Upper Tribunal (Administrative Appeals Chamber)

THE UPPER TRIBUNAL Appeal No. CCS 2078 2009

ADMINISTRATIVE APPEALS CHAMBER

 

LW v Child Maintenance and Enforcement Commission and KW (CSM)

 

Hearing at Harp House, London on 24 03 2010.

The appellant appeared in person

Mr Scoon of the Office of the Solicitor to the Department for Work and Pensions represented the first respondent, the Commission

The second respondent appeared in person.

 

DECISION

 

The appeal is allowed. For the reasons below, the decision of the tribunal is set aside. I refer the appeal to a new tribunal to decide the appeal again in accordance with the following directions.

 

Directions for new hearing

 

A The new hearing will be at an oral hearing.

 

B The new tribunal should not involve any judge or other member who has previously been a member of a tribunal involved in this appeal. The President or Regional Tribunal Judge may wish to consider if a financial expert member should sit as part of the tribunal hearing the case.

 

C All available income tax returns of the absent parent are to be in evidence at the rehearing. All other evidence submitted by any party to the appeal since the original decision was taken in this case, including evidence submitted to the Upper Tribunal, is to be added to the papers and copied to the other parties.

 

D (1) The parent with care has challenged the figures in the tax return for the year 2007-08 now in evidence for the absent parent. Evidence relevant to that challenge is included in the papers under direction C. If she has further documentary evidence or witness evidence then she is to produce that evidence as directed below.

(2) Copies of any further documentary evidence that the parent with care wishes to produce are to be submitted to the tribunal office not later than one month after the issue of this decision. The tribunal office is to copy any documents received to the other parties.

(3) If the parent with care wishes to produce any witness to support the statements she has made about the income and expenditure of the absent parent, then she is to supply the tribunal office, within the same time limit, with the names and addresses of all such witnesses and a summary of the evidence that each witness will be asked to give.

E If either of the other parties wishes to produce further evidence, then they are to do so in accordance with direction D(2) and (3) above.

 

These directions are subject to any later direction by a tribunal judge.

 

 

 

 

 

REASONS FOR DECISION

 

1 The original decision resulting in this appeal was a refusal by the first respondent (“the Commission”, including where appropriate the Secretary of State) to supersede, on the application of the appellant (C), a previous decision calculating the child support maintenance payable by the second respondent (A) to C for their children. C is the parent with care of the children, and A is the absent parent.

 

2 C’s appeal came before a tribunal at a hearing at which C was present and A was not. The Commission was not represented. The tribunal refused the appeal. The appellant put in a long letter of grounds of appeal. A tribunal judge allowed permission to appeal, raising two questions:

“should the tribunal have stepped into the shoes of the Commission upon the basis that it was in possession of evidence relevant to the circumstances at the time? Should the tribunal have adjourned giving directions or was the tribunal correct to hand the matter back to the Commission?”.

 

3 I invited comments from both respondents and then C. I received a full submission from the Commission indicating that in its view there was a conflict between Commissioners (the predecessor to the judges who now determine these appeals) about the proper approach to be taken with regard to this appeal. There was a short submission from A indicating that he did not agree with the appeal. C responded with full comments about these submissions and the appeal. Having heard the parties, I consider that the only issues of substance in this appeal are the issues that lay behind the questions asked by the judge when the appellant was granted permission to appeal. I do not consider as relevant the other issues raised in the extensive comments from C or the general points by A. I make no finding on the additional evidence put in by both A and C, as none of it is relevant to my decision. It is clear that A and C both hold particularly strong views about the correctness of their own actions and the errors in the actions of the other. Some of those views were expressed in terms suggesting criminal actions. Those views are only relevant to this decision if they help clarify whether the tribunal erred in law in the decision under appeal. And I warned the parties at the hearing about the need to provide clear evidence of any allegation made.

 

4 I set aside the tribunal decision below because it failed to consider all relevant evidence before it. I do not need to comment further on that decision.

