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Cite as: [2014] UKUT 543 (AAC)
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SB v Revenue and Customs (TC) (Tax credits and family credit : couples and joint claims) [2014] UKUT 543 (AAC) (03 December 2014)
IN THE UPPER TRIBUNAL Appeal No: CTC/1824/2014
ADMINISTRATIVE APPEALS CHAMBER
Before: Upper Tribunal Judge Wright
DECISION
The Upper Tribunal allows the appeal of the appellant.
The decision of the First-tier Tribunal sitting at East London on 8 November 2013 under reference SC102/13/06955 involved an error on a material point of law and is set aside.
I give the decision the First-tier Tribunal ought to have given, namely that, as the respondent now agrees, as at the date of the decision under appeal there were no grounds for holding the appellant did not satisfy the entitlement conditions for child tax credit and working tax credit as a single person as at 1 June 2012, and HMRC’s decision to contrary effect dated 25 March 2013 is set aside.
This decision is made under section 12(1), 12(2)(a) and 12(2)(b)(ii) of the Tribunals Courts and Enforcement Act 2007
REASONS FOR DECISION
1. Stripped to its essentials (and the HMRC’s appeal response permits of little else), the decision of HMRC under appeal to the First-tier Tribunal was one dated 23 March 2013 in which HMRC purported to remove the appellant’s entitlement to child tax credit (“CTC”) and working tax credit (“WTC”) for the period 1 June 2012 to 5 April 2013 because it had been awarded on the basis that she was claiming as a single person when in fact (or so HMRC contended) throughout this period she had been a member of a couple.
2. The First-tier Tribunal in its decision dated 8 November 2013 (“the tribunal”) upheld HMRC’s decision of 25 March 2013.
3. In giving permission to the appellant I said there was a number of puzzling, if not troubling, aspects of the appeal which warranted the full attention by the Upper Tribunal. In particular, I asked:
(a) what evidence was the original awarding decision based on and ought the tribunal not have investigated this?;
(b) what was the law that allowed the decision to be made to remove tax credits from the initial awarding date, and ought the appeal response and the tribunal not have addressed this?;
(c) related to (b), what was the basis for the decision under appeal to the tribunal? Was it that the award was removed retrospectively simply because of failure to provide evidence, or was it that on the balance of probabilities the appellant was in fact living as a member of a couple in June 2012?;
(d) if it was the latter decision under (c), what weight did the tribunal attach to the appellant’s evidence that she had separated from her policeman husband but his name had to remain on the occupancy agreement even if he was not living there?;
(e) related to (d): (i) ought the tribunal not have been supplied with/called for the telephone call evidence referred to in the appeal letter on page 3?; and (ii) ought the tribunal not have been supplied with/called for the evidence referred to by HMRC in its letter on page 5 (that the husband was living at the appellant’s address)?; and
(f) ought the tribunal to not have reasoned out more fully than it did why it was able to fairly and justly decide the appeal absent all of the above and the appellant?
4. Given HMRC’s support for this appeal (through the careful submissions of Mr Eland), on one analysis there is no need for me to explore these areas, other than to comment that the appeal response of HMRC to the tribunal fell very substantially short of being an adequate response and the tribunal erred in law in considering itself able to decide the appeal on the papers alone notwithstanding the manifest shortcomings in the papers. However, given the significant shortcomings this appeal evidences, I consider it may assist HMRC appeal response writers and the First-tier Tribunal if I explore the decision making on this appeal in some detail.
5. Much of the decision making of HMRC has had to be reconstructed backwards, so to speak, with the help of Mr Eland. This should not be the case. HMRC’s appeal response to the tribunal ought to have set out the legal and factual basis for its decision under appeal and had attached to it copies of all relevant evidence. That is what rule 24(2)(e) and 24(4) of the Tribunal Procedure (First-tier Tribunal) (Social Entitlement Chamber) Rules 2008 require. However, it was ever thus: see paragraph 20 of CTC/3981/2005. That the response in this appeal fell short of these requirements is a considerable understatement. (I leave undetermined whether the response, such as it was, was provided to the appellant at an appropriate time.)
