Upper Tribunal (Administrative Appeals Chamber)

Decision of the Upper Tribunal
(Administrative Appeals Chamber)

As the decision of the First-tier Tribunal (made on 23 April 2014 at Birmingham under reference SC024/13/03775) involved the making of an error in point of law, it is SET ASIDE under section 12(2)(a) and (b)(i) of the Tribunals, Courts and Enforcement Act 2007 and the case is REMITTED to the tribunal for rehearing by a differently constituted panel.

DIRECTIONS:

A.        The tribunal must undertake a complete reconsideration of the issues that are raised by the appeal and, subject to the tribunal’s discretion under section 20(7)(a) of the Child Support Act 1991, any other issues that merit consideration.

B.        In particular, the tribunal must investigate and decide whether to agree to a variation in accordance with my analysis in this decision.

C.        In doing so, the tribunal must not take account of circumstances that were not obtaining during the period from 22 July 2011 to 20 October 2011: see section 20(7)(b) of the Child Support Act 1991 and R(CS) 1/03. Later evidence is admissible, provided that it relates to the time of the decision: R(DLA) 2 and 3/01.

Reasons for Decision

A.        The issue and why it matters

1.         This case raises issues about the attribution of dividend income when the amount has varied from year to year. The practical significance of the issue is that it affects the amount of child support maintenance payable in respect of Alfie.

B.        The parties

2.         Alfie’s father is what the child support legislation calls his non-resident parent; he is the appellant before the Upper Tribunal. His mother is what the legislation calls his parent with care; she is a respondent before this tribunal. The other respondent is the Secretary of State.

C.        The Secretary of State’s decisions

3.         The parent with care applied for a calculation to be made of the non-resident parent’s formula liability for child support maintenance on 9 May 2011. The Secretary of State made a calculation on 20 October 2011, fixing the liability at £22 a week from the effective date of 22 July 2011. That date was the date when the maintenance enquiry form was sent to the non-resident parent Regulation 25(3) of the Child Support (Maintenance Calculation Procedure) Regulations 2000 (2001 SI No 157)).

4.         The parent with care then applied for a variation under the Child Support (Variations) Regulations 2000 (2001 SI No 156). After investigation, the Secretary of State refused to agree to a variation. That decision took effect as a refusal to revise the decision of 20 October 2011. The parent with care exercised her right of appeal to the First-tier Tribunal. As there is no right of appeal against a decision refusing to revise (section 20(1) of the Child Support Act 1991), that appeal took effect as an appeal against the decision of 20 October 2011.

D.       The First-tier Tribunal’s decision

5.         The tribunal decided that the Secretary of State had correctly calculated the non-resident parent’s formula liability. However, the tribunal agreed to a variation based on £33,535 less income tax and national insurance. That sum consists of £33,333 dividends and £202 taxable profits, both derived from a company operated by the non-resident parent.

E.        The legislation

6.         The relevant provision is regulation 19(1A) of the Child Support (Variations) Regulations 2000:

(1A)  Subject to paragraph (2), a case shall constitute a case for the purposes of paragraph 4(1) of Schedule 4B to the Act where–

(a) the non-resident parent has the ability to control the amount of income he receives from a company or business, including earnings from employment or self-employment; and

(b) the Secretary of State is satisfied that the non-resident parent is receiving income from that company or business which would not otherwise fall to be taken into account under the Maintenance Calculations and Special Cases Regulations.

Regulation 25 provides for the implementation of that provision:

Subject to regulations 26 and 27, where the variation agreed to is one falling within regulations 18 to 20 (additional cases), effect shall be given to the variation in the maintenance calculation by increasing the net weekly income of the non-resident parent which would otherwise be taken into account by the weekly amount of the additional income except that, where the amount of net weekly income calculated in this way would exceed the capped amount, the amount of net weekly income taken into account shall be the capped amount.

Regulation 3(1) provides that all amounts must be determined as weekly amounts.

F.        The appeal to the Upper Tribunal

7.         Mr Pape of Child Support Solutions Ltd applied on behalf of the non-resident parent for permission to appeal to the Upper Tribunal. He argued that the tribunal had taken its figures from payments in the tax year 2010-2011, whereas the company had not retained the same level of profitability, with the result that dividends had reduced dramatically in the year 2011-2012 and halved again in 2012-2013. In those circumstances, the tribunal should have considered making a stepped decision under the authority of paragraph 15 of Schedule 1 to the Child Support Act 1991:

Where the Secretary of State is satisfied that the circumstances of a case require different amounts of child support maintenance to be assessed in respect of different periods, the Secretary of State may make separate maintenance calculations each expressed to have effect in relation to a different specified period.

8.         I gave permission to appeal, saying:

At a general level, the tribunal’s reasons appear to be inadequate for failing to deal with all the issues raised. I suspect that the reasons were limited to the issue raised by the Secretary of State in the request for the statement, which was the only request before the judge at the time. That may explain why they are so limited, but it does not make them adequate.