 

The issues in dispute

5 The Commission decided on 11 02 2008 that A was liable to pay C a specific weekly sum as child support maintenance for their two children from 23 10 2007. C asked on 28 08 2008 that this be superseded on the grounds that A had received a “wage increase”. Enquiries were made. As a result, the application was refused on 1 11 2008. The reason recorded is that the changes in circumstances reported by C had no impact on the assessment made. C appealed because she “knew” that there had been changes in A’s income in 2007-08. After notice of the appeal had been given, A voluntarily supplied the tribunal with copies of several sets of documents, including a copy of his tax return (and linked documents) for the tax year 2007-08. This was the tax year in which C’s application for supersession was made. In doing so, A drew attention to a sharp decrease in his earnings.

 

The tribunal decision

6 The decision took the following approach. C applied for supersession on 28 08 2008. The application was refused on 1 11 2008. Both were in the tax year 2008-2009, but before the date on which A was required to produce a tax return for 2007-08. The latest available tax return was that for 2006-2007. That was the tax return used to make the decision on 11 02 2008. So nothing had changed since that decision was made. There were therefore no grounds for supersession. When the matter came before the tribunal A had submitted his tax return and this was available to the tribunal. The tribunal did not consider that this was relevant to its decision because it had been submitted after the original decision under appeal was made. So there continued to be no change.

 

7 The tribunal appears to have relied in part on an assertion in the formal written submission by the Commission to the tribunal:

 

“The Agency cannot use [A’s] income for the tax year for 2007/08. These end of year figures are not due to be submitted to Her Majesty’s Revenue Commission (sic)

by his accountant until the end of January 2009.”

 

Two points arise:

- was the Commission required to wait for the new tax return before considering the assertions and evidence produced by C about A’s income in the year 2007-08?

- was the 2007-08 tax return relevant to the tribunal’s decision?

 

The effect of the requirements

8 If the submission to the tribunal set out at [7] is correct, the relevant rules interact to create a major limitation on the right of a parent with care to seek supersession. Three sets of legislative provisions interact: income tax requirements in the Taxes Management Act 1970; rules for assessing income in the Child Support (Maintenance Assessments and Special Cases) Regulations 1992; and the supersession provisions in the Social Security and Child Support (Decisions and Appeals) Regulations 1999. The law set out below is that for 2007-08. All three sets of rules have been changed since, but that is not relevant to this appeal.

 

The relevant tax law

9 Sections 8 and 9 of the Taxes Management Act 1970 require an individual to make a self-assessment return for the tax year to 5 April 2007 on or before 31 January 2008. Section 8(1) obliges the individual to include in that return such information as may reasonably be required in pursuance of the notice requiring the return. Penalties apply if no return is made or if the return is fraudulently or negligently wrong.

 

10 Section 12B of that Act requires all those who may be required to make a return to:

 

“keep all such records as may be requisite for the purpose of enabling him to make and deliver a correct and complete return for the year or period…”

 

Those records must be kept for at least five years (section 12B(1) and (2)). They are available to a tribunal as well as to the tax authorities.

 

The relevant child support law

11 There is a complicating factor in this appeal. C asserted that A’s income was of four kinds. That is important because the rules defining income vary from one form of income to another. For income tax purposes, if C is right, A has four different kinds of income: employment income, trading income; property income; and savings income. C later added that A also has foreign income. That was after the time relevant to this appeal, and I take that no further. A’s return for 2007-08 is inconsistent. It identifies three kinds of income: trading income, property income and savings income. But it claims tax relief for membership of an employer’s pension scheme. C’s application for supersession alleged that A had employment income not taken into account. More generally, the mixed nature of A’s income raises another issue. A cannot properly make a return about any part of his income until he is satisfied that the return is “complete and correct” with regard to all his income. It may be that the questions relevant to a supersession arise with regard only to parts of the total taxable income that are checkable at an earlier date.

 

12 For the purposes of this decision, I concentrate on A’s trading (professional) income without making any findings of fact about whether C was correct with regard to employment income. The largest part of A’s income is professional income. However, the reasoning set out below may not apply to other kinds of income. And it may not apply if C is right that A has employment income as well as other forms of income. (I can see no relevant changes, save at the margin, to the property and savings income.) The Commission did not consider whether C was right in alleging that A had employment income. In so doing, it appears to have taken an implicit decision about the nature of A’s alleged income without deliberately doing so. The tribunal below did not consider this.

 

13 Another complication is that there are two parallel systems of child support in effect at the same time in the period relevant to this appeal. Authorities to which I was directed concern the “new” child support scheme. This appeal concerns the “old” scheme. Both schemes have rules – similar but not identical – about ascertaining the income of a self-employed individual.