6. Working backwards, however, it would appear that what is described as the original award of CTC and WTC for the period 1 June 2012 to 5 April 2013 was made on the basis that the appellant was a single person claimant: per section 3(3) of the Tax Credits Act 2002. None of the documents relating to that original claim were included with HMRC’s appeal response to the tribunal. Mr Eland says that it “must be the case” that the claim form included only the appellant’s details and made no reference to her husband, and so the claim was based only on her own assessment of her circumstances. In the absence of any direct evidence from HMRC as to the basis of the original awarding decision, it may be that Mr Eland is correct, and the appellant’s letter of appeal on page 3 would seem to support Mr Eland’s contention. However, this should not be taken as excusing HMRC’s failure to provide this evidence to the tribunal.
7. The next working backwards step is to work out the legal authority under which the decision under appeal was taken. Given the decision’s date – that is 25 March 2013, so within the tax credit year the original award covered – and given the alleged “investigatory” steps that had preceded it, I accept Mr Eland’s argument that it was a decision made pursuant to section 16(1)(b) of the Tax Credits Act 2002. However, it is lamentable that this was not explained in the HMRC’s appeal response. All that is said is that HMRC had “reason to believe” the appellant was living with an undeclared partner, namely her husband. Quite why that section 16 decision was not then overset by a (seemingly mandatory) decision after final notice decision under section 18 of the Tax Credits Act 2002 (see paragraphs 38-43 of CTC/3981/2005) is not clear.
8. Section 16(1)(b) provides, so far as is material, that:
“where at any time during the period for which an award of tax credit is made to a person…[HMRC] have reasonable grounds for believing that [the person] has …ceased to be, or never been entitled to tax credits for the period, [HMRC] may decide to amend or terminate the award.”
9. The focus thus for HMRC in its appeal response was on why it had reasonable grounds for believing that the appellant had never been entitled to tax credits (as a single person). Standing in HMRC’s shoes on the appeal, that was also the focus for the tribunal: paragraph 34 of CTC/3981/2005. However, the test is whether there were reasonable grounds for the belief at the time the section 16 decision was made: see paragraph 36 of CTC/3981/2005. Of course, evidence that is provided after the date of the section 16 decision may still be relevant to the time the decision was made and whether there were reasonable grounds for believing at that time.
10. Given the consent as to the result that should now hold on this appeal, I do not investigate further whether the “reasonable belief” is enough to terminate the award or whether that belief must then be substantiated on the facts on the balance of probabilities so as to show that the person was, for example, never entitled to tax credits for the period for which the award had been made.
11. However, given the onus of proof rests squarely on HMRC under section 16, in my judgment the correct starting point was that it was for HMRC to make good the evidential basis for the “reasonable grounds for believing” statutory test it was seeking to rely on. Conversely, the starting point was not for the appellant to show that the award had been properly made (i.e. that she was a single claimant). She had an award made pursuant to section 14 of the Tax Credits Act 2002 and that award remained valid and lawful unless and until, here, properly terminated under section 16.
12. It is necessary to stress this point because HMRC’s response to the tribunal completely missed it and stated that the basis for its decision was that the appellant had “failed to provide HMRC with sufficient evidence to support the validity of her single person claim”. That might have been a basis for not making an award under section 14 (if there was a doubt at the time the original claim was made as to whether the appellant was single or not), but I cannot see how it provides any proper basis for a decision under section 16. The “reasonable grounds for believing” have to come from somewhere and I struggle to see how they can arise from a negative (i.e. a failure to provide evidence) absent any other, positive evidence as to the claimant not being single. After all, the context for section 16 is that an award has been made under section 14 and that must have been based on (some) evidence that satisfied HMRC that that award was appropriate and that the appellant was single.
