DECISION OF THE CHILD SUPPORT COMMISSIONER

1.	The absent parent's appeal to the Commissioner is allowed. The decision of the Cambridge appeal tribunal dated 14 March 2002 is wrong in law, for the reasons given below, and I set it aside. The parent with care's appeal against the Secretary of State's decision dated 30 October 2000 is referred to a differently constituted appeal tribunal for determination in accordance with the directions given in paragraphs 16 and 17 below (Child Support Act 1991, section 24(3)(d)).

2.	This appeal to the Commissioner is supported by the representative of the Secretary of State in the submission dated 8 October 2002. Both parents have, after some continuing hiccoughs in the completion of forms, expressed agreement to the case returning to a new appeal tribunal (with a financially qualified panel member) for rehearing, without the need for any oral hearing before me. In those circumstances I do not need to go into all the details of the case.

3.	The decision which was under appeal to the appeal tribunal was that made on 30 October 2000, under which the absent parent was made liable to pay child support maintenance of £19.39 per week from 5 September 2000. Before that decision, his liability had been £102.49 per week. The absent parent and his wife had each run a haulage business as self-employed persons. As from 1 April 2000, the businesses were amalgamated and transferred to a limited company. The absent parent and his wife were the only shareholders and also the only directors. They were then paid a salary at the rate of £15,000 per year each. The maintenance assessment with effect from 5 September 2000 was calculated on the basis of the absent parent's earnings being of that amount (although, as the Secretary of State's written submission to the appeal tribunal showed, there had been a miscalculation of the proper weekly amount). The parent with care appealed on the basis that the £15,000 did not represent the absent parent's true income.

4.	Before the appeal tribunal of 14 March 2002, the issue into dispute had resolved itself into whether the absent parent had received earnings from the fact that the amount in the directors' loan account (or current account) had reduced by £24,263 (leaving out of account amounts used to meet the directors' personal tax liabilities) by 31 December 2000. The amount which had been shown in the accounts as loaned to the company by the directors had reduced to that extent. The appeal tribunal said this:

	"On the balance of probability it appeared to the tribunal that that £24,263 had been treated as income, because the evidence of mortgage instalment payments of £7,900 per year, a holiday in Tenerife, regular meals out and, perhaps most significantly, the tax liability from previous years, suggested an income considerably higher than the £15,000 each which [the absent parent and his wife] purported to enjoy from their company. The tribunal found that, although technically and for tax purposes, repayment of a debt, the £24,263 was a `profit derived from employment' within the meaning of the Child Support (Maintenance Assessments and Special Cases) Regulations 1992, Sch 1, para 1(1). If, improbably, that sum was not properly to be treated as income, then [the absent parent] had deprived himself of income within the meaning of Sch 1, para 27(a).

	Although [the absent parent and his wife] apparently drew equal incomes from the company, £15,000 pa, [the absent parent] told the tribunal that his wife did not put in the same hours as he did. It therefore seemed fair to attribute about three-quarters of the extra income (in round figures £24,0000 to [the absent parent] and one quarter to [his wife], so that their total incomes were respectively £33,000 and £21,000."

The appeal tribunal went on to say that, as the repayment of a loan did not suffer deduction of income tax and national insurance contributions, there should be no deduction for those elements from the absent parent's extra £18,000 income.

5.	When I granted the absent parent leave to appeal from that decision, I said that the question whether the repayment of a loan in such circumstances could form part of a parent's earnings for child support purposes deserved consideration on appeal. I also suggested that there may have been insufficient findings of fact on the nature of the repayment of the loan and on the conditions of paragraph 27(a) of Schedule 1 to the Child Support (Maintenance Assessments and Special Cases) Regulations 1992 (the MASC Regulations).

6.	The Secretary of State's representative agreed and submitted that a repayment of a loan would not appear to fall within the definition of "earnings" in paragraph 1(1) of Schedule 1 to the MASC Regulations. He also submitted that the appeal tribunal appeared to be covering itself, in the event of being wrong on that point, by its alternative reliance on paragraph 27(a) of Schedule 1 (intentional deprivation of income or capital), but had not made any findings of fact on the conditions for triggering that provision. As noted above, both parents have agreed to the suggestion on behalf of the Secretary of State that the case should go back to another appeal tribunal for rehearing, but with a financially qualified panel member who has the expertise to interpret the accounts of the limited company. They did not put forward any legal analysis.