 

14 As the formal submission to the tribunal correctly stated, the relevant regulations for this appeal are paragraphs 2A to 5A of Schedule 1 to the Child Support (Maintenance Assessments and Special Cases) Regulations 1992, as amended. The equivalent provisions for the “new” scheme are paragraphs 7 to 9 of the Schedule to the Child Support (Maintenance Calculations and Special Cases) Regulations 2000. Paragraph 7 deals with figures submitted to the Inland Revenue (now her Majesty’s Revenue and Customs (“HMRC”)). Paragraph 7(1) requires that the income assessment for a self-employed earner be based on the figures given to HMRC. Paragraph 7 is subject to paragraph 8. This permits a calculation to be based on gross receipts less deductions. Paragraphs 2A to 5A of the 1992 Regulations deal with the definition and calculation of the income of a self-employed earner in similar but not identical terms.

 

15 What I might term the “starting point” in both the “old” and the “new” schemes in calculating the income of a self-employed individual is the self-assessment tax return required to be made annually to HMRC. This will be made several months after the end of the relevant tax year. There will be many cases where, as here, the “starting point” has not been reached when a supersession application is made. And there will be many cases where, as here, it is alleged that the figures in the tax return are wrong.

 

16 The rules take account of these factors by making the “starting point” (in paragraph 7 of the Schedule to the 2000 regulations and paragraph 2A to Schedule 1 to the 1992 regulations) subject to other rules.

 

17 With regard to the rules that apply to this appeal, paragraph 2A is expressly subject to other provisions, including paragraph 2C of Schedule 1 to the 1992 Regulations. Paragraph 2C provides that:

 

“Where the Secretary of State accepts that it is not reasonably practicable for the

self-employed earner to provide information relating to the total taxable profits from self-employment in the form submitted to … [HMRC], “earnings” in relation to that earner shall have the meaning given by paragraph 3 of this Schedule.”

 

Paragraph 3 defines how earnings are to be identified in those circumstances. There are further rules in paragraphs 4 and 5, with a “fall back” rule in paragraph 5A (see below). There are equivalent rules in the Schedule to the 2000 Regulations.

 

18 Paragraph 2A (1) and (2) define the earnings of a self-employed individual by reference to “the total taxable profits from self-employment of that earner as submitted to [HMRC]”. Regulation 2B(2) gives a definition to “submitted to” as used in that phrase:

 

“”submitted to” means submitted to [HMRC] in accordance with their requirements by or on behalf of the self-employed earner”.

 

19 That is a reference both to the provisions of the Taxes Management Act 1970 and to the specific requirements on a self-assessment tax return form. The standard self-assessment tax form is SA 100. At several points in the form it is emphasised that the individual is required to return all income and capital gains of relevant kinds for the year in question. Every self-assessment return ends with a requirement that someone sign the form. Above the box requiring a signature is the warning:

 

“If you give false information, you may have to pay financial penalties and face prosecution. Please sign and date this form.”

 

The signatory must then sign the following declaration:

 

“The information I have given on this tax return and any supplementary pages is correct and complete to the best of my knowledge and belief

Date DDMMYYYY

Signature”

 

It is clear that the “requirements” of regulation 2B are a “correct and complete” return of income and capital gains for the period.

 

The relevant procedural law

20 Section 17 of the Child Support Act 1991 enables the Commission to supersede a previous decision about child support on the application of a person affected or on its own initiative. Section 17(4) provides that any supersession takes effect either from the relevant week for maintenance purposes in which the application was made or in which the decision to supersede was made, as defined in regulations. That is an important limitation. It means that in general supersession decisions cannot be retrospective and cannot operate before the week in which the decision to supersede is made, unless there is express provision in regulations.

 

21 The relevant regulations are the Social Security and Child Support (Decisions and Appeals) Regulations 1999, regulations 6A, 6B and 7B. These set out the circumstances in which a supersession of a child support decision may be made and the date from which the supersession operates if made.

 

22 Regulation 6A(2) and (3) authorise a supersession either on application or on the initiative of the Commission where:

 

(a) there has been a change of circumstances since the date from which the decision had effect; or

 

(b) the decision was made in ignorance of, or was based upon a mistake as to, some material fact.

