DECISION OF THE CHILD SUPPORT COMMISSIONER 

Commissioners’ case no : CCS 872 2000

1	I allow the appeal.

2	The appellant (to whom I refer as A) is the absent parent and father of a qualifying child for whom a child support maintenance assessment was made in favour of the parent with care and mother (to whom I refer as C). C is the second respondent in the appeal, the first respondent being the Secretary of State.

3	A is appealing against the decision of the Bolton appeal tribunal on 23 September 1999 with my permission. The tribunal was hearing an appeal by C against the decision of the child support officer (now the Secretary of State).  The tribunal directed that the amount of child support maintenance to be paid by A was to be recalculated. 

4	For the reasons below, the decision of the tribunal is erroneous in law. I set it aside. I refer the case to a freshly constituted tribunal to determine the appeal in accordance with this decision. As discussed below, I strongly recommend that the new tribunal be constituted with a financially qualified panel member. 

Background to the appeal 

5	The original decision of the child support officer was a staged decision that A was liable to pay reducing weekly sums to C. When C appealed because this was in her view too low, a child support officer looked at the decision under appeal again and agreed that the original decision was wrong. A revised maintenance calculation was included in the submission to the tribunal. A tribunal in June 1999 adjourned the appeal, directing that A produce further information about his position, including company accounts. In response, A submitted copies of accounts of a company, in which he was the minority shareholder of two, for two relevant years.  The tribunal  also asked for an accountant (more formally, a financially qualified panel member) to be included on the tribunal for the full hearing.   

6	The matter came before another tribunal , consisting only of a legal chairman, in August 1999. The tribunal heard the sworn evidence of C, who was represented by her stepfather. A representative of the Secretary of State was present. A was not present or represented. The tribunal made a series of findings of fact, and directed a recalculation in the light of those findings. The findings included calculations about undisclosed income of A based on the level of income tax he was paying during the relevant year.

Grounds of appeal 

7	A’s accountants appealed on his behalf against the decision of the tribunal on the ground, among others, that it had used the wrong tax rates and allowances in its calculations and had therefore assumed too high a level of undisclosed income. I note, however, that there was no objection to the assumption that there was some undisclosed income revealed in this way. A added to this by explaining why the tribunal had erred in relation to his tax liabilities, and also raising other points. The accountants tried to get the calculations based on the mistaken tax rates and allowances corrected as an accidental correction, but this was refused, as was leave to appeal. 

8	I gave permission to appeal by reference to tax issues that A had raised and other issues that appeared to arise from the accounts. A submission on behalf of the Secretary of State supported the appeal on a number of grounds, including the issues about tax. C’s comments did not deal with these specific issues, but asked that the matter be resolved so that their daughter received some maintenance.

Calculating undisclosed income by reference to tax paid

9	It is entirely appropriate in a case such as this for a properly qualified tribunal to check the internal consistency of accounts and related figures produced by a party to an appeal. Tribunals have an inquisitorial jurisdiction and this is a good example of its exercise. In particular, where an individual is paying more income tax than appears correct from the income disclosed, this may suggest income of which the Inland Revenue are aware,  but not the Child Support Agency. Further, it is often possible to calculate that undisclosed income from the tax figures produced, by reference to the standard tax  allowances and rates for the relevant year. This is what the tribunal tried to do in this case, encouraged by C’s representative. 

10	The problem was that the tribunal made basic mistakes in its attempt to do this. 
The first mistake it made, as A’s accountants have shown, was that it used the wrong figures for the tax allowances and the wrong income tax rates. Indeed, the figure for the personal allowance it used has never been correct. The 10% tax rate only came into effect after the year in question. A’s accountants, taking a practical and perhaps generous view, suggested that the rates and allowances be corrected as accidental mistakes. This was not done, so I assume that the errors were not mere transcription errors. Income tax allowances and rates are matters of law not fact, so errors in those figures are errors of law. The tribunal therefore erred in law and its decision must be set aside. 	

11	Had the only error of the tribunal been in using the wrong figures, I would have accepted the recalculation in the papers. I do not, because the tribunal made another error also, as I pointed out in granting permission to appeal. As a result it did not, and I do not, have the necessary information to make a correct calculation without making assumptions of fact. 

