[2023] UKUT 238 (AAC)

it is of the essence of a “diversion” variation, that the diverted income has been diverted at source to another person or for another purpose and that the non-resident parent has therefore not received it. An example of the distinction can be seen in AB v Secretary of State for Work and Pensions and RS (CSM) at [68] to [69].

I accept that there may well be cases in which a person with care reasonably suspects that the non-resident parent controls a source of unearned income but does not know how that control has been exercised. In such cases, it would be advisable for the person with care to apply for a variation on both unearned income and diversion grounds in the alternative. But both variations cannot be agreed in respect of the same income: they are mutually exclusive.

Therefore, where—as here—the Mother’s case, which the FTT accepted on the facts, was that the Father had actually received unearned income that had not been taken into account, a diversion variation could not offer her a remedy.

It follows that, if the First Interpretation is correct, the only remedy open to a person with care where a non-resident parent’s tax return misstates his unearned income would be to “go back” to HMRC.

When such a remedy is suggested, details of the mechanism by which it is supposed to operate are usually absent: it is simply assumed that if information from HMRC changes, the Secretary of State will be able to change her decision about the variation. On the one occasion when a mechanism has been suggested, the suggestion appears to be flawed.

Moreover, I accept the Mother’s submission that, even in those cases in which the proposed remedy is available, it is not adequate and I reject the submissions to the contrary from the Secretary of State and the Father.

This section of the Discussion will therefore begin by exploring the circumstances in which the Secretary of State may change her decision in the light of new information from HMRC and will end with an explanation of why going back to HMRC is, in any event, an inadequate remedy.

What follows will almost certainly seem abstruse and technical; contrary to “common sense”, even. If a decision is wrong why can’t it just be changed? The answer is that the Act and the 2012 Regulations establish a technical scheme. Decisions can be changed when the rules say they can and not otherwise. Even if agreement could be reached on what “common sense” required, that consensus would not necessarily prove a sound guide to the law.

I should also stress that what follows is only a problem if, contrary to what I have decided, the First Interpretation is correct. In particular, the difficulties that arise from the inability of the Secretary of State to revise tribunal decisions do not exist if regulation 69(3) is interpreted as set out above. That is because the—on the law as I have held it to be—the FTT is free to substitute the correct figure for unearned income and does not have to go back to HMRC.

As I have already mentioned (see paragraph 189 above), decisions made under the Act—whether by the Secretary of State or a tribunal—are final and can only be changed by revision or supersession or by being reversed or varied on appeal.

I have also mentioned that when hearing an appeal the FTT stands in the shoes of the Secretary of State. One effect of that is that if, when making a decision, the Secretary of State had no power to revise or supersede an earlier decision, the FTT cannot do so either when deciding an appeal against that decision.

I do not propose to lengthen this decision further by reviewing or adding to the extensive case law on revision and supersession. A one-paragraph summary will suffice.

“Revision” and “supersession” are terms of art. They do not necessarily bear the same meaning that they would have in everyday speech and neither is a synonym for the word “change”. Earlier decisions can only be revised or superseded if grounds exist for doing so. Those grounds are specified in legislation and decision makers cannot make them up to suit individual cases. Superseding decisions usually (but not always) take effect from a later date than a revising decision would and it is always necessary to give attention to the question of the date from which a revising or superseding decision is effective.

With that in mind, I turn to the decision in PP, which has the merit of being the only authority or submission before me that actually addresses how the receipt of new information from HMRC might allow the Secretary of State to change her decision.

It will be remembered that Judge Wikeley stated as follows:

“67.

If the First-tier Tribunal considers that the HMRC figure contains a mistake then, as the grounds of appeal suggest, the correct approach is to accept the figure in question but to set out the Tribunal’s concerns and direct that the Tribunal’s Decision Notice (and, where relevant Statement of Reasons) should be sent to HMRC. Should HMRC agree with the Tribunal and amend the figure in question, this would permit an ‘any time’ revision of the maintenance calculation under regulation 14(1)(f).”