 

23 Regulation 7B(4) provides that where the supersession is made on an application relating to a change of circumstances, then the supersession takes place at the start of the maintenance period in which the change of circumstances occurs – that is, at the beginning of that week.

 

24 Here the Commission took the view that there could be no supersession until there was a change of circumstances. There could be no change of circumstances until there was a new “starting point”, that is, a new tax return. No new tax return could be required until the January following the end of the tax year in which the application for supersession was made. It followed that the supersession decision could operate only from the time when that decision was made.

 

25 There is a further procedural measure that applies when a decision is subject to appeal. Section 20(7)(b) of the Child Support Act 1991 provides that:

 

“In deciding an appeal under this section, an appeal tribunal –

…

(b) shall not take into account any circumstances not obtaining at the time when the Secretary of State made the decision or imposed the requirement.”

 

There is an interaction between this provision and the test of “change of circumstances” necessary as a ground on which a supersession may be made. If the Commission is correct in asserting that there is no change of circumstances with regard to the income of an individual until the relevant tax return is made, then it follows that later production of the tax return (but before an appeal is heard) is irrelevant on appeal.

 

How those provisions interact

26 If the Commission’s submission to the tribunal as set out at [7] and [25] is correct, then the position that can result may be:

(1) An absent parent’s (AP) previously steady professional income doubles on a consistent and continuing basis in May 2007, in the tax year 2007-08. AP makes the required tax return, showing the doubling of income, on the last possible day (for 2007-08, 31 January 2009). AP, on standard professional advice, has an accounting year ending on 30 April. So the increase in professional earnings falls in the accounting year 1 May 2007 to 30 April 2008. That must be included in the tax return for the tax year 2008-09 but not before. This is because a trader is required to include in the tax return only the accounts for the last accounting year that ended in the tax year, not the actual profits of the tax year. It will therefore not be returned to HMRC until the end of 2009.

(2) The parent with care (PC) finds out in May 2007 of the increased income being received and applies for a supersession. It is refused because the tax return has not yet been submitted.

(3) AP’s income drops back to previous levels in May 2008, and stays at those lower levels.

(4) PC waits until the tax return for 2007-08 has been (or should have been) sent in and applies for supersession again on 1 February 2009. The application is refused, because the relevant accounts (for the year ending 30 04 2007) do not include the increase in earnings from May 2007.

(5) PC waits a further year and reapplies at the beginning of 2010. At this point the Commission has the 2008-09 return including the increase in earnings from 1 May 2007. It makes a supersession decision increasing the maintenance payable by AP. It takes effect only from the time it is made.

(6) AP objects to this because the supersession does not apply to the period when the earnings were increased but only after the decrease in income from May 2008, but is told that nothing can be done to reflect the decrease until the proper tax return for that period is sent in. That cannot be done at the very earliest until AP obtains a return form to complete and completes it, probably in May or June 2010.

 

27 The assumptions behind the example are that the accounting year ends just after the beginning of the tax year, as is commonly the case, and that the self-assessment tax return just before the deadline, as is also commonly the case. In fairness to A, his accounts are drawn up to 31 March in each year by fully qualified accountants. The delays illustrated in the previous paragraph do not all apply to this case. But they reflect common accounting advice.

 

28 The example illustrates a position that is patently absurd. I cannot accept that Parliament intended, by these rules, to prevent all supersession decisions arising in such circumstances from being made and becoming operative until months – in many cases whole years - after an increase in earnings. Child support maintenance is about an absent parent supporting children on an ongoing weekly basis, and the welfare of those children. If the Commission’s submission is correct, the rules interact to create a system under which child support assessments in cases where such changes recurred will be wrong most of the time and in some cases permanently. That cannot be a proper interpretation and application of the rules.

 

Analysis

29 How should the Commission, and in particular a tribunal on appeal, approach this problem? I agree with Mr Scoon’s submission that it is important not to rely too heavily in cases such as this on what I have termed the “starting point” of the tax return being filed. I also agree with him that the relevant “changes of circumstances” include the income to be assessed and are not restricted to the particular form in which that income is reported to HMRC. The tribunal must examine all evidence about income when a case such as this comes before it. However, Mr Scoon rightly drew my attention to two decisions of Commissioners about the rules that appear to give different, and conflicting, decisions on these points.