7.	I have no doubt that I should set aside the appeal tribunal's decision of 14 March 2002 as wrong in law. I should not attempt to give any elaborate directions of law in a case where the full facts have not yet been found, I have not had the assistance of anyone with the expertise of a financially qualified panel member and I have not had detailed submissions. However, I have concluded that I need to examine briefly the appeal tribunal's conclusion that the repayment of the loan was a "profit derived from employment".

8.	Paragraph 1(1) of Schedule 1 to the MASC Regulations applies to the earnings of any employed earner (which includes both employees and directors as office-holders). It defines "earnings" as "any remuneration or profit derived from that employment" and goes on to define certain categories of payment as earnings. None of those specific categories is relevant in the present case. But the words of the general definition are very wide and there is plainly some force in the appeal tribunal's suggestion that the repayment of loan to the absent parent was a profit derived either from his employment as an employee by the limited company or from his employment as the holder of the office of director.

9.	There are, I think, two principles which undermine that suggestion. The first is that regulation 7 of the MASC Regulations, which introduces the specific provisions of Schedule 1, is directed at ascertaining a parent's income (see decision CCS/15949/1996). Although there is power in paragraph 9 of Schedule 1 to the Child Support Act 1991 for regulations to be made treating capital as income, general words like those quoted above should not lightly be given that effect. The second principle focuses more directly on the test of "derived from employment" and the income tax cases on when an emolument or profit has arisen "from" an office or employment. The principle which was laid down on the latter question by the House of Lords in Shilton v Wilmshurst (Inspector of Taxes) [1991] 1 AC 684 was that an emolument was not "from" employment if it was not paid as a reward for past services or as an inducement to enter into employment and provide future services. It is not enough on its own that the payment comes from the employer. In the present case, it would appear on the face of it that the derivation of the repayment of the loan was not the carrying out by the absent parent of his duties as an employee or as a director, but was the fact that a loan had been made by him to the company. On that basis, the repayment was not a profit derived from employment.

10.	For that reason, there was at the least a failure by the appeal tribunal to explain how its conclusion on the £18,000 did not involve the adoption of a legally wrong approach. There was in addition a failure to make findings of fact in relation to paragraph 27(a) of Schedule 1 to the MASC Regulations.

11.	It seems to me on further thought that there were also errors of law in relation to the effective date of the new maintenance assessment and about the circumstances which could be taken into account under section 20(7)(b) of the Child Support Act 1991, which prevented the appeal tribunal from taking into account circumstances not obtaining on 30 October 2000.

12.	The Secretary of State's written submission to the appeal tribunal said that the decision-maker (representing the Secretary of State) decided on 27 September 2000 that it would be "appropriate to carry out a periodic case check". That gives the impression that the supersession under section 17 of the Child Support Act 1991 was carried out on the Secretary of State's own initiative. The superseding decision, on the ground of relevant change of circumstances, was made on 30 October 2000, yet the new maintenance assessment was made effective from 5 September 2000. The calculation of the absent parent's net income on page A7 referred to an application for supersession having been made on 6 September 2000. There was no other mention of an application in the written submission, no copy of any application by the absent parent, no record of any notices under regulation 24 of the Child Support (Maintenance Assessment Procedure) Regulations 1992 (the MAP Regulations) of the intention to carry out a supersession, and no copy of any forms completed by either parent in response to such a notice. The difference between supersessions on application and on the Secretary of State's own initiative is important, not just for establishing the "relevant week" for the purpose of calculating earnings under paragraph 1 of Schedule 1 to the MASC Regulations, but also for fixing the effective date of the new maintenance assessment. If there has been an application for supersession, a superseding decision on the ground of relevant change of circumstances takes effect from the week in which the application was made (MAP Regulations, regulation 23(4)). Where the superseding decision is made on the Secretary of State's own initiative, a notice of intention is to be given under regulation 24 of the MAP Regulations and the superseding decision is effective 28 days after the notice was given (regulation 23(6)). The appeal tribunal should have investigated with the presenting officer whether the supersession stemmed from an application or not and what documentary evidence existed to support the effective date of the new maintenance assessment being 5 September 2000.

