profit calculation in terms of regulation 13(4)(a). However, it is unnecessary to calculate the net profit because £1,781.79 over 35 weeks represents £50.90 per week. That is well below the weekly limit on earnings from therapeutic work prescribed in regulation 17(2)(a) of the Incapacity for Work (General) Regulations which was £60.50 with effect from 9 April 2001 and which has been substantially uprated in the years since then.
26. I have adopted the same method to average the claimant's earnings over the 52-week period from the commencement of her business. The total of the receipts is £7,567.86 from which is to be deducted the £12.14 received in the week beginning 30 December 2001. That reduces the gross receipts to £7,555.72. The week beginning 23 September 2001 is again treated as being a week with one boarder and the last two weeks of the 52 week period are treated as being weeks with two boarders each. The total number of boarders was, therefore, 92 and the £20 disregards total £1,840 which subtracted from £7, 555.72 leaves £5,715.72. 50% of that is £2,857.86. The total disregard is, therefore, £4,697.86 which subtracted from £7,555.72 leaves £2,857.86. That would be the income side of the regulation 13(4) calculation. Divided by 52 it produces a weekly average of £54.95 which again is well below the limit prescribed by regulation 17(2)(a) and renders the regulation 13(4) calculation pointless.
27. On the basis of the foregoing calculations I conclude that at the relevant times the claimant's earnings have always been less than the weekly limit prescribed by regulation 17(2)(a) of the Incapacity for Work (General) Regulations. It is not disputed that the claimant satisfies regulation 17(1)(i) and (2)(b). She is not, therefore, treated as capable of work from and including 1 February 2002.
28. For the foregoing reasons the claimant's appeal succeeds and my decision is in paragraph 1 above.