[2023] UKUT 238 (AAC)

I hope it is uncontroversial that regulation 69(3) must be interpreted in the light of regulation 69 as a whole and that that regulation must be interpreted as part of the 2012 child support scheme as a whole.

My analysis of regulation 69 is as follows.

Paragraph (1) provides that there is a case for a variation “where the non-resident parent has unearned income equal to or exceeding £2,500 per annum”.

Two aspects of that paragraph require comment.

First, I have emphasised the word “has” because it makes the existence, or non-existence, of the Case dependent on the existence or non-existence of a fact, namely whether the non-resident parent has unearned income.

If there is a dispute about that, a decision-maker will need to decide on a balance of probabilities whether the fact exists.

But, subject to contrary indication elsewhere, that decision depends on evidence about the world, rather than assertion or assessment by someone other than the decision maker. Paragraph (1) does not, for example, say that a Case exists “where the non-resident parent sayshe has”, or “where HMRC has assessedthe non-resident parent as having”, unearned income.

Second, the amount of the non-resident parent’s unearned income forms part of the definition of the Case. It is not sufficient that the non-resident parent “has unearned income”. The amount of that income must equal or exceed £2,500 per annum.

Again, whether unearned income amounts to £2,500 or more is a fact about the world and one that—subject to any contrary indication elsewhere—requires to be determined by evidence, rather than assertion or third-party assessment.

The definition of “unearned income” is also important. Regulation 69(2) defines it as “income of a kind that is chargeable to tax under” the Parts 3, 4 and 5 of ITTOIA (my emphasis).

The test is therefore different from that for earned income. The Regulations do not say, as they do for historic income, that unearned income is the amount on which HMRC actually charged the non-resident parent to tax under those Parts in any particular tax year. Rather unearned income is the amount that is chargeable—i.e., the amount on which the non-resident parent should have been charged—under those Parts.

To that extent, regulation 69(2) is very similar to paragraph 2A(5) of Schedule 1 of the 1992 MASC Regulations that were under consideration in Gray, see paragraphs 69-70 above, and which the Court in that case held to mean that “the decision maker is entitled to rely on an evaluation of the father’s actual profits from self-employment in the relevant period rather than the figures submitted to HMRC in his tax return …”.

The level of unearned income that is chargeable to tax is not a question of primary fact. Rather it is a matter for the exercise of judgment or, in other words, a calculation or assessment, or—as Ward LJ described it in Gray—an evaluation. One issue in this case has been whether that assessment should be carried out by the Secretary of State or—given that HMRC are unlikely to have done so: see paragraph 42 above—by the non-resident parent.

There is a simple answer to that question. Deciding whether a case for a variation exists is a building block in the outcome decision to make—or to decline to make—a maintenance calculation and, if so, at what rate. Sections 11 and 28F—and, in particular, section 28F(4) of the Act unequivocally assign that decision to the Secretary of State: see pages vi-viii of the Appendix.

I therefore reject the Secretary of State’s submission that regulation 69 does not require her to carry out an assessment.

However, when she carries out that assessment, section 28F(6) of the Act requires her to comply with regulations made under Part II of Schedule 4B: see page viii of the Appendix. So, the Secretary of State as decision-maker is bound by regulations made by the Secretary of State as legislator. The question is what regulation 69, taken as a whole binds her to do.

There was a certain amount of discussion in the papers and at the hearing about how regulation 69(3) should have been worded if it meant what another party says it means. I have not found that discussion helpful. If regulation 69(3) does not say unambiguously what it means, a provision that did so would inevitably have involved different wording. Which of the many possible different wordings would have been used, must be a matter for speculation. My task is to interpret the words that actually were used.

In doing so, I attach greater significance to the fact that if the legislator wished to achieve the outcome for which the Secretary of State now contends, she could have done so by aligning the definitions of “historic income” and “unearned income”. She did not do so and—as regulation 69(1) and (2) does not suffer from any ambiguity that might afflict regulation 69(3)—I infer that a different outcome was intended.

Which brings me to regulation 69(3) itself. It says that:

the amount of the non-resident parent’s unearned income;