[2023] UKUT 238 (AAC)

The Secretary of State submits that, if the phrase “by reference to” in regulation 69(3) does not mean that she must determine the level of a non-resident parent’s unearned income in the amount identified by HMRC, the law does not identify any other criteria against which she can reach a decision.

I reject that submission.

I accept that paragraph 3 of Schedule 1 to the 1992 MASC Regulations (see pages iii-vi of the Appendix) did set out such criteria and, with one exception, regulation 69 does not.

There is, however, no need for it to do so. Unlike the original child support scheme, the 2012 scheme seeks to identify the non-resident parent’s gross weekly income rather than his net income. It follows that the deductions for income tax and national insurance contributions in paragraphs 3(5) and (6) have no equivalent in the latter scheme.

Further, the aim of regulation 69(3) is to determine the level of income that was chargeable under Parts 3 to 5 of ITTOIA: see regulation 69(2). The criteria that are relevant to that determination are—with two exceptions—set out in those Parts and in Part 6.

For example, Part 3 of ITTOIA contains detailed provisions setting out what is property income, the basis on which it is to be taxed and what exemptions apply. Further exemptions are set out in Part 6, to which Part 3 is expressly subject. The effect is that where a Part 6 exemption applies, the exempted income is not chargeable to income tax under Part 3.

The same is true in respect of Part 4, in relation to savings and investment income, and Part 5 in relation to miscellaneous income.

On the two occasions when ITTOIA does not provide all the criteria that are necessary, regulation 69 does:

Losses from a property business may be carried forward against subsequent profits. That relief is provided by section 118 of the Income Tax Act 2007 and not by ITTOIA. Regulation 69(4) therefore makes the necessary provision for child support purposes.

Certain pension contributions may be deducted when calculating a non-resident parent’s earned income. To the extent that such contributions exceed earned income, they may also be deducted from unearned income. Regulation 69(8) and (9) make the necessary provision.