Upper Tribunal (Administrative Appeals Chamber)

IN THE UPPER TRIBUNAL Case No.  CCS/5557/2014

ADMINISTRATIVE APPEALS CHAMBER

Before Upper Tribunal Judge Rowland

Decision:  This appeal by the parent with care is allowed.  The decision of the First-tier Tribunal dated 29 January 2014 is set aside and there is substituted a decision that, from the commencement of his employment in Belgium in late 2012 or early 2013, the non-resident parent was an employed earner for the purposes of the Child Support (Maintenance Calculations and Special Cases) Regulations 2000 (SI 2001/155).  All other issues arising on the claim for child support maintenance are to be decided by the Secretary of State, against whose decision either of the parents will be entitled to appeal to the First-tier Tribunal if they wish.

REASONS FOR DECISION

1. The Appellant and the Second Respondent are, respectively, the mother and father of a girl who is now aged 16.  They were married to each other but divorced some time ago and they have both since married other partners.  In child support terminology, the mother is the “parent with care”, the father is the “non-resident parent” and their daughter is the “qualifying child”. 

2. The father had been living and working in the United States of America for about ten years.  He was paying maintenance in respect of his daughter under a court order obtained by the mother in England which was enforceable in the United States.  However, in December 2012, he returned to Europe, setting up home with his family in Kent but working for a Belgian company based in Brussels.  It appears that he works mainly in Belgium, where he has lodgings, and partly from home.  It is not disputed that he is habitually resident in the United Kingdom but that his salary, which is paid in Euros, is subject to Belgian taxation. 

3. As soon as he moved to the United Kingdom, the mother applied for child support maintenance under the Child Support Act 1991.  There are currently three different child support schemes in operation.  Which one applies in any particular case depends not only on the date of the application for child support maintenance but also, at least in the case of the latest scheme, on the number of “qualifying children”.  Although the mother has understandably referred to the scheme introduced from 10 December 2012, that scheme was brought into force then only for cases where there were at least four qualifying children (see article 3(2)(b) of the Child Maintenance and Other Payments Act 2008 (Commencement No.10 and Transitional Provisions) Order 2012 (SI 2012/3042)), whereas there is only one qualifying child here.  Accordingly, the previous scheme, confusingly still called the “new rules” scheme (at least until very recently) by those who administer it, applies in the present case. 

4. Therefore, the assessment fell to be made in accordance with the Child Support (Maintenance Calculations and Special Cases) Regulations 2000 (SI 2001/155), which require there to be taken into account the earnings of an “employed earner” or “self-employed earner”, as defined for the purposes of the Regulations but exclude from consideration earnings of people who do not fall within those definitions.  Thus, in AT v Secretary of State for Work and Pensions (CSM) [2013] UKUT 614 (AAC); [2014] AACR 21, it was held that the earnings of a security guard at the British embassy in Afghanistan who was employed and paid by a company incorporated in Jersey could not be taken into account because he did not fall within the definition of “employed earner” in section 2(1)(a) of the Social Security Contributions and Benefits Act 1992 – which, by virtue of regulation 1(2) of the 2000 Regulations, applied for the purpose of those Regulations – or within the additional categories identified in regulation 1(2) itself. 

5. In the present case also, the father plainly did not fall within the scope of section 2(1)(a) of the 1992 Act, which provides –

“‘employed earner’ means a person who is gainfully employed in Great Britain either under a contract of service, or in an office (including elective office) with general earnings”.

6. However, there has been an important amendment to regulation 1(2) of the 2000 Regulations since the date material to the decision in AT.  It now provides –

“‘employed earner’ has the same meaning as in section 2(1)(a) of the Social Security Contributions and Benefits Act 1992 except that it shall include –

(a) a person gainfully employed in Northern Ireland;

(b) a person to whom section 44(2A) of the Act applies; and

a person gainfully employed outside the United Kingdom if the person’s income from that employment is chargeable to tax under the Income Tax (Earnings and Pensions) Act 2003 or would be were it not for any double taxation arrangements under Part 2 of the Taxation (International and Other Provisions) Act 2010.”

7. The words after head (b) (which I suspect would have been a head (c) but for a drafting mistake in the amending instrument) were added by the Child Support (Miscellaneous Amendments) Regulations 2012 (SI 2012/712) with effect from 30 April 2012.  At paragraph 7.16 of the explanatory memorandum to the amending statutory instrument, the previous position is described as an “anomaly” and it is stated–

“In the future, as the Commission [i.e., the Child Maintenance and Enforcement Commission whose functions have now been transferred back to the Secretary of State] moves towards the use of Her Majesty’s Revenue and Customs (HRMC) income data, it will be able to use any income that is subject to UK tax, wherever earned as long as HMRC have a record of the income.”