Unfortunately, that passage overlooks the general principle that a decision of a tribunal on appeal cannot be revised by the Secretary of State.

Specifically regulation 14(1) provides:

“Grounds for revision

14.

—(1) A decision to which section 16(1A) of the 1991 Act applies1 may be revised by the Secretary of State—

(a)-(d) …

(e)

if the decision arose from official error;

(f)

if the information held by HMRC in relation to a tax year in respect of which the Secretary of State has determined historic income for the purposes of regulation 35, or unearned income for the purposes of regulation 69, has since been amended;

(g)

…”

Section 16(1A) of the Act only applies to “a decision of the Secretary of State” and to a decision of the First-tier Tribunal on a referral under section 28D(1)(b)”. Section 28D(1)(b) empowers the Secretary of State “to refer the application [i.e., for a variation] to the First-tier Tribunal for the tribunal to determine what variation, if any, is to be made”. But the power to refer only exists if the Secretary of State has not already determined the application herself. Once her decision has been made, the First-tier Tribunal can only become seised of the case if there is an appeal against that decision.

If, as paragraph 67 of PP suggests, the FTT were to accept the original HMRC figure even though it believed it to be wrong, that figure would cease to be part of a decision of the Secretary of State that is subject to revision by virtue of section 16(1) and (1A), and become embodied in the decision of a tribunal, which is not so subject.

It would not solve that particular problem if the FTT were to adjourn to see if HMRC accepted the person with care’s evidence that the non-resident parent had under-declared his unearned income. Even if the information provided by HMRC were to change, that would—again assuming the First Interpretation to be correct—be a change of circumstances that occurred after the date of the maintenance calculation. Section 20(7)(b) of the Act would therefore prevent the FTT from taking it into account. The Secretary of State would have to revise the maintenance calculation causing the appeal to lapse.

In this case, there might be a further problem even if the earlier decision had not been made by a tribunal. The ground for revision depends upon the information “held” by HMRC having been amended, not the information provided to the Secretary of State. Although it is not certain—see paragraph 45 above—it may be that HMRC “held” the correct information (Footnote: ²⁰) at all material times but misreported it to the Secretary of State. If so that information will not have been “amended” and there would be no ground for revision.

The Secretary of State does, however, have power to supersede decisions of Tribunals. Regulation 17(1) provides:

“Grounds for supersession

17.—(1) A decision mentioned in section 17(1) of the 1991 Act may be superseded by a decision of the Secretary of State, on an application or on the Secretary of State's own initiative, where—

(a)

there has been a relevant change of circumstances since the decision had effect or it is expected that a relevant change of circumstances will occur;

(b)

the decision was made in ignorance of, or was based on a mistake as to, some material fact; or

(c)

the decision was wrong in law (unless it was a decision made on appeal).

and section 17(1) of the Act mentions (among others) decisions of the First-tier Tribunal and the Upper Tribunal.

However would supersession on any of those grounds provide a person with care with an adequate remedy, where the FTT had accepted the original, incorrect, information from HMRC?

Such a decision would—obviously—be “a decision made on appeal” and so regulation 17(1)(c) would not apply.

At first blush, it might seem that the FTT’s decision was based on a mistake as to a material fact within regulation 17(1)(b). But accepting the First Interpretation, in which the Secretary of State had to accept the information from HMRC in all circumstances would mean that the material fact would not be the actual amount of the non-resident parent’s chargeable unearned income, but rather the amount specified by HMRC. Taking this case as an example, at the relevant time the material fact would be that HMRC had said the Father’s unearned income was nil. If that information were subsequently to change, it would not mean that the FTT had been mistaken about it at the time with which it was concerned.

That leaves regulation 17(1)(a) and change of circumstances. If one accepts that it is the level of unearned income specified by HMRC that is the material fact, then a change in that information would amount to a “relevant change of circumstances” and the Secretary of State could supersede the FTT’s decision on that ground.