 

CCS 1741 2005

30 This case was decided by a Commissioner in April 2006 by reference to a child support assessment made in the tax year 2003-2004 under the “new” scheme. A child support assessment was made in July 2003 with effect from April 2003. It was made on the basis of the business accounts for the year to March 2002. A tribunal, on appeal, rebased the assessment on the accounts for the year to March 2003. The Commissioner took the following view about the original decision for the Secretary of State:

 

[25] … at the time when the Secretary of State made his original decision on 8 July 2003, the accounts for the year ended 5 April 2003 were not available. They were not signed in unaudited form until 16 December 2003, and the tax return for that year was not submitted to the Revenue until 27 January 2004. By section 20(7)(b) of the Child Support Act 1991 an appeal tribunal “shall not take into account any circumstances not obtaining at the time when the Secretary of State made the decision…”. It seems to me that, in the context of para. 7(1) of the Schedule to the 2000 Regulations, the submission to the Revenue of the accounts for the year ended 5 April 2003, and the issue by the Revenue of its tax calculation notice, were “circumstances not obtaining” at the time when the decision under appeal to the tribunal was made. It therefore seems to me to follow that the tribunal was not entitled to used the 2002/3 figures under paragraph 7 of the 2000 regulations.” (Emphasis in the original).

 

31 The emphasised reference is to paragraph 7 of the Schedule to those regulations and to that paragraph only. Paragraph 7 is subject to paragraph 8. The Commissioner decided that paragraph 8 applied to the appeal. Using the figures before him, the Commissioner went on to apply paragraph 8 and make a detailed decision in place of that of the tribunal. He did not base his decision only on his view of paragraph 7.

 

CCS 1325 2006

32 That decision was cited to another Commissioner in a later appeal decided in July 2006. CCS 1325 2006 concerned production not of personal accounts but of company accounts, the company being the route through which the individual’s income was channelled. Different tax rules apply to company accounts, as they are subject to corporation tax and not income tax. There are, of course, other differences in the treatment of company accounts and personal accounts. The Commissioner commented as follows:

 

“[10] The issue is: were the accounts a circumstance that was not obtaining at the time of the decision under appeal? I have decided that it is permissible to make use of evidence that only came into existence after the date of the decision, provided that it relates to that time: R(DLA) 2 and 3/01. The Secretary of State has referred to … CCS 1741 2005 at [25]. … I do not have to decide whether or not that decision was correct in relation to paragraph 7, because it is distinguishable from this case. Paragraph 7 specifies the documents on which a calculation of income of a self- employed earner’s income under the reformed child support system may be based. In this case, the issue was the absent parent’s income, but the accounts were the accounts of his company. They were not required as the statutory basis for assessing his income. They were relevant to an understanding of his financial position as a whole at the time when the decision under appeal was made. Accordingly, the accounts were evidence relevant to a circumstances obtaining at that time and the legally qualified panel member was entitled to direct that they be produced.”

 

33 Mr Scoon accepted that the second decision rightly distinguished the first decision on the facts of that case. But this appeal had a similar set of facts to those of the first appeal and this appeal could not be distinguished in the same way. Mr Scoon therefore had to contend, and did content robustly, that the statement in [25] of the earlier decision, if part of the Commissioner’s decision, was wrong and should not be followed. The Commissioner should have directed that the tribunal could look at the relevant accounts notwithstanding regulation 7 and should have applied section 20(7) accordingly. The circumstances on which the tribunal should have focussed were the circumstances that determined A’s income. It should not have restricted itself to considering the tax return as the only relevant circumstances.

 

34 A and C did not take part in this aspect of the case, though one was as happy to adopt the result as the other was unhappy. Nor would I expect otherwise as the matter is clearly a technical issue.

 

35 Three separate issues arise of direct relevance to this case. First, what is to happen where an application for supersession is made before an individual has prepared and submitted a tax return? Second, if an application is refused and there is an appeal, and the tax return becomes available before the appeal is heard, should the tribunal consider the return? Third, what is to happen if there is reason to believe the contents of the tax return do not meet HMRC requirements?