8. It appears that the mother’s application for child support maintenance was made on 18 December 2012 and the father was first informed of the application on 31 December 2012.  The papers before me do not show exactly what communications there were between the Secretary of State and the father, but it took some considerable time for the Secretary of State to investigate the case.

9. An entry on his “record of decisions” (which helpfully seems to be used as a more general record of contacts and thoughts) made on 18 March 2013 says –

“PWC says that although NRP works for a company based in Belgium, he has to declare his income to UK tax office.  720 has been issued for any income/employment details.”

On 24 May 2013, it was noted –

“New CSA724 As B/Procedures instruct us we can now ask about F/Earnings that have to be declared to HMRC.  Due back 03/06/2013.”

Then there are entries that appear to have all been made on 17 June 2013 –

“NRP confirmed on 31 May that he was not paying UK taxes.

NRP returns to UK on a weekly basis, he is therefore habitually resident.

Business Procedures state: The UK tax rate will be applied in all cases unless the NRP provides evidence that they are paying a higher rate of foreign tax.

NRP, in a telephone call on 14 June, stated his earnings attract a tax rate of 50%.  He was unable to verify this tax status but confirmed that he had made enquiry to HMRC.  He was advised that, as Belgium’s rate of tax is higher than that paid in the UK, this meant that UK tax would not be payable.  He was awaiting a letter from his employer, to confirm tax deductions, to submit to HMRC.

HMRC enquiry has not been successful.

I have therefore accepted the NRP’s verbal statement as acceptable evidence and have decided, on the balance of evidence, that the NRP does not pay UK tax.”

10. On the same day, the mother was informed by telephone that the father’s earnings could not be taken into account “due to his tax status” but it appears that it was thought necessary to wait for him to provide his pay slips before a decision was made.  Meanwhile, the mother had made a complaint to the chief executive of the Child Support Agency about the apparent inability to take account of the father’s earnings.  After a further telephone call on 31 July 2013 in which an apology was made for the delay and the mother was told that she would be paid £75 as a consolatory payment and would be able to appeal against the nil assessment, the Secretary of State eventually made his decision on 2 August 2013 that the father’s liability to pay child support maintenance from 31 December 2012 was nil because he did not have any income that could be taken into account.  The mother immediately appealed.

11. In his response to the appeal, the Secretary of State set out a garbled version of the definition of employed earner in regulation 1(2) of the 2000 Regulations, omitting the reference to the 1992 Act but accurately reproducing the concluding words inserted in 2012.  He then said –

“The decision maker confirmed that [the father] is employed by a Belgian company and is not paying taxes in the United Kingdom.  The decision maker has obtained verbal evidence from [the father] confirming the level of his income and that the tax was payable in Belgium.

As such, the Tribunal is asked to consider and decide if the decision maker was correct not to allow any income within the maintenance calculation.”

12. None of the parties having asked for an oral hearing, the First-tier Tribunal considered the appeal on the papers and dismissed it on 29 January 2014, stating in its decision notice –

“The jurisdiction of the Agency does not extend to imposing a liability to pay Child Support maintenance based on earnings of an “employed earner” who is an employee of a Belgian company who is not paying taxes in the UK.”

In paragraph 7 of its statement of reasons, which was not written until 22 September 2014, the First-tier Tribunal said –

“His income from employment in Belgium is not chargeable to tax under the Income Tax (Earnings and Pensions) Act 2003 and nor would it be were it not for any double taxation arrangements under Part 2 Taxation (International and Other Provisions) Act 2010.  His employed income falls outside the income allowed in the main formula maintenance calculation for Child Support Act purposes.”

13. The mother applied for permission to appeal, which was refused by the First-tier Tribunal on 6 November 2014 but given by me on 11 February 2015 for the following reasons –

“… neither the Secretary of State nor the First-tier Tribunal has explained why the Second Respondent is not ‘a person gainfully employed outside the United Kingdom [whose] income from that employment is chargeable to tax under the Income Tax (Earnings and Pensions) Act 2003 or would be were it not for any double taxation arrangements under Part 2 of the Taxation (International and Other Provisions) Act 2010’, given the extent to which he appears to be resident in the United Kingdom.  …

The fact that the Second Respondent may quite properly not be paying tax in the United Kingdom on his Belgian earnings does not answer the question whether he would be liable for tax in the United Kingdom on those earnings but for a double taxation arrangement.  If the Second Respondent is ordinarily resident in the United Kingdom, it is not clear to me why he would not be liable for tax in the United Kingdom but for double taxation arrangements and, indeed, the evidence suggests that it is only because HMRC was satisfied that his Belgian tax was higher that it did not demand payment of United Kingdom tax, which would be consistent with that being the position.”