However, that would not be an adequate remedy for a person with care, because the superseding decision would be prospective only. Regulation 18(6) provides:

“(6)

Where paragraphs (2) to (5) do not apply—

(a)

if the supersession decision is made on an application by one of the parties, the decision takes effect from the date of the application;

(b)

if the supersession decision is made on the Secretary of State's own initiative on the basis of information provided by a third party, the decision takes effect from the date on which that information is provided; and

(c)

if the supersession decision is made on the Secretary of State's own initiative, and sub-paragraph (b) does not apply, the decision takes effect from the date on which it is made.”

It is unnecessary for me to set out paragraphs (2)-(5) of regulation 18. In the circumstances under consideration, they do not apply. A superseding decision based on new information from HMRC would be covered by regulation 18(6)(b) and would therefore take effect from the date on which that information was provided. The person with care would not receive the correct level of maintenance for her children for the period between the effective date of the original maintenance calculation and the effective date of the superseding decision.

A decision of the Secretary of State that supersedes a tribunal decision can sometimes be retrospective. Regulation 31 of the 2012 Regulations states:

“Supersession of tribunal decision made in error due to misrepresentation etc.

31.—(1) Where—

(a)

a decision made by the First-tier Tribunal or the Upper Tribunal is superseded on the ground that it was erroneous due to misrepresentation of, or that there was a failure to disclose, a material fact; and

(b)

the Secretary of State is satisfied that the decision was more advantageous to the person who misrepresented or failed to disclose that fact than it would otherwise have been but for that error,

the superseding decision takes effect from the date on which the decision of the First-tier Tribunal or, as the case may be, the Upper Tribunal, took or was to take, effect”

As this part of the discussion assumes, for the purposes of argument only, that the First Interpretation is correct, the “material fact” would again be the information provided by HMRC, and not the true level of a non-resident parent’s unearned income. In this case, it would make no difference that, as the FTT implicitly found, the Father misrepresented or failed to disclose his income to HMRC. Nothing in the Father’s tax return can possibly have caused HMRC to tell the Secretary of State that his unearned income was nil.

It follows that—assuming there has been misrepresentation or failure to disclose (Footnote: ²¹)—the “person who misrepresented or failed to disclose the material fact” was HMRC. The decision being superseded was not “more advantageous” to HMRC than the superseding decision and regulation 31 would not apply.

I hope that is sufficient to demonstrate that “going back to the Secretary of State” would not be an adequate remedy for the Mother in this case.

And if the First Interpretation is correct, supersession of a tribunal decision will often be a difficult remedy for any person with care. Even if a non-resident parent can be shown to have misrepresented or failed to disclose material facts about his income to HMRC, the ground for supersession will always be that the conclusive information from HMRC was wrong and the superseding decision will never be either more or less advantageous to HMRC.

I accept, however, that the circumstances of other persons with care will differ and that, as long as it occurs before the FTT has given a final decision on appeal, revision of the Secretary of State’s decision by the Secretary of State will sometimes provide an adequate remedy.

Sometimes, but not always, and I suspect not even usually. The person with care will often not have the evidence to show that the non-resident parent’s unearned income has been under-declared without the assistance of the FTT and, if the HMRC figure is to be treated as conclusive, there will be limits on the assistance that the tribunal may properly give her.

And even if full directions are given (i.e., because there is a dispute about current income) the Secretary of State may understandably not wish to go back to HMRC until the FTT has decided, at least provisionally, what the true position is.

What is the FTT then to do? Should it adjourn indefinitely—possibly for years—while the Secretary of State goes back to HMRC and HMRC carries out an enquiry, in the hope that the Secretary of State will then revise her decision and cause the appeal to lapse? In making that decision, how should the Tribunal take into account the fact that the revised decision would give rise to a further right of appeal by either parent?

Further, if getting the correct amount of maintenance to qualifying children quickly is one of the goals of the 2012 scheme, that goal is not served by requiring the Secretary of State to go back to HMRC when the FTT could give the correct decision immediately.