 

36 I agree with Mr Scoon that where there is evidence that income has changed, then that is evidence of a change of circumstances occurring at the time suggested by that evidence. While the tax return is evidence of the income for the relevant period, and its production is (given the terms of the relevant legislation) itself a change of circumstances, that must not be allowed to cloak the fact that in reality it is at the same time evidence of another change of circumstances that happened some time before. It is not the only change of circumstances, nor does it exclude other evidence of a change of circumstances. If the Commissioner in CCS 1741 2005 was saying that the only evidence at which the Commission and the tribunal can look when it is contended that there has been a change in the income of an individual is the tax return of that individual for the tax year in which the change occurred, then I respectfully do not agree. I am not sure he was saying that definitively, because his actual decision sidestepped the point and was based on a different paragraph of the regulations. The Commissioner’s approach was to consider all the relevant rules and not merely stop at the “starting point” as happened in this case. With that approach I entirely agree.

 

37 I see nothing in the relevant regulations dealing with the earnings of the self-employed (paragraphs 2A to 5A of Schedule 1 to the 1992 Regulations, or their equivalents in the 2000 Regulations) that imposes an interpretation on the meaning of “change of circumstances” in the procedural rules, and in particular in section 20(7) of the 1991 Act, that directs attention only to the tax return and not to the actual income that is or should be returned in that document. The definition of earnings by reference to the submission to the Revenue is the starting point, but only that. If it is contended that there has been a change of circumstances, the Commission and tribunal should examine the evidence put to them on the point, using the available powers to do so, and not merely await the relevant tax return.

 

38 The first step in any case such as this is to see if there has been a change of circumstances. That must precede the application of the child support income calculation rules, not be limited by them. That avoids the absurdity that can arise from the view taken by the Commission of the interaction of the rules noted above. The Commission view, to quote an old saying, has put the cart before the horse.

 

39 If there is evidence to suggest it should do so, the Commission should consider each of the available routes to determining self-employment earnings provided in the rules. One route is that provided by paragraph 2C of Schedule 1:

 

“Where the [Commission or tribunal] accepts that it is not reasonably practicable for the self-employed earner to provide information relating to his total taxable profits from self-employment in the form submitted to … [Her Majesty’s Revenue and Customs], “earnings” in relation to that earner shall have the meaning given by paragraph 3 of this Schedule.”

 

That may apply when the individual cannot make a return because he or she does not yet have all the information necessary to ensure, as required, that the tax return is “complete and correct” with respect to all sources of income and capital gains (and not merely the self-employment earnings), but where the specific point raised in the application can be considered on available evidence. Paragraph 3 allows an assessment of self-employed earnings to be based on other evidence. It leads to the calculation of the individual’s earnings as provided for in paragraph 5. That paragraph provides rules aimed at finding the average earnings of the individual over either a year or another defined period. That might be based on the relevant accounts, if available, or the records that the individual is required to keep as the basis of the tax return to be made in due course, but not made. Or it might be evidence produced by someone else about that income.

 

40 Paragraph 5A of those provisions should also be considered:

 

“(1) Subject to subparagraph (2) of this paragraph, the earnings of a self-employed earner may be determined in accordance with the provisions of paragraph 2A only where the total taxable profits concerned relate to a period of not less than 6 months, and not more than 15 months, which terminate nor more than 24 months prior to the relevant week.

 

(2) Where there is more than one total taxable profit figure which would satisfy the conditions set out in subparagraph (1), the earnings calculation shall be based upon the figure pertaining to the latest such period.”

 

(3) Where, in the opinion of the [Commission], information as to the total taxable profits of the self-employed earner which would satisfy the criteria set out in subparagraphs (1) and (2) of this paragraph does not accurately reflect the normal weekly earnings of the self-employed earner, the earnings of that earner can be calculated by reference to the provisions of paragraphs 3 and 5 of this Schedule.”

 

Under paragraph 5A(3), if there is evidence that there is a change of circumstances in the income of a self-employed earner such that there should be a change in the “normal weekly earnings” of that individual for child support purposes, then this provision allows the alternative procedures in paragraphs 3 and 5 to be used to see what that normal income should be. I emphasise the word “normal” because a temporary change in earnings or expenses may not by itself be enough to constitute a relevant change or circumstances for the purposes of a child support assessment (and, therefore, section 20(7)). The key question here is whether there has been a change of circumstances with regard to the normal income. Paragraph 5 includes the same issue, that of a change that is not merely temporary, in a different way. The test there is often the average income over a year. Both aim at the same need to take a long term view. Whether something amounts to a change of circumstances is to be viewed in that context. That is a question of fact.

