AR CH 758 2008
| Jurisdiction | UK Non-devolved |
| Judge | Judge J. Mesher |
| Judgment Date | 04 December 2008 |
| Neutral Citation | 2008 30 |
| Subject Matter | Earnings and other income |
| Respondent | Bradford Metropolitan District Council |
| Court | Upper Tribunal (Administrative Appeals Chamber) |
| Docket Number | CH 758 2008 |
| Appellant | AR |
R(H) 6/09
(AR v Bradford Metropolitan District Council [2008] UKUT 30 (AAC))
|
Judge Mesher 4 December 2008 |
CH/758/2008 |
Calculation of income – self-employed earnings – drawings made from capital of a partnership
The claimant’s wife was running a business with a business partner. The business was not making any profits but the claimant’s wife made regular drawings against her capital account. The claimant’s award of council tax benefit was re-calculated to take account of his wife’s drawings from the business, initially as earned income but, on revision following his appeal, as unearned income. If the business had been making a profit, the claimant’s share of the profits would have been counted as earned income under regulation 28(1)(b) of the CTB Regulations regardless of whether any drawings were made. The appeal tribunal confirmed the revised decision. The claimant appealed.
Held, allowing the appeal, that:
1. there could be no doubt that when a partnership is making profits any drawings that are taken by a partner are not to be taken into account as income at all, since to do so would involve taking into account both the claimant’s share of the profits (independently of whether any profits were withdrawn) and the actual drawings from that share of profits (CCS/3156/2000 and CCS/1246/2002 followed) (paragraph 11);
2. where the partnership is not in profit at the relevant time or where a partner draws amounts in excess of his or her share of profit, so that that partner’s capital account goes into, or further into, overdraft, it would be unfair to take such drawings into account, since drawings from profits in future years might well be restricted to decrease the overdraft on the capital account, but the partner’s full share would still be required by the legislation to be taken into account (paragraph 14);
3. the decision in R v West Dorset District Council, ex parte Poupard (1988) 20 HLR 295 was no longer of any relevance to the current housing benefit and council tax benefit schemes, since the current highly detailed statutory context did not exist at the time of that judgment (Chandler v Secretary of State for Work and Pensions [2007] EWCA Civ 1211, R(CS) 2/08, cited) (paragraphs 16 to 21);
4. CH/3933/2003 was not relevant to the present case since there was no statutory background as in the present case of a provision stating that a form of income from the same source as that in question was to be taken into account in a particular way (paragraph 22);
5. there was no evidence on the basis of which the tribunal could have concluded that the money received by the claimant’s wife could be regarded as loans made by her business partner to pay for day to day living expenses (paragraphs 23 and 24).
DECISION OF THE UPPER TRIBUNAL
(ADMINISTRATIVE APPEALS CHAMBER)
Decision: The claimant’s appeal to the Upper Tribunal is allowed. The decision of the Leeds appeal tribunal dated 4 January 2008 involved an error on a point of law and is set aside. The decision on the appeal against the local authority’s decision dated 20 September 2007, as revised on 22 October 2007, can properly be re-made by the Upper Tribunal (Tribunals, Courts and Enforcement Act 2007, section 12(2)(b)(ii)). That decision is that the appeal is allowed and that the decision awarding the claimant council tax benefit that was operative prior to 10 September 2007 falls to be superseded only so far as necessary to give effect to the change in the amount of tax credits awarded. The local authority is to carry out the necessary calculations subject to the conditions in paragraph 26 below.
REASONS FOR DECISION
- As from 3 November 2008, appeals which were pending before a Social Security Commissioner are to be dealt with by the Administrative Appeals Chamber of the new Upper Tribunal
- An oral hearing of this appeal was directed by Mr Commissioner Jacobs on 8 October 2008, to consider whether the case was governed by R v West Dorset District Council, ex parte Poupard (1988) 20 HLR 295, relied on by the local authority, or by Chandler v Secretary of State for Work and Pensions [2007] EWCA Civ 1211, R(CS) 2/08. Despite the local authority’s (City of Bradford Metropolitan District Council’s) adjudication manager having stated in a letter dated 26 June 2008 that it would attend an oral hearing if directed to do so, on receipt of the notice of the hearing on 24 November 2008 at Doncaster County Court the local authority replied without explanation that it would not be attending. Unfortunately, I did not find out about that reply until too close to the date of the hearing to take any action about it. It is true that Mr Commissioner Jacobs did not in his direction of 8 October 2008 spell out an express direction that the local authority was to attend, but that was necessarily implied. The local authority’s attitude is incompatible with the proper approach of a public authority entrusted with the administration of a national benefit scheme when difficult questions arise as to the proper interpretation of the terms of the governing legislation. The claimant’s representative, whom I shall call Mr E, went to the time and inconvenience of attending the hearing to make carefully prepared and helpful submissions. The local authority has therefore forfeited the opportunity to make any points in reply to those submissions or about the relevance and effect of the further Commissioners’ decisions enclosed with my direction of 13 October 2008
The issue and the relevant legislation
- The central issue in this case is the proper treatment of regular drawings by a partner when the partnership is not making any profits. Are such drawings, used for day-to-day living expenses, income other than earnings to be taken into account in full? That was the view of the local authority and of the appeal tribunal. I have concluded, after consideration of all the arguments that it seems to me could be made on both sides, that that view is wrong in law.
- The Council Tax Benefit Regulations 2006 (SI 2006/215) (the CTB Regulations), in essentially identical terms to the Housing Benefit Regulations 2006 (SI 2006/213), contain highly detailed provisions about the identification and calculation of amounts of income, from employment, self-employment and otherwise, that are to be taken into account. They are in regulations 25 to 42 and in Schedule 4. For present purposes I need only set out parts of regulation 28, after noting that regulation 27 provides that “earnings” in the case of employment as a self-employed earner means the gross income of the employment and regulation 20 requires reference to earnings over whatever period (not exceeding a year) is appropriate to estimate average weekly earnings. In relation to partnerships, regulation 28(1) provides:
“(1) For the purposes of regulation 20 (average weekly earnings of self-employed earners) the earnings of a claimant to be taken into account shall be –
...
(b) in the case of a self-employed earner whose employment is carried out in partnership or is that of a share fisherman within the meaning of the Social Security (Mariners’ Benefits) Regulation 1975, his share of the net profit derived from that employment, less –
(i) an amount in respect of income tax and of social security contributions payable under the [Social Security Contributions and Benefits Act 1992] calculated in accordance with regulation 29 (deduction of tax and contributions for self-employed earners); and
(ii) one-half of the amount calculated in accordance with paragraph (11) in respect of any qualifying premium.”
Regulation 28(4) provides:
“(4) For the purposes of paragraph (1)(b) the net profit of the employment shall be calculated by taking into account the earnings of the employment over the assessment period less, subject to paragraphs (5) to (7), any expenses wholly and exclusively incurred in that period for the purposes of the employment.”
Regulation 28(5) and (6) prohibits the deduction of a number of expenses, including any capital expenditure, depreciation of any capital assets or repayments of capital on loans (except where the loan is for the replacement of business equipment or machinery, when a deduction is to be made).
- Regulation 30(1) provides that income of a claimant which does not consist of earnings to be taken into account is to be his gross income.
The factual background
- The facts as found by the appeal tribunal are not disputed:
“In 2002 [Mr E] purchased a livery yard with land, buildings and living accommodation. He bought this in his name. The value at the time was approximately £325,000. He...
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