[2023] UKUT 238 (AAC)

It is said that anything other than the Secretary of State’s preferred interpretation may lead to two different government departments using two different figures for the non-resident parent’s unearned income and that the Court of Appeal in Gray had said that that was “not a good thing”.

In my respectful judgment, that part of the Court of Appeal’s decision was obiter. I am nevertheless happy to accept in principle that, where both HMRC and the Child Maintenance Service are obliged to make decisions based on a figure for the non-resident parent’s chargeable unearned income, it is undesirable that the figures should differ.

However, there are other things that, in principle, are also “not good”.

For example, in principle, it is “not a good thing” to perpetuate error. That is particularly so where the effect is to deprive children of maintenance that is properly due because the non-resident parent has—whether negligently, or innocently—understated his unearned income on his tax return or because HMRC have made an error.

Neither, in principle is it a “good thing” to provide incentives for fraud. I discuss this aspect of the case at paragraphs 191–199 below.

Of course, the Court of Appeal never suggested otherwise. Full context for the observations on which the appellant and the Secretary of State rely is provided by paragraph 26 of the judgment in Gray:

“… The consequence surely is that in the vast majority of cases a trader will be liable to have his accounts scrutinised and rejected whenever there is credible evidence that he has under-declared his income or over declared his expenses. Now that may be no bad thing. The interests of the children demand that the right sum of money is paid for their maintenance. But it has two unfortunate consequences:

(1)

Two arms of Government may reach different answers for tax purposes as for child support purposes. That cannot be a good thing.

(2)

The spectre arises of more and more of these enquiries being undertaken which gave rise to the fear of the evils that beset the original working of the Act resurrecting themselves causing unacceptable complications and delay and so the reforms of 1995 will have been in vain.

So I see much force in the arguments addressed to Judge Howell QC that the remedy for the child support authorities, if unhappy with the tax liability notice, is to seek a variation on lifestyle grounds (Footnote: ¹⁶) or refer the matter back to HMRC seeking their scrutiny and if necessary adjustment of the tax return. The two arms of Government should speak with one voice.” (my emphasis).

As that passage identifies, the child support schemes have to balance the competing considerations of accuracy, administrative convenience, and consistency across government. It is notable that, despite the misgivings expressed in sub-paragraphs (1) and (2), the decision in Gray favoured accuracy, i.e., that the interests of children should be prioritised by ensuring that “the right sum of money is paid for their maintenance”.

The Court of Appeal reached that conclusion because, correctly interpreted, that is where the wording of the previous regulations required the balance to be struck. I accept, of course, that Parliament is sovereign and can legislate for the balance to be struck elsewhere in future. I also acknowledge that the requirements of administrative convenience are a legitimate factor to be take into account. It is desirable that non-resident parents should pay “the right sum of money” but it is also important that that sum should be calculated as quickly as possible. But whether Parliament has so legislated is a question that can only be decided by looking at the words it has used.

It is not necessarily wrong for one arm of government to decide a question one way for purpose A, and another to decide it differently for purpose B. The relevant policy considerations may differ according to the subject matter of the decision.

For example, entitlement to some social security benefits depends upon a person being “habitually resident” in the UK. (Footnote: ¹⁷) At least in some cases, the same test governs whether a person is subject to the matrimonial and child protection jurisdictions of the Family Court. A decision that a person who had been resident in England or Wales for a very short period was habitually resident for the latter purpose but not the former might well be correct and would certainly not be incomprehensible.

Mr Najib makes the point that, unless the Secretary of State is bound by the information from HMRC, it might be possible for there to be two appeals about the amount of a non-resident parent’s unearned income to two different chambers of the FTT and for each chamber to achieve different results.

However, that situation is not unknown. For example, the Immigration and Asylum Chamber ("IAC") and the Social Entitlement Chamber ("SEC") may both have to determine a person’s immigration status; the former to decide whether he can stay in the UK and the latter to decide entitlement to benefits that are subject to the right to reside test. Sometimes, different outcomes are reached, not least because proceedings in the SEC are inquisitorial while those in the IAC are adversarial. (Footnote: ¹⁸) The resulting situation is untidy but not impossible—or, usually, even difficult—to implement.

Moreover, in the child support context, there is the consideration that—unless they have carried out an investigation and reached their own conclusions as to the non-resident parent’s unearned income—HMRC cannot be regarded as speaking at all. At best, (Footnote: ¹⁹) their role is more akin to that of a ventriloquist’s dummy operated by the non-resident parent. The information provided to the Secretary of State comes straight from the non-resident parent’s tax return. Even if it may be desirable in principle that two arms of government should speak with one voice, the desirability in principle of the Child Maintenance Service and the non-resident parent doing so is less evident.