 

41 Where there is evidence of a change in circumstances in the normal or long term average level of income of an individual before the relevant tax return is made, then these routes may be used to determine income. It is important to remember, as noted above, that all self-employed individuals must keep detailed records on which their tax returns will be based. The tax return must reflect those records, which are or should be in existence from the date of any actual change. There will, of course, be cases where there is no clear evidence that there has been a change of circumstances until the end of the accounting year relevant to the individual. For example there may be cyclical income and expenditure patterns. A proper view in those cases may be that the normal income can only be judged fairly after the end of the year and using the full accounts. But even in these cases that may not require waiting for the long period after the end of the accounting year illustrated in the example.

 

42 In summary, the submission of the Commission to the tribunal was wrong. It was not required to wait for A to file his tax return for the relevant period before considering C’s application for supersession.

 

Should the tribunal have taken account of the new return?

43 The judge’s question in permitting the appeal was: “should the tribunal have stepped into the shoes of the Commission upon the basis that is was in possession of evidence relevant to the circumstances at the time?”. Yes, for two reasons. (1) At the time it heard the case, the tax return for the relevant year was available. The tribunal took the view that because the tax return did not exist at the date of the original decision under appeal, it was not relevant to the decision taken at that time, but a later change of circumstances. That was wrong in law. The tribunal should have taken note of the tax return as evidence of the circumstances at the date of the original decision, namely the income reported in the return. Mr Scoon cited several decisions of judges and Commissioners to support his submission that the tribunal was wrong in ignoring new evidence of a relevant change of circumstances. I consider this clear law that no longer needs supporting authority. (2) The other issue facing the tribunal below, but which it avoided, was other evidence of both trading income and employment income. Neither the Commission nor the tribunal gave proper consideration to C’s complaint that A was receiving employment income but not being assessed on it. The tribunal should have looked at those points also. The starting point on both issues should have been, as it was available to the tribunal, the new return and the accounts it contained. It was then for C (or the Commission) to challenge that evidence. That requires production of evidence to show that the return was wrong, or submissions to show that the return was wrong in law.

 

How should the tribunal have handled the case?

44 The judge granting permission to appeal also asked what course of action the tribunal should have taken. That I cannot answer in general terms. As was emphasised by the Tribunal of Commissioners in R(IB) 2/04, the tribunal may itself take any decision that could have been taken by the Commission. In considering the management of the appeal, the tribunal must take into account the overriding objective set out in rule 2 of the Tribunal Procedure Rules. If it can fairly and justly deal with the matter itself applying the rule 2 considerations, then it should do so. However, this tribunal was asked to hear this difficult and hard-fought appeal with only one of three parties present. In those circumstances, had it considered the return as relevant it would have had to adjourn to ensure a fair hearing of any new point. Given the complexities of the case, there are several possible courses of action open on such an adjournment, and I do not consider it appropriate to attempt to fetter the tribunal’s choice of those options from the appellate level. It is for a judge giving local case management directions and the tribunal judge on the day to decide the best case management approach to adopt to ensure that the overriding objective is best met.

 

Conclusion

45 The decision refusing a supersession is set aside. I must send the matter back to a new tribunal. The relevant tax return is in evidence and the tribunal must also consider the other evidence now offered with a view to determining whether a supersession should be granted in respect of C’s application. At a late stage, I received further evidence from C that will be relevant to the new hearing and that is to be included in the papers. The new tribunal must consider afresh whether, on all the evidence now before it about the circumstances as at the date of the original application for supersession, there should be a supersession of the previous decision due to a change of circumstances. This will require findings of fact about A’s income at the relevant time as assessed under the provisions set out above.

 

46 If C has further evidence to support the assertions made in the papers and in the hearing before me then she is directed to produce that evidence. I emphasise that at this stage in this appeal it is for her to produce evidence that the tax return is wrong. She cannot simply assert errors and expect others to find the evidence for her. If she does not produce evidence to support the contentions she makes, then I warn her that the tribunal may conclude that she has no evidence.

 

 

David Williams

Upper Tribunal Judge

8 06 2010

 

[Signed on the original on the date stated]