[2023] UKUT 238 (AAC)

I regret that the delay between the hearing in this case and the promulgation of this decision has meant that the issue has been decided by the Upper Tribunal in other proceedings.

In PP v Secretary of State for Work and Pensions and SP [2022] UKUT 286 (AAC), Judge Wikeley decided that the First Interpretation was correct. So far as is relevant (and does not repeat legislation already set out in this decision), what Judge Wikeley said was as follows:

“Ground C: unearned income variation

Introduction

58.

Ground C is that there was a plain error of law on the face of the Decision Notice, in that the First-tier Tribunal was not entitled, irrespective of any factual findings it might make, to go behind the HMRC figure for the father’s unearned income. This ground of appeal is supported by the Secretary of State.

What the law says

59…

What the evidence said

60.

The screen-print of the HMRC data supplied to the CMS stated that the total amount of the father’s unearned income was £30,000 (p.75). The father’s SATR for 2014/15 confirmed a payment of a dividend of £30,000 (p.178). Additionally, the property pages of the SATR included details in respect of two properties. First, the income from a furnished caravan holiday let was £7,573 but with allowable expenses of £9,251, resulting in a loss for the year on that venture (after making provision for capital allowances of £27,063) of £28,741 (p.191). Second, another rental property had a taxable profit of £4,191 (£6,900 in rent minus £2,709 in loan interest) (p.192).

What the First-tier Tribunal found

61.

The First-tier Tribunal decided that the father’s unearned income for the purpose of regulation 69 was £34,191, and not just the dividend payment of £30,000. In its summary reasons it explained that the father had no taxable income from the caravan furnished holiday let. However, it noted he had a profit of £4,191 declared on his SATR from the other rental property. The Tribunal stated that this taxable income could not be set off against the loss from the caravan holiday let (citing section 127ZA of the Income Tax Act 2007). The Tribunal added that “it was not clear why the figure from HMRC had not included the property income of £4,191.00”, so concluding that the father’s total unearned income for 2014/15 was not £30,000 but rather £34,191.

The Upper Tribunal’s analysis of Ground C

62.

This ground of appeal turns on the proper interpretation of regulation 69(3). Paragraphs (5) and (6) of regulation 69 are not relevant to the facts of the present case. It follows that the material part of regulation 69(3) reads as follows: the amount of the non-resident parent's unearned income is to be determined by reference to information provided by HMRC at the request of the Secretary of State in relation to the latest available tax year and, where that information does not identify any income of a kind referred to in paragraph (2), the amount of the non-resident parent's unearned income is to be treated as nil.

63.

In effect, the First-tier Tribunal read the key phrase “is to be determined by reference to information provided by HMRC” as meaning “is to be informed by reference to information provided by HMRC”, rather than as being conclusively decided by such information. It is right to say the Tribunal’s approach is supported by the learned commentary in E. Jacobs, Child Support: The Legislation (15th edition, 2021), p.591, which states…:

[see paragraph 17 above]

64.

In disagreeing with that passage, [Counsel for the Secretary of State], in her skeleton argument, described the wording of regulation 69(3) as “unambiguous”. I beg to differ. It positively reeks of ambiguity. It could mean that the figure provided by HMRC is determinative. Or the phrase could mean, as the learned commentary suggests, that the HMRC figure is simply the starting point for the CMS or the Tribunal’s enquiry. If the former and conclusive meaning was intended, it is certainly arguable that the statutory language could have been made much clearer. It could, for example, have simply said that “the amount of the non-resident parent's unearned income is the figure provided by HMRC” or (echoing regulation 36 on the meaning of “historic income”) “the amount of the non- resident parent's unearned income is the amount identified by HMRC”. However, the process of statutory interpretation is not just about the words used. Those words must be read in a purposive manner and in the context of the relevant provision as a whole.

65.

As to context, the closing phrasing of regulation 69(3) is instructive. This provides that where the HMRC information “does not identify any income of a kind referred to in paragraph (2), the amount of the non-resident parent's unearned income is to be treated as nil.” As both counsel pointed out, it would be both bizarre and illogical if the Secretary of State and the First-tier Tribunal could go behind a positive non-nil unearned income figure but not go behind a nil figure. Such an approach would mean that the taxpayer who fraudulently failed to declare any unearned income at all would actually be in a better position in the child support scheme than the negligent taxpayer who had carelessly under-stated the amount of their unearned income.

66.

As to purpose, and as [counsel for the appellant] rightly reminded me, it is plain that one of the objectives of the 2012 child support reforms was, so far as possible, to streamline the process of information gathering by enabling the CMS to rely on HMRC data, provided by a direct IT link, without the need for further investigation. This represented a conscious shift in policy from the earlier 1993 and 2003 schemes, under which tribunals were empowered to make their own assessment of a non-resident parent’s income and were not bound by the figures accepted by HMRC (see Gray v Secretary of State for Work and Pensions and James [2012] EWCA Civ 1412; [2013] AACR 5 and DA v Secretary of State for Work and Pensions [2014] UKUT 142; [2014] AACR 36).

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).

68.

Finally, I should simply add that I am not at all sure that section 127ZA of the Income Tax Act 2007 has the effect in this case that the First-tier Tribunal found it did. However, I heard no argument from counsel on the point and indeed it does not arise for decision given the construction that I have found properly applies to regulation 69(3).

Conclusion on Ground C

69.

I therefore agree with both [counsel for the appellant and the Secretary of State] that the First-tier Tribunal erred in law and so Ground C is made out. If this were the only matter on which the Tribunal went wrong, I could simply re-make the decision to the effect that the father’s unearned income for the 2014/15 tax year was £30,000 (and not £34,191). However, the matter is going to have to be remitted to a new tribunal in the light of Ground B succeeding. I therefore leave the matter to be determined by the new tribunal but that should not take it too long, barring the appearance of some compelling new evidence to the contrary.”

I agree with much of that passage. For the reasons I give in paragraphs 253 to 264 below, however, and with unfeigned respect, I do not believe “ambiguous” is the correct word to describe regulation 69(3) and I am unable to agree with the analysis in paragraphs 65-67 or the conclusion in paragraph 69.