Upper Tribunal (Administrative Appeals Chamber)

IN THE UPPER TRIBUNAL                                                         Case No.  CCS/41/2013

ADMINISTRATIVE APPEALS CHAMBER

Before:  E A L BANO

Attendances:

For the Appellant:                Mr T. Killick, Solicitor

For the First Respondent   Mr Stephen Cooper, Solicitor, instructed by the Department for Work and Pensions

For the Second Respondent:  The Second Respondent in person

Decision:  My decision is that the decision of the First-tier Tribunal involved the making of an error on a point of law. I set aside the tribunal’s decision and remit the case for hearing before a differently constituted tribunal.

REASONS FOR DECISION

1.         This is an appeal by the non-resident parent against a decision of the First-tier Tribunal allowing an appeal by the parent with care (I shall refer to the parents as the ‘father’ and ‘mother’ from now on) against a decision made by CMEC refusing to order a variation of the maintenance assessment on the ground of lifestyle inconsistent with declared income.  (Regulation 20 of the Child Support (Variations) Regulations 2000) (the “Variations Regulations”).

2.         The father and mother are the parents of two relevant children.  On 30 August 2005 the father was assessed as liable to pay child support maintenance of £32.00 per week, but on 30 January 2006 the mother applied by telephone for a supersession of the assessment and for a variation on the grounds of lifestyle inconsistent with income.  Although the maintenance assessment was subsequently superseded on a number of occasions to take into account alterations in the father’s income, the January 2006 application was not in fact determined until 7 July 2011, by which time the mother had made a further variation application.  A variation was ordered under regulation 19(1) of the Variations Regulations in respect of dividend income, but since that income was below £100 per week the decision was later revised to remove the variation on that ground.  No variation was however ordered in respect of lifestyle inconsistent with declared income, and it is that refusal which is the subject of this appeal.

3.         The father is in business as a car body repairer and since 1 January 2009 he has traded through the medium of a company of which he is the sole shareholder and director.  He is the sole owner of a house which he purchased with the aid of a mortgage in           2005.  The tribunal found that for a large part of the first three years of the period with which the appeal is concerned the father lived rent free with his parents and rented out the property to pay the mortgage.  At a preliminary hearing on 28 May 2012 the tribunal rejected an application for a variation under regulation 18 of the Variations Regulations (assets) in respect of periods when the father was not living at the property because it considered that the father was retaining the property for a reasonable purpose, that is, to provide a home for himself and his family.

4.         The tribunal rejected an argument by the father’s representative that mortgage payments should be excluded from the expenses taken into account in deciding the level of income needed to support the father’s lifestyle.  It found that the monthly level of income for each of five periods between the variation application and the eventual determination of the application was as follows:

£1,242.20 from 26 January 2006

£2,037.50 from 7 November 2008

£1,763.40 from 5 December 2008

£1,570.90 from 6 March 2009

£1523.93 from 1 July 2011

The tribunal found that it was just and equitable to order a variation and directed CMEC to vary the assessment on the basis of its findings.

5.  On 28 November 2012 the father made a late application for a set aside of the tribunal’s decision and for permission to appeal.  He contended that the tribunal had failed to take proper account of all his sources of income in deciding how his lifestyle was financed and had failed to take into account the evidence of a backdated award of working tax credit, supplied in response to a direction given by the tribunal on 4 January 2012.  The father also submitted that the week before each of the individual periods identified by the tribunal in calculating the level of income needed to support his lifestyle should be treated as a ‘relevant week’ for the purposes of regulation 1(2)of the Child Support (Maintenance Assessment and Special Cases) Regulations 1992.

6.   Following the refusal by the First-tier Tribunal judge to extend the time for making the application, the father renewed his application for permission to appeal to the Upper Tribunal.  Before determining the application, I directed a submission from the Secretary of State on the question of whether there was power to supersede the child maintenance liability on the ground of a change of circumstances with effect from the commencement date of a backdated award of tax credit, or power to review it from that date.  In response, the Secretary of State submitted that there was power to supersede the assessment to take into account an award of working tax credit, but only with effect from the date on which the supersession decision was made.

7.  In the event, I admitted the application and gave permission to appeal on 21 June 2013 not on the supersession issue, but because I considered it to be arguable that the tribunal ought to have made findings with regard to the father’s rental income in the period 2006-2009 in order to decide whether his lifestyle was funded by income which fell to be disregarded under the Variations Regulations, and also because I considered it arguable that the tribunal failed to make sufficient findings of fact with regard to the extent to which the father’s lifestyle was funded by credit cards and overdrafts.  The appeal has been supported by the Secretary of State both on those grounds and on the grounds raised in my first direction.

8. In written submissions on behalf of the father, drafted by counsel acting pro bono, it was contended that:

a.    The tribunal should not have taken into account lifestyle which was funded by rental income because it was income which would be disregarded for the purposes of a maintenance calculation under regulation 20(3)(a), or else income derived from an ‘asset’ under regulation 20(3)(c) of the Variation Regulations;

b.    the tribunal failed to consider other sources of funding, in particular various ad hoc capital payments, spending on credit cards and financial support from the father’s parents and new partner;

c.     the tribunal failed to take into account receipt of working tax credit.