Even if everything I have said above about revision and supersession is incorrect and those processes could technically deliver justice to a person with care when HMRC misinforms the Secretary of State about the level of the non-resident parent’s unearned income, I judge that going back to HMRC for a different figure is inherently an inadequate remedy because it unfairly favours the non-resident parent and denies the person with care agency in the resolution of a dispute to which she is a party.

The point can be dealt with relatively briefly. If a person with care, contacts HMRC with her concerns about the non-resident parent’s tax return, they may take what she tells them into account, but they will not involve her in any resulting enquiry. They may not even reply to her.

That is understandable and correct. One taxpayer does not have any standing in relation to the tax affairs of another. Whether or not a non-resident parent pays the correct amount of tax is between him and HMRC. The person with care has no legitimate interest in that question: it is none of her business.

It is, however, very much the business of a person with care that her children should receive the amount of child support maintenance that is legally payable in respect of them. And if the First Interpretation is correct, that can only be achieved if the information provided by HMRC accurately reflects the correct amount chargeable to income tax under Parts 3-5 of ITTOIA. If the only way the person with care can rectify incorrect information is to “go back to the HMRC”, then HMRC’s procedures will deny her any further input into the decision.

Specifically, if HMRC opens an investigation, the non-resident parent will have a right to reply to what the person with care has told them. HMRC will not ask the person with care to comment on anything the non-resident parent says because of their duty of confidentiality. HMRC may therefore accept an explanation from the non-resident parent that the person with care could demonstrate to be false, because HMRC do not have information that she does. Moreover, it is not just a question of information and evidence. The person with care will also be denied an opportunity to make representations.

From the person with care’s point of view, the remedy of “going back to HMRC” is also inadequate because HMRC may simply refuse, or omit, to act on the information she has provided. In some cases, HMRC will be unable to act because the time limit for opening an enquiry has expired: see paragraph 39(e) above.

In cases where an enquiry is still possible, HMRC might, or might not, be more obliging if the request to reconsider came directly from the Secretary of State. But the Child Maintenance Service will not necessarily make such a request.

It is instructive that, in this case, the Child Maintenance Service have known that the information provided by HMRC was incorrect ever since it received the Father’s letter of 13 November 2015: see paragraph 46 above. It has also known since Judge Mitchell’s decision in SB was promulgated on 12 February 2016 that it had power to ask HMRC to correct it. That power could have been exercised at any time before the First-tier Tribunal gave its final decision on 23 January 2018 but was not. The situation was crying out for the Child Maintenance Service to ask HMRC to check their records, but that did not happen.

In cases where HMRC do not reconsider the case and/or the Child Maintenance Service does not ask them to do so, the person with care’s only remedy would be expensive and uncertain judicial review proceedings.

I regret the need to say so, but no-one would even suggest that the circumstances and procedures I have described above were a proper remedy for one party to a dispute if the subject matter of that dispute were anything other than child support.

Particularly as I am disagreeing with Judge Wikeley, I cannot ignore the fact that this decision might not be the last word on this issue. I therefore record my doubts about whether, if the First Interpretation is correct, that would be consistent with the rights of a person with care under Article 6 of the Convention.

That Interpretation leads to a situation in which the FTT—a judicial body—must accept the evidence of the non-resident parent (via HMRC) without considering the evidence of the person with care (because it would be legally irrelevant).

That is so even if the person with care’s evidence is overwhelming and even if the non-resident parent admits that the information provided by HMRC is incorrect. The person with care’s remedy is said to be to go back to HMRC—a non-judicial body—and rely on a process that HMRC might not choose to initiate, and in which the procedures would not permit her full participation.

I do not base this decision on my incomprehension because I have not heard argument on the point. As presently advised, however, I do not understand how that can be said to provide persons with care with a fair hearing by an independent and impartial tribunal in the determination of their civil rights and obligations.