[2023] UKUT 238 (AAC)

Gray v Secretary of State for Work and Pensions & James [2012] EWCA Civ 1412, was a decision of the Court of Appeal under the original child support scheme. Mr Najib drew my attention to it for two reasons.

The first was that the decision set out the law as it stood immediately before the introduction of the 2012 Scheme (the equivalent rules under the second child support scheme being very similar). Mr Najib submitted that it therefore provided the background against which the “mischief” that the third scheme sought to address could be identified.

Unlike this appeal, Gray was not concerned with a variation (which did not exist under the original scheme) but with the calculation of the net income of the father (who was the “absent parent” (Footnote: ¹¹) in that case) as part of the main—or “formula”—calculation. The issue in the case nevertheless had some similarities to the question I have to decide. Giving the judgment of the Court, Ward LJ set out that issue as follows:

“1.

… The issue, as defined by Black L.J. when granting permission to appeal, is whether, in a case where the Commission for Child Maintenance and Enforcement (the “CMEC”), (Footnote: ¹²) or, as applicable, a Tribunal, have been provided with details of the figures submitted by a parent to Her Majesty’s Revenue and Customs (“HMRC”) relating to his profits from self-employment in the relevant period, the CMEC or Tribunal are entitled to rely upon their own evaluation of his “actual” profits for the purpose of calculating his earnings from self-employment, or, to put it another way, whether the decision maker is bound by the applicable legislation, namely, paragraphs 2A of Schedule 1 of the Child Support (Maintenance Assessments and Special Cases) Regulations 1992 (“the 1992 MASC Regulations”) to accept that the liable parent’s gross income is as stated in the information provided by him to HMRC, or whether the decision maker is entitled to go behind those notices and make his own findings of fact as to the parent’s actual …income.”

The relevant law was set out in paragraphs 2A and 2C of Schedule 1 to the 1992 MASC Regulations. So far as relevant, those paragraphs were in the following terms (see paragraph 9 of the judgment):

“2A—(1) Subject to paragraphs 2C, 4 and 5A, “earnings” in the case of employment as a self-employed earner shall have the meaning given by the following provisions of this paragraph.

(2)

“Earnings” means the taxable profits from self-employment of that earner, less the following amounts—

(a)

any income tax relating to the taxable profits from the self- employment determined in accordance with sub-paragraph (3):

(b)

any National Insurance Contributions relating to the taxable profits from the self-employment determined in accordance with sub-paragraph (4):

(c)

one half of any premium paid in respect of a retirement annuity contract or a personal pension scheme or, where that scheme is intended partly to provide a capital sum to discharge a mortgage or charge secured upon the self-employed earner's home, 37.5 per centum of the contributions payable.

(3)

For the purposes of sub-paragraph (2)(a) the income tax to be deducted from the taxable profits shall be determined in accordance with the following provisions—

(a)

subject to head (d), an amount of earnings [calculated as if it were equivalent to any personal allowance which would be] applicable to the earner by virtue of the provisions of Chapter 1 of Part VII of the Income and Corporation Taxes Act 1988 (personal reliefs) shall be disregarded:

(b)

subject to head (c), an amount equivalent to income tax shall be calculated in relation to the earnings remaining following the application of head (a) (the “remaining earnings”):

(c)

the tax rate applicable at the effective date shall be applied to all the remaining earnings, where necessary increasing or reducing the amount payable to take account of the fact that the earnings relate to a period greater or less than one year:

(d)

the amount to be disregarded by virtue of head (a) shall be calculated by reference to the yearly rate applicable at the effective date, that amount being reduced or increased in the same proportion to that which the period represented by the taxable profits bears to the period of one year.

(4)

For the purposes of sub-paragraph (2)(b) above, the amount to be deducted in respect of National Insurance Contributions shall be the total of—

(a)

the amount of Class 2 contributions (if any) payable under section 11(1) or, as the case may be, (3), of the Contributions and Benefits Act; and

(b)

the amount of Class 4 contributions (if any) payable under section 15(2) of that Act, at the rates applicable at the effective date.

(5)

For the purposes of this paragraph, “taxable profits” means profits calculated in accordance with Part 2 of the Income Tax (Trading and Other Income) Act 2005.

(6)

A self-employed earner who is a person with care or an absent parent shall provide to the Secretary of State on demand a copy of—

(a)

any tax calculation notice issued to him by Her Majesty's Revenue and Customs; and

(b)

any revised notice issued to him by Her Majesty's Revenue and Customs.

…

2C—Where the Secretary of State accepts that it is not reasonably practicable for a self-employed earner to provide any of the information specified in paragraph 2A(6), “earnings” in relation to that earner shall be calculated in accordance with paragraph 3.”

The decision in Gray turned on the wording of paragraph 2A(5). The Court of Appeal agreed with counsel for the Secretary of State that the ordinary meaning of those words allowed decision makers to have regard to the absent father’s actual profits calculated in accordance with Part 2 of ITTOIA, and that they were not bound by the figures that he had declared to HMRC in his tax return.

The original child support scheme therefore required the Secretary of State to carry out a calculation of the absent parent’s self-employed income.

The second reason, which is related to the first, is what was said by Ward LJ about the proper approach to statutory interpretation:

“23.

One must pay some attention to the purpose which the legislation is intended to serve. One cannot escape the conclusion that the intention since 1995 has been to simplify the maintenance calculation process so as to eliminate delays and get the right amount of money as soon as possible into the hands of the children whose interests the Act has to serve. The Act was supposed to remove the antagonism so frequently generated by a separation of the parents. The sad experience of this Act is that algebra may be a source of happiness for mathematicians but it is not much of a panacea for angry parents. The hopes of 1991 and 2005 may not have been fully realized.”