13. I therefore agree with Mr Eland when he argues that it is doubtful whether HMRC’s decision of 25 March 2013 was properly made. It certainly was not properly explained or evidenced. It is for this essential reason that I am allowing the appeal on the terms now proposed by HMRC. HMRC had not discharged the onus on it under section 16 of showing proper evidential basis that established reasonable grounds for believing that the appellant had not been single since 1 June 2012, and the tribunal fundamentally erred in law in not coming to this conclusion.
14. The actual “positive” evidence that HMRC had elicited before its 25 March 2013 decision under section 16 is, however, not set out in the appeal bundle. All that is said in the appeal response is that “HMRC had reason to believe that [the appellant] was living with an undeclared partner, her husband….”. One immediate difficulty is that this “evidence” does not say when this alleged state off affairs had come about, though the language is only explicit about the “living with” at the time of the reasonable belief, and arguably does not support the view that the living with had been since 1 June 2012.
15. HMRC then wrote to the appellant on 28 January 2013 asking for “evidence to support her single person claim”. Astonishingly, her reply letter does not appear as evidence in the appeal bundle, notwithstanding HMRC then relied on it as not being “sufficient evidence to support her single person claim being valid”. However, it is summarised as being that the property the appellant was living in was a police property and her husband had to occupy the property as a serving police officer. Again, exactly when this state of affairs had applied from was not addressed. Moreover, no reference is made to or argument made upon why this gave rise to reasonable grounds for believing that the appellant and her husband had been a “couple” under the terms of section 3(5A) of the Tax Credits Act 2002. For example, even if true and the appellant remained married to her “husband”, they may still have been “separated in circumstances in which the separation [was] likely to be permanent” (per section 3(5A)(a)(ii) – and a “couple” may be separated from one another even where living at the same address or even where living in the same “household”: see DG –v- HMRC (TC) [2013] UKUT 631 (AAC)).
16. On this evidence, and that is all we are told HMRC had before it at time it made its decision of 25 March 2013, I fail to see the rational evidential basis for reasonable grounds for believing that the appellant was never entitled tax credits from 1 June 2012 as a single person because she was in fact a member of a couple. The enquiry surely had to go further, but did not, and find out whether notwithstanding they were living at the same address the appellant and her husband were in fact separated from one another in the s.3(5A)(a)(ii) sense.
17. However, the tribunal at least did have before it further evidence from the appellant in the form of her appeal letter (page 3). In that the appellant set out that she had made her claim for tax credits with effect from June 2012 because she had separated from her husband. The letter then refers to a prior telephone conversation between the appellant and HMRC in which she explained that her husband had moved out of the (police) property so that she and the children could remain in the property “to cause the kids the least upheaval as possible as the separation itself had had a huge impact on them already”. This is not addressed in the appeal response by HMRC, nor did the response provide, or the tribunal call for to be provided, the log of this important telephone conversation. The critical factor it seems against the appellant, as she disclosed in her appeal letter (again, HMRC’s appeal response is silent on this), was that her husband had not told his (police) employer that he had moved out and he was therefore still shown as living at the address (though, as I have said, his still living there would not have precluded him and the appellant being “separated” for tax credits purposes).
18. The appeal letter also shows - worryingly I have to say in terms of the fairness of the appeal process given the evidence is not then provided by HMRC with the appeal response - that the appellant had provided documentary evidence to HMRC, all of which was in her name, which had not been deemed sufficient. The appellant ended her appeal letter by plaintively imploring HMRC to come over to her address and speak to her family and neighbours as they could show she was not living with her husband.
19. Faced with this under-heated case from HMRC and given the glaring omissions in the appeals response, one might have expected the tribunal to throw out HMRC’s case as having failed to cross the section 16 evidential onus and allow the appeal. It did not. The tribunal instead, in a decision it considered it was able to arrive at fairly and justly on the papers before it (notwithstanding their manifest deficits), upheld HMRC’s decision.
