CFC 25 1989
| Jurisdiction | UK Non-devolved |
| Judge | V.G.H. Hallett |
| Judgment Date | 17 January 1991 |
| Court | Upper Tribunal (Administrative Appeals Chamber) |
| Docket Number | CFC 25 1989 |
| Subject Matter | Earnings and other income |
R(FC) 1/91
Mr. V. G. H. Hallett CFC/25/1989
17.1.91
Income – earnings of self-employed earner – whether motoring expenses and telephone expenses for both business and personal use may be apportioned – whether bad debts deductible – whether capital drawings relevant
The claimant, who was self‑employed in partnership with her husband and supplied accounts of the business, claimed family credit. The adjudication officer in awarding family credit did not allow amounts shown in the accounts for depreciation, bad debts, lunches, private motoring expenses and the private use of the telephone. The claimant appealed against the decision. In his submission to the tribunal the adjudication officer said that since the claimant and her husband had taken two weeks holiday during the period of the accounts, the calculation of earnings should have been based on a fifty week assessment period. The tribunal, in allowing the appeal, directed that the award of family credit be recalculated to allow as expenses bad debts, lunches, private use of the telephone and private motoring expenses. The adjudication officer appealed to the Commissioner
Held that
1. expenses that could be apportioned were motoring expenses including road fund licence, insurance and repairs and maintenance, and telephone expenses including rental charges. (Insofar as the Adjudication Officers’ Guide was inconsistent it was not to be followed R(SB) 28/84 cited). Apportionment by tax inspectors was cogent evidence of the amount used for the business and should be accepted in the absence of contrary evidence
2. bad debts relevant to the period were deductible; entertainment lunches were not (paras. 36 and 37);
3. capital drawings should be treated as such; where there was a dispute as to whether a sum was capital or income commercial accounting principles were to be followed, unless they conflicted with the regulations (para. 38);
4. the effect of holiday and the application of the change in the regulations on 12 September 1988 was considered at paragraphs 1(8) and 24 and the first appendix.
DECISION OF THE SOCIAL SECURITY COMMISSIONER
1. My decision is:
(1) the decision of the social security appeal tribunal dated 22 August 1989 is erroneous in law and I set it aside;
(2) the family credit payable to the claimant for the period of 26 weeks from 25 April 1989 is to be re‑calculated by the adjudication officer;
(3) the following expenses relevant to the assessment period (whether or not defrayed in that period) are to be apportioned between the partnership business carried on by the claimant and her husband and any private use:
(a) all motor expenses including the cost of the road fund licence, insurance and repairs and maintenance, and
(b) all telephone expenses including rental charges;
(4) any proved bad debt relevant to that period is to be deducted in ascertaining the net profit of the partnership;
(5) the expense of any lunches given by way of entertainment is not to be so deducted;
(6) the apportionment made by HM Inspector of Taxes of the expenses referred to in paragraph (3) is cogent evidence of the amount wholly and exclusively incurred for the purposes of the partnership business which the adjudication officer is entitled to and (in the absence of contrary evidence) should, accept;
(7) drawings shown in the partnership accounts as capital expenditure (failing evidence that this is not justifiable on business and accountancy principles) are to be accepted as such, and are not to be treated as revenue expenditure;
(8) for the purpose of ascertaining the claimant’s normal weekly earnings, the adjudication officer shall determine in accordance with the directions set out in the first appendix to this decision whether any week or period of weeks in the assessment period is to be disregarded;
(9) the adjudication officer and the claimant are at liberty to apply in the event of any dispute in carrying out the terms of this decision.
Representation
2. I held an oral hearing of the present appeal (Bulman) and another family credit appeal (Burr, reference CFC/26/1989). An income support appeal, raising similar questions (Gallagher, to be reported as R(IS) 13/91) was then referred to me for decision and a further oral hearing of all three decisions was held. The claimant in Gallagher attended in person. In the other cases, the claimant was in each case represented by her husband. Mr. N. Butt of the Solicitor’s Office, Departments of Health and Social Security, represented the adjudication officer at both hearings. Mr. Mark Rowland, counsel instructed by the Treasury Solicitor, appeared as amicus curiae at the second hearing.
Nature of the appeal
3. This appeal is concerned with the computation of the claimant’s income and with his expenses for the purpose of working out his family credit (FC). Family credit “is a tax‑free means‑tested benefit for low‑waged workers with children … The idea is that FC tops‑up your wages to ensure that your income in work does not drop below a certain level … To work out your FC you first of all calculate the maximum family credit for your family circumstances … Then you compare your income … with a set figure (called the applicable amount) … If your income [equals or] is less you will receive the maximum FC for your family circumstances … If it is more … you will get the maximum FC reduced by 70 per cent of the difference…”: see the National Welfare Benefits Handbook, 20th Edition pages 110 and 116.
4. Subject to exceptions (not relevant here), the income of all members of the claimant’s family is taken into account: see sections 20(1) and 22(5) of the Social Security Act 1986.
5. All three appeals raise questions as to the deduction of expenses in computing that part of a family’s income comprising the net profit of a self-employed claimant (and, in the present case, of her partner and husband). It is a common feature of each appeal that the adjudication officer, consonant with the instructions in the Adjudication Officer’s Guide (the relevant passages from which relating to family credit are set out in the second appendix), has refused to apportion telephone rental, motor road tax, insurance, servicing, maintenance and repairs between business and private use and has refused to allow any deduction in respect of such expenses in that computation. In all three cases, a social security appeal tribunal has allowed the claimant’s appeal against the adjudication officer’s decision in this respect, and directed apportionment. The adjudication officer is appealing against all three decisions.
6. As already indicated, the present family credit appeal relates to a claimant who was in partnership with her husband. But it is not suggested that this materially affects the questions at issue or that the result of the appeal would be different if the claimant were self‑employed on her own account.
7. In respect of this appeal, in addition to the apportionment issue, a number of other issues have been raised by the adjudication officer concerning the calculation of a self‑employed claimant’s net profit for family credit purposes. Is the cost of lunches deductible? Are bad debts deductible? Are drawings shown in the accounts “other income” (distinct from earnings) which fall to be included when determining whether family credit is allowable. During the assessment period, the claimant had a two weeks “holiday”. Having regard to this “holiday”, what is the length of the assessment period to which the net profit is to be related?
The period in issue
8. Family credit is awarded for a fixed period, usually 26 weeks: see section 20(6) of the Social Security Act 1986.
9. The period now in issue is the 26 weeks from 25 April 1989 referred to in the adjudication officer’s decision of 8 May 1989. It is accordingly 25 April 1989 to 24 October 1989.
The relevant law
10. This comprises, as regards the present appeal:
(1) the Social Security Act 1986; and
(2) the Family Credit (General) Regulations 1987 as amended and in force on 25 April 1989.
The relevant provisions of the Act and those regulations are set out in the third appendix.
The claim for Family credit
11. The claimant made a claim for family credit on 20 April 1989 (the date of its receipt). She declared that she lived with her husband at an address in Jarrow and had three children. She was in receipt of child benefit. She stated that she was in partnership with her husband (a self‑employed area sales manager).
12. On 18 April 1989, a chartered...
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