At the hearing of the appeal Mr Killick submitted that the effect of regulations 20(1) and (3) was that mortgage payments should not be regarded as payments required to support the father’s overall lifestyle to the extent that the cost of the mortgage was met from rental income.

8.  Mr Cooper, on behalf of the Secretary of State, submitted that the father’s rental income fell to be disregarded in calculating his maintenance assessment under paragraph 23 of Schedule 2 to the Child Support (Maintenance Assessment and Special Cases) Regulations 1992 and therefore also fell within regulation 20(3)(a) of the Variations Regulations and supported the appeal on that basis.

9.  The mother submitted that the father had been in receipt of rental income only for the first three years of the period covered by the tribunal’s decision, and that in calculating the income required to support the father’s lifestyle the tribunal had in fact left out of account items of expenditure such as the cost of broadband, mobile phones and vehicle costs.

10.  Because there was confusion at the hearing about the relevant statutory provisions during the period covered by the tribunal’s decision, I directed a further written submission on behalf of the Secretary of State identifying the relevant provisions and dealing also with the powers of the tribunal in relation to working tax credit.  Mr Cooper responded to that direction by means of a further written submission dated 13 March 2014.

11.  In CCS/1320/2005 it was held that the term ‘disregarded’ in regulation 20(3(a) of the Variations Regulations extends to income not taken into account in calculating the tariff assessment, as well as income expressly disregarded under the Maintenance Calculations and Special Cases Regulations.  As Mr Cooper has pointed out in his supplementary submission, prior to 1 August 2007 rental income was taken into account in calculating the maintenance assessment only if it was derived from a business which included letting houses.  After regulation 5 of the Child Support (Miscellaneous Amendments) Regulations 2007 came into force, the new paragraph 1A of the Schedule to the Maintenance Calculations and Special Cases Regulations had the effect that the basis of assessment became the non-resident parent’s net weekly income as a self-employed earner.  Since rental income falls within Part 3 of the Income Tax (Trading and Other Income) Act 2005, it cannot be taken into account in calculating net weekly income.   For the period after 1 August 2007, the father’s rental income from letting out his house was also left out of account in calculating his maintenance assessment, and therefore came within regulation 20(3)(a).  Since the rental income could not be regarded as income from a business, I agree with Mr Cooper that it could not form the basis of a variation under regulation 19.  I also agree with the appellant’s counsel written submission that the father’s house was an ‘asset’ within the meaning of regulation 18(2), so that income from letting the house fell within regulation 20(3)(c).  The fact that the tribunal considered that the house was an asset which it was reasonable for the father to retain does not seem to me to affect the position.

12.  Although the tribunal was right to take into account mortgage payments in determining the level of income required to support the father’s lifestyle, it therefore erred in law in failing to consider the extent to which that lifestyle was paid for from rental income.  Paragraph (3) of regulation 20 will only apply to prevent a variation being ordered under paragraph 1 if the whole of the additional income needed to support the non-resident parent’s life-style comes from one or more of the sources listed in paragraph 20(3)-see R(CS) 6/02, but if a large part of the additional income is derived from those sources a tribunal may be justified in concluding that it is not just and equitable to order a variation.

13.  I also agree that the tribunal did not deal adequately with other sources of funding.  The tribunal accepted that the father shifted debts from one credit card to another, but made no findings on the extent to which the father’s life-style was funded by borrowings, or assistance from family and friends.

14.  It remains to deal with working tax credit.  Regulation 27(6) of the Variations Regulations provides that:

“The effect of a variation shall not be applied for any period during which a circumstance referred to in regulation 7 applies”.

Regulation 7(5)(b) prescribes as one of the relevant circumstances:

“the non-resident parent or a partner of his is in receipt of working tax credit…”

15.  The words “effect of a variation” in paragraph 27(6) pre-suppose a variation which is already in existence at the time when the prescribed circumstance comes into force.  I consider that the effect of the provision is simply to suspend the operation of the variation during any period while a prescribed circumstance obtains, and that accordingly it is not necessary to supersede the variation for any period during which any of the regulation 7 prescribed circumstances are in force.  Since working tax credit is not one of the benefits listed in regulation 4(1) of the Maintenance Calculations and Special Cases regulations 2000, a supersession decision to take account of receipt of working tax credit could only take effect from the date of the supersession decision, and would therefore leave out of account working tax credit paid during any prior period.  Moreover, unless the supersession was for a fixed period, the effect of the termination of the variation would be that the parent with care would have to apply for a new variation when receipt of tax credit came to an end.  I have therefore come to the conclusion that receipt of working tax credit goes to the payability of the amounts due under a variation, and does not raise any supersession issues.  Accordingly, I do not consider that the tribunal erred in law in failing to deal with receipt of working tax credit.

16.  However, the decision of the tribunal will have to be set aside for the other reasons I have given.  Understandably, Mrs Wood would like me to re-decide the case myself, but I do not consider that I am in a position to do so.  Mrs Wood herself says that there are aspects of Mr Wood’s life-style which have not been fully considered and issues such as the extent to which his life-style was funded by borrowings and assistance from family and friends have not yet been fully investigated.  I therefore refer the case for rehearing before a fresh tribunal, applying the principles which I have set out above.

                                                            (Signed)                    E A L BANO                                                                                                                         Judge of the Upper Tribunal

(Dated)                     9 October 2014