12	The amount of tax deducted from the earnings of a director or employee in any tax year is based on the PAYE coding for the year issued by the Inland Revenue. A standard coding will give an individual the basic personal allowance. To that, or from that, will be added or subtracted other allowances, deductions or adjustments, some of which may represent tax due on other untaxed income or from previous years. The standard coding for A during the relevant years would have been 400L or higher. In fact, it was 163L. (L indicates that the individual is getting only the basic personal allowance. Full details of letters and numbers used are in Revenue leaflet P3, issued to everyone each year). This alerts the employer, and should have alerted the tribunal, to the fact that the Inland Revenue, for some reason, were collecting significantly more tax from A than was due on his cash earnings alone. This the tribunal rightly spotted, but without reference to the PAYE code. However, there are several reasons for the additional tax being paid including untaxed income in that year, tax collected on benefits in kind, or unpaid tax from previous years. The formal tax coding notice sent to everyone each year gives those details, and a tribunal could ask to see this. Without that explanation, or an educated guess at the explanation, the tribunal may have jumped to a false conclusion in noting the high level of tax being paid and assuming that the extra tax was explained by undisclosed income from that period rather than other explanations. I refer the case to a new tribunal to look into those issues.

Including an accountant in the tribunal

13	If the request of the first tribunal to have an accountant in the membership of the second tribunal had been heeded, these errors may not have occurred. The accountants who serve as financially qualified panel members are well qualified to undertake this kind of calculation. Many lawyers are not. Do the rules allow appointment of an accountant to a tribunal for this reason? In my view they do in cases such as this, though I add that if there was any doubt about this then the rules should allow it more generally. The power to appoint a financially qualified member to the tribunal is given to the President by regulation 36(3) of the Social Security and Child Support (Decisions and Appeals) Regulations 1999. I cannot myself direct the constitution of the panel to rehear this case. In child support cases, the President can include a financially qualified panel member if the issues are, in the President’s opinion, difficult (which I take to mean difficult for a legal chairman sitting alone)  and  “which relate to profit and loss accounts, revenue accounts or balance sheets relating to any enterprise”. Those words are clearly wide enough to include relevant tax issues. The child support maintenance regime requires that income tax be taken into account in identifying assessable income of the parties. In addition, as in this case, income tax calculations can be used to check the accuracy of other figures. Where one of the parties to be assessed is the director of a company, then the director’s income and tax liability will depend in large part on the accounts. If it is suspected that the income tax position indicates that the accounts are not accurate (the assumption in this case)  then there is a difficulty directly related to the accounts. 

14	I have commented on the desirability of, and recommended, including an accountant in a child support tribunal panel on several occasions where the accounts of a self-employed individual or a company director were in issue in appeals I have considered. This is one where the specific recommendation of another tribunal to include such a member was ignored. That was unfortunate because I suspect the tribunal would not have erred as it did had an accountant been there, and I draw that comment to the attention of the relevant regional chairman. In doing so, I do not intend specific criticism of the tribunal chairman because the previous refusal to include an accountant effectively prevented the chairman adjourning for that reason and so forced the chairman to consider C’s difficult arguments. I add that I have also considered appeals from tribunals including accountants, and the benefit of inclusion of an accountant to the fact-finding capacity of the tribunal is obvious. 

15	A and the Secretary of State's representative also raised other issues. I have not dealt with these, as the  whole matter must go to a new tribunal and the submissions of the parties adequately deal with these points.

Directions to the parties

16	As the question whether A has disclosed all relevant income is in issue in this appeal, I direct A and his accountants, in good time before the relisting of this appeal before the new tribunal, to produce and send to the appeals service an explanation for the PAYE coding given to A in the year in question, and also to produce details of all  benefits in kind, such as use of a company car, that A enjoyed by reference to his directorship of the company, together with details of any income previously undisclosed that should have been disclosed. Evidence should also be provided of whether the dividends in question were paid gross or net, and the amount of tax paid by A on those dividends. 

										David Williams
										Commissioner

										8 August 2001