20. Before coming to the tribunal’s decision on whether section 16(1) was satisfied, I should mention one other step that HMRC had taken. In response to the appellant’s appeal, HMRC wrote to her and asked her for further evidence to support her appeal, including bank statements and any other utility bills or documents showing she had separated from her husband (e.g. court or solicitor’s letter including legal separation document or degree nisi). When the appellant did not provide this further evidence, HMRC drew an adverse inference against her. Quite how that related back to HMRC having had reasonable grounds for believing that the appellant had never been entitled to tax credits at the time it had made its decision was left unexplained.
21. Allied to this adverse inference, HMRC then took what many may have seen as a bold step (given the failings in its appeal response) of asking for the appellant’s appeal to be struck out as she had not made any contact regarding how she wished her appeal to proceed or provided the evidence requested and therefore without this HMRC were unable to proceed further with the appeal. Quite why HMRC having reached the end of the road, so to speak, was a ground for the tribunal striking out the appeal rather than simply deciding it is not clear to me.
22. The tribunal said nothing at all about strike out. I shall assume in its favour that it decided to ignore HMRC’s request based on its view that it could decide the appeal on the merits and to do otherwise and strike it out for the reasons given by HMRC would have been irrational: per DTM –v- Kettering BC (CTB) [2013] UKUT 625 (AAC).
23. The tribunal had to decide the appeal applying the relevant law. Regrettably, I can find nothing in the statement of reasons to show that it did so. Section 16 of the Tax Credits Act 2002 is not set out in the tribunal’s reasons, nor is the “reasonable grounds for believing” test; nor, equally importantly, are the terms of section 3(5A) of the Tax Credits Act 2002 (defining “couple”) set out. Even though HMRC had failed to set out these relevant statutory provisions, as the tribunal said it was satisfied it was able to decide the appeal on the papers alone it ought to have been satisfied of all the relevant law it had to apply.
24. In these circumstances, I accept Mr Eland’s submission that the tribunal erred in law in failing to explain adequately in its reasoning whether it was upholding HMRC’s decision under appeal either: (a) on the basis HMRC had given for it – “because the appellant had failed to provide HMRC with sufficient evidence to support the validity of her single person claim” – which was the tribunal’s stated reason on its decision notice of 8 November 2013 (p.11), or (b) because, in the absence of that evidence, and the evidence in total, it was satisfied that section 16(1)(b) was satisfied as at 25 March 2013.
25. Furthermore:
(i) if it was the former, the tribunal simply applied the wrong legal test (for the reasons explained above) and thereby erred in law;
(ii) if it was the latter then the reasoning was further deficient in that it:
did not address the terms of section 16(1)(b) or otherwise show that its terms were being applied to the material evidence; failed to grapple with the appellant’s evidence about having separated and why her husband’s name was still on the property; failed to address or obviously apply the meaning of “couple” in section 3(5A); and, seemingly proceeded on the basis that the absence of documentary evidence from solicitors or the courts as to the separation was determinative, whereas, as the terms of s.3(5A)(a)(ii) of the Tax Credits Act 2002 and DG demonstrate, a person may still be separated (and so not part of a “couple” for tax credits purposes) even if not separated under any formal court order and even if still living at the same address. There was simply no attempt by the tribunal to analyse whether there were reasonable grounds for believing that that the appellant had not “separated”, in this sense, from her husband from 1 June 2012.
26. I also consider the tribunal erred in law in failing to provide any proper explanation as to why it considered it was fair and just to determine the appeal on the papers available to it on 8 November 2013 notwithstanding the serious omissions in HMRC’s appeal response.
27. For these reasons, I set aside the tribunal’s decision of 8 November 2013 and give the decision I consider it ought to have given, as set out above.
Signed (on the original) Stewart Wright
Judge of the Upper Tribunal
Dated 3rd December 2014