Smith v Secretary of State for Work and Pensions [2006] UKHL 35 CCS 2858 2002
| Jurisdiction | UK Non-devolved |
| Judge | Judge P. L. Howell Q.C. |
| Judgment Date | 12 July 2006 |
| Court | Upper Tribunal (Administrative Appeals Chamber) |
| Subject Matter | Child support |
| Docket Number | CCS 2858 2002 |
| Appellant | Smith v Secretary of State for Work and Pensions [2006] UKHL 35 |
R(CS) 6/06
(Smith v Secretary of State for Work and Pensions [2006] UKHL 35)
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Mr P L Howell QC Commissioner 6 October 2003
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CCS/2858/2002 |
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HL |
Lord Nicholls of Birkenhead Lord Rodger of Earlsferry Lord Walker of Gestingthorpe Baroness Hale of Richmond Lord Carswell |
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12 July 2006 |
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Calculation of income – “total taxable profits” of self-employed trader – whether to be calculated net of capital allowances
The appellant non-resident parent was a self-employed trader. In September 2001 the Child Support Agency assessed his liability for child support maintenance for his children based on income shown in his tax return for 1999/2000 after a deduction for substantial capital allowances. The parent with care appealed and the tribunal substituted an assessment based on his 2000/01 tax return, also calculated after a deduction for substantial capital allowances. The parent with care appealed to the Child Support Commissioner, who allowed her appeal, holding that the words “total taxable profits” in paragraph 2A, introduced into Schedule 1 to the Child Support (Maintenance Assessments and Special Cases) Regulations 1992 in 1999, referred to the figure before deduction of capital allowances.
The non-resident parent appealed to the Court of Appeal with the support of the Secretary of State. The Court of Appeal held that “total taxable profits” referred to the figure to be entered in the tax return form next to those words, that being the figure after deduction of capital allowances. The parent with care appealed to the House of Lords. It was common ground that before the introduction of paragraph 2A there would have been no question of deducting capital allowances, and that that remained the case in specified circumstances where paragraph 3 continued to apply.
Held, allowing the appeal (Lord Nicholls of Birkenhead and Lord Rodger of Earlsferry dissenting), that:
1. “total taxable profits” was an ambiguous expression and its meaning could not be determined by applying the plain meaning test of statutory interpretation. It was therefore necessary to have resort to such aids as the mischief which the legislation was intended to meet, the legislative history and the consequences which would ensue from either construction (paragraphs 60 and 81);
2. the deduction of capital allowances would be a significant change of substance and the changes to Schedule 1 were described as making administrative improvements, not changes of substance. There was no indication that Parliament had intended to change the principles by which self-employed earnings were calculated (paragraph 63, 70, 74 and 82);
3. there was no rational reason why capital allowances should not be deductible where paragraph 3 applied but should be deductible in cases covered by paragraph 2A (paragraph 69);
4. to attach great weight to the coincidence of the use of the words “total taxable profits” in paragraph 2A and the self-assessment tax return was over-literal and not in line with the modern approach to statutory construction (paragraphs 63, 89);
5. the possibility of the position being alleviated by a departure direction was too speculative to be given any weight as an argument on construction (paragraphs 19, 64 and 85);
6. (per Baroness Hale) when two interpretations of these regulations were possible, the interpretation chosen should be that which better complied with the commitment to the welfare of
children which the United Kingdom had made by ratifying the United Nations Convention on the Rights of the Child (paragraph 78).
Their Lordships restored the decision of the Commissioner.
DECISION OF THE CHILD SUPPORT COMMISSIONER
1. The decision of the Manchester appeal tribunal which dealt with this child support case on 8 April 2002 was in my judgment erroneous in law in the two respects that (1) the tribunal misdirected itself by holding it were precluded from considering the question of a departure direction on “lifestyle inconsistent” grounds when it was accepted that the non-resident parent had declared his income correctly, and (2) it further wrongly purported to make adjustments to the formula calculation of his income under paragraph 27, Schedule 1 Child Support (Maintenance Assessments and Special Cases) Regulations 1992 (SI 1992/1815) on the ground of “intentional deprivation” when there was no basis in the facts for applying that paragraph at all.
2. I set the decision aside and having heard full argument from all parties as to what should have been the correct legal approach of the tribunal, now exercise the power in section 24(3)(a) Child Support Act 1991 to substitute the decision I am satisfied the tribunal ought to have given on the facts and evidence before it in accordance with the regulations it was bound to apply. This is that the maintenance assessment for the three children concerned in this case must be redetermined by the Secretary of State from the effective date of 20 September 2001 on the basis that their father’s earnings as a self-employed trader are to be calculated under paragraph 2A of Schedule 1 cited above by reference to annual “total taxable profits” of £169,520 (or £3,260 per week), being the amount shown in the figures and accounts submitted by him to the Inland Revenue for the year ended March 2001 (whose correctness is not disputed) after adding back depreciation and other non-allowable expenses but before any adjustment for capital allowances. As is common ground, no departure direction on “lifestyle” grounds can be appropriate on that footing, since the formula assessment under the regulations in force at the effective date is already at the maximum on an income of that size; so the mother’s separate application for such a direction, which was before the tribunal on a reference by the Secretary of State, must be simply dismissed.
3. That decision does not I think represent a happy overall result, as in this case I have been faced with having to choose between two rival interpretations of the Assessments Regulations, (as amended from 4 October 1999 with the insertion of the new paragraph 2A into Schedule 1) each of which can be seen as unfair. The problem is how a self-employed earner’s tax allowances for capital expenditure fall to be dealt with in calculating his “income” for child support purposes. The alternative interpretations mean that either the whole lot can be deducted, or nothing is deductible at all: the figures to demonstrate how harshly this can bear on one side or the other, depending on which you pick, are given below.
4. What is unfair to both sides at once, and of course to the children whose maintenance needs are at stake, is for the Secretary of State to have left his legislation ambiguous so that people are uncertain which is meant, and delays and disputes like this one arise which prevent everyone knowing where they stand, and hold up the payments for children’s needs which of course arise on a continual weekly or monthly basis, not years after the event. It is I think fair to say it was quite
unnecessary, if not unforgivable, for the 1999 changes to have been worded in the ambiguous way they were; and also unnecessary for the question to have to be an “all or nothing” one as it must be at present whichever view one adopts, the provisions for “departures” failing to provide more than a partial solution. I can only recommend that the Secretary of State should reconsider the intended effect of his regulations in this area as a matter or urgency, and attempt to come up with at least a clearer, and I would hope also a more just and equitable, solution in the interests of the children and everyone else involved
5. This case concerns the maintenance for three children now aged 15, 12 and 11, who have lived with their mother since their parent’s marriage broke up some time ago. The appeal to the tribunal arose out of a decision given on behalf of the Secretary of State on 27 September 2001 under section 17 Child Support Act 1991 that from the effective date of 20 September 2001 the father was liable to pay a total of £11.28 per week child support maintenance in respect of his three children. That decision was based on the then latest available figures for the father’s self-employed earnings in his car hire business, which were taken by the Secretary of State as showing a “total taxable profit” for child support purposes of only £9,380 a year, resulting in what the mother considered a grossly inadequate assessment of the amount he should...
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