14. The Secretary of State now concedes that the father would be liable for United Kingdom income tax on his Belgian earnings but for a double taxation arrangement.  Accordingly, he concedes that both his decision and that of the First-tier Tribunal were wrong in law.

15. The father does not dispute that that is so.  Indeed, he has been at pains to point out that he has never intended shirking his responsibilities and that he has in fact agreed to make child maintenance payments to his wife and is doing so.  She nevertheless, quite understandably, wants a more formal arrangement and, although they have agreed a figure for the time being, I am not sure that either of them is convinced that the amount he is paying is really the amount that he ought to be paying.

16. I am satisfied that the Secretary of State’s concession is rightly made and that this appeal must be allowed.

17. The legal position is as follows.  Where a person is resident and domiciled in the United Kingdom, he or she is liable to United Kingdom tax on earnings without any territorial limitation (see section 15 of the Income Tax (Earnings and Pensions) Act 2003) and even a person not domiciled in the United Kingdom may, while resident or treated as resident in the United Kingdom, be liable for tax on overseas earnings, particularly if the earnings are received in, or remitted to, the United Kingdom.  However, there are treaties between the United Kingdom and about 120 other countries or territories, making arrangements so as to prevent employees being taxed to an unfair extent on the same earnings in both the United Kingdom and the other country or territory.  The arrangements in the treaties are given effect by orders in council made, or treated as made, under section 2 of the Taxation (International and Other Provisions) Act 2010.  A list of the treaties and any protocols, together with links to the documents themselves and (via a document entitled Double taxation treaties: how they work) to a list of the statutory instrument numbers of the orders in council, may be found on the government website, to which the Secretary of State’s current representative has helpfully drawn my attention, at: https://www.gov.uk/government/collections/tax-treaties-signed-and-in-force.  Section 2 of the 2010 Act is in Part 2 of that Act.  There is also provision in Part 2 of the Act for unilateral double taxation relief where there are no bilateral arrangements (see sections 9 and 11).

18. It is no great surprise to find that there is a double taxation treaty between the United Kingdom and Belgium and that it has the effect described in the notes of 17 June 2013 set out above.  It has that effect because Belgian tax paid on Belgian earnings is allowed as a credit against United Kingdom income tax due on the same earnings.  See Article 23(1)(a) of the Convention set out in the Schedule to the Double Taxation Relief (Taxes on Income) (Belgium) Order 1987 (SI 1987/2053).  (There are two protocols amending the Convention, one given effect by the Double Taxation Relief (Taxes on Income) (Belgium) Order 2010 (SI 2010/2979) and the other, I think, not yet in force.)

19. The Secretary of State’s decision maker seems simply not to have understood what the definition in regulation 1(2) of the 2000 Regulations meant and therefore also did not understand the implications of the information that had been gathered from the father and from the “Business Procedures” manual.  The submission to the First-tier Tribunal was wholly inadequate.  If a submission-writer does not understand the law, which is forgivable in a context such as this, he or she should seek advice from someone who does before writing the submission.  If a submission does not enable the First-tier Tribunal to provide a legal justification for upholding the Secretary of State’s decision and the First-tier Tribunal does not have time to do its own research, it should direct the Secretary of State to provide a fuller submission.  In this case, the First-tier Tribunal’s failure to provide reasons for its decision means that I do not know on what basis it made its assertions as to the scope of the child support scheme and as to tax law but, if it was on the assumption that the Secretary of State’s decision must be right, it abdicated its responsibility as an independent judicial body and this decision will stand as a reminder that the Secretary of State is not always right on technical matters of law.

20. The Secretary of State has suggested that the case be remitted to the First-tier Tribunal but, as he has not yet considered any of the other issues arising on the mother’s application for child support maintenance, I consider it preferable to give the decision that the First-tier Tribunal should have given on the issue before it and, as I expect the First-tier Tribunal would then have done in the light of R(IS) 2/08, leave other issues to be determined by the Secretary of State.  This should not cause delay, because the Secretary of State would in any event have had to make a submission to the First-tier Tribunal had I remitted the case to that tribunal.  Either parent will be able to appeal again to the First-tier Tribunal if he or she does not agree with the Secretary of State’s decision, but hopefully that will not be necessary.  My decision is set out above.

Mark Rowland

6 July 2015