More specifically, this case provides an opportunity for the Upper Tribunal to consider how the decision of the Court of Appeal in Wincott applies when there has been a change in the amount of the dividends paid from year to year. I would be grateful if the Secretary of State’s representative would deal with this issue in the context of this case. For the convenience of the parents, I have added a copy of Wincott to the papers.

By Wincott, I meant Secretary of State for Work and Pensions v Wincott reported as R(CS) 4/09.

G.       The parties’ submissions

9.         The Secretary of State’s representative made a submission supporting the appeal. On the dividend income, this had to be attributed to the weeks following its payment and only if the non-resident parent was at the time of payment able to control the company as required by regulation 19(1A). The tribunal went wrong in law by failing to make any findings on those matters. Where the amount of the dividend varied from year to year, the tribunal could have made different calculations for different periods. It went wrong in law by failing to consider this possibility.

10.      The parent with care made a ‘no comment’ response to the Secretary of State’s submission.

11.      Mr Pape argued that the tribunal should have considered the evidence of actual payments relevant to the period from 22 July 2011 to the date when the Secretary of State decided not to agree to a variation in June 2012. He drew attention to the evidence of actual payments received and argued, as I understand him, that they should each be attributed to a rolling year from the date of payment. Finally, he submitted that a change in the amount of income under regulation 19(1A) might lead to the tribunal considering a variation for life-style inconsistent.

12.      On considering those submissions, I issued a further direction referring to Mr Pape’s arguments:

First, Mr Pape submits that the tribunal should have considered changes of circumstance down to June 2012 when the Secretary of State decided not to agree to a variation. That is, of course, contrary to R(CS) 1/03, which decides that in the case of a refusal to revise (which is technically the form that the Secretary of State’s decision took), the relevant date is that of the original decision, not the date of the refusal to revise. In practice, that means that the tribunal could only have taken account of changes between July and October 2011, not between July 2011 and June 2012.

Second, Mr Pape as I understand it, suggests attributing the dividends actually paid to a period of one year on a rolling basis from the date of payment. Does the Secretary of State agree? Dividends are declared on an annual basis, so it makes sense to attribute payments to a year, but they cannot be paid except out of available, realised profits. And that can only be known when the accounts are drawn up, which is not until the end of the financial year. In this case, the company’s year ends on 31 July. Is that the relevant year or is it the tax year, which is of course different? The Secretary of State should not feel limited by these points and may make any points on the application of Wincott.

13.      Only the Secretary of State responded to that direction. On the first point, he agreed with my analysis. On the second point, he argued that under Wincott payments of dividends had to be attributed to the year following actual payment. That might be the date of the accounts or some other date. He accepted that a rolling year approach was appropriate.

H.       Conclusions

14.      It is important to be clear about dates.

15.      Mr Pape argued that the tribunal should have considered the period from July 2011 until the Secretary of State decided not to agree to the variation. That is wrong. Section 20(7)(b) of the Child Support Act 1991 is significant. This provides that an appeal tribunal must not take account of circumstances that were not obtaining at the time when the decision under appeal was made. In this case, the relevant time was 22 July 2011. It is that date that is significant, not the date when the Secretary of State refused to revise the decision: see R(CS) 1/03. To put the same point differently: the First-tier Tribunal was not allowed to take account of any change of circumstances that took place while the Secretary of State was investigating the variation application. The First-tier Tribunal did not refer to this point, but it is important, as I have explained.

16.      Paragraph 1 of Schedule 1 to the 1991 Act allows for a stepped assessment, but it has to operate within the limitations imposed by section 20(7)(b).

17.      This does not mean that the tribunal is prevented from taking account of evidence that is relevant to that time but only became available later. That is permissible: R(DLA) 2 and 3/01. To put the same point differently: the tribunal would have been entitled to take account of the accounts for 2011-2012 in so far as they showed the position between July and October 2011, although they did not become available until after the end of that tax year.

18.      I accept the argument that payments of dividends are attributed to the year following their actual payment. It follows that the test of control imposed by regulation 19(1A)(a) has to be applied at the date of the payment. The dates and amounts of payment appear on page 119.

19.      I accept the logic that this can lead to rolling years of attribution when dividends are paid more frequently than annually. I do not follow the details of Mr Pape’s calculations at page 324, but what matters is the principle. Assume that a company pays a dividend of £5200 in each of weeks 1, 20 and 40. Each of those dividends is attributed to the following 52 weeks (£5200÷52 = £100 a week). On a rolling basis, the weekly amount of dividend taken into account is: £100 for weeks 1 to 19; £200 for weeks 20 to 39; and £300 for week 40 onwards. I have ignored any tax or national insurance for ease of illustration.

20.       I also accept Mr Pape’s argument, fairly put as it could work against the non-resident parent, that the reduction in dividends taken into account should lead to a consideration whether to agree to a variation on life-style inconsistent under regulation 20.