13.	The rule in section 20(7)(b) of the Child Support Act 1991 also required examination. The appeal tribunal first had to look at the circumstances as they were as at the "relevant week", as defined in regulation 1(2) of the MASC Regulations. The relevant week is, in the circumstances of the present case, either the week before the date of an application for supersession or the week before the date of the giving of a notice under regulation 24 of the MAP Regulations. Whichever is the right week, the absent parent's earnings as an employed earner had first to be calculated according to earnings during a period starting no more than eight weeks before the relevant week and ending no later than the date of assessment (ie 30 October 2000), including evidence of cumulative earnings during the tax year (MASC Regulations, Schedule 1, paragraph 2(1)). If that calculation produced an amount which did not accurately reflect the normal amount of the absent parent's earnings, paragraph 2(4) allowed a different period to be used for the calculation. Section 20(7)(b) prevented any changes of circumstances after 30 October 2000 being taken into account under either paragraph 2(1) or 2(4), although evidence coming into existence after that date could be taken into account so far as relevant to the period down to that date.

14.	The problem in the present case is that the company accounts for the period from 23 December 1999 to 30 December 2000 do not show when during the period of trading from 1 April 2000 to 30 December 2000 any particular payments were made that constituted repayments of loan, although the accountants' letter of 10 July 2001 (pages H14 to H16) did give dates for payments of VAT and income tax and national insurance liabilities. The absent parent has now provided a good deal more information, including directors' accounts for the year ended 31 December 2000, with the accountants' letter of 4 July 2002, but that information was not before the appeal tribunal of 14 March 2002. It seems to me that the appeal tribunal needed to consider the difficult questions of what evidence related to the limited period it was required to take into account, rather than take a broad approach looking at a wider range of evidence.

15.	For all those reasons, the decision of the appeal tribunal of 14 March 2002 is set aside as wrong in law. The parent with care's appeal against the decision dated 30 October 2000 is referred to a differently constituted appeal tribunal for determination in accordance with the directions given below. I make the strongest recommendation within my powers that the new appeal tribunal should consist of a legally qualified panel member and a financially qualified panel member (Social Security and Child Support (Decisions and Appeals) Regulations 1999, regulation 36(3)(a)).

16.	Before the rehearing, the Secretary of State should produce a fresh written submission dealing in particular with the matters mentioned in paragraph 12 above and with the questions of what parts of the evidence now available are relevant to the period which the new appeal tribunal is allowed to look at (see paragraphs 13 and 14 above). The submission should give the details of the outcome of the parent with care's departure direction application and produce any evidence obtained for the purpose of determining that application which is relevant to the present case. The written submission should also deal with the questions of what would need to be proved if the absent parent were to be treated as having income under either paragraph 26 or 27 of Schedule 1 to the MASC Regulations. Paragraph 27 on the intentional deprivation of income or capital was mentioned by the appeal tribunal of 14 March 2002 without going into the necessary detail. Paragraph 26 had been mentioned at earlier adjourned hearings. It can apply where a person has performed a service (eg for a limited company) for remuneration less than that normally paid for that service and the person or body for whom the service was provided is able to pay remuneration at the normal rate. The person can then be treated as having income to the value of the remuneration foregone. However, there is an additional condition - that the principle purpose of the person undertaking the service without adequate remuneration is to reduce his assessable income for the purposes of the Child Support Act 1991. It would be helpful for the Secretary of State to say whether it was submitted that paragraph 26 could have any application in the circumstances of the present case.

17.	There is to be a complete rehearing of the parent with care's appeal on the evidence presented and submissions made to the new appeal tribunal, which will not be bound by any findings made or conclusions expressed by the appeal tribunal of 14 March 2002. The evidence is to include all the documents put forward in the course of the appeal to the Commissioner. The new appeal tribunal must take into account the general points of law made in paragraphs 8 and 9, but I do not wish to say anything which could be taken as fettering the new appeal tribunal in its investigation and analysis of the true factual situation. For instance, it could be that in some cases like the present a company's accounts are found to be a sham, not representing the true state of affairs at all. I make no positive suggestion that that might be so here. I merely mention it as part of the range of possibilities. If the accounts are not a sham, the question of what state of affairs in the relevant period the accounts and the other evidence does represent must be sorted out in the light of the general principles of law already mentioned. The evaluation of all the evidence will be entirely a matter for the judgment of the members of the new appeal tribunal.

	(Signed)   J Mesher    
	Commissioner

	Date:  28 January 2003