DECISION OF THE CHILD SUPPORT COMMISSIONER
1.	My decision is given under section 24(2) and (3)(a) of the Child Support Act 1991. It is:
I SET ASIDE the decision of the Stockport appeal tribunal held on 24 November 2004 under reference U/06/938/2004/00364, because it is wrong in law, and give the decision that the appeal tribunal should have given, without making fresh or further findings of fact.
My DECISION is that no variation is agreed to on the parent with care’s application made on 10 September 2003.
I direct the Secretary of State to provide the non-resident parent and the parent with care with statements of the maintenance calculation consequent upon my decision.  

The appeal to the Commissioner
2.	This case concerns an application for a variation from the calculation of child support maintenance for Caitlin under Schedule 1 to the Child Support Act 1991. In terms of the child support legislation, the appellant is Caitlin’s parent with care and the second respondent is her non-resident parent. I shall refer to them in those terms. 
3.	Mr Commissioner Angus directed an oral hearing of the appeal. It was held before me at the Commissioners’ Court in London on 18 January 2006. The parent with care did not attend, but was represented by a family friend, Mr Halliwell, who is an accountant. The non-resident parent attended without representation. The Secretary of State was represented by Ms Harris of the Office of the Solicitor to the Department for Work and Pensions. I am grateful to all who attended for their constructive contributions to the hearing.
History and background
4.	The parent with care applied for a maintenance calculation in respect of Caitlin and one was at the rate of £5 a week made from the effective date of 8 July 2003. The parent with care is in dispute with the Child Support Agency about that date, but that is not an issue on this appeal. The non-resident parent’s income was calculated at £87.38 a week (£4544 a year). No one was able to explain to the tribunal or to me how that figure was reached. 
5.	The parent with care also applied for a variation on the ground that the non-resident parent’s life-style was not consistent with the income taken into account for the maintenance calculation. Having obtained representations from the non-resident parent, the Secretary of State refused to agree to a variation and the parent with care exercised her right of appeal to the appeal tribunal. The Secretary of State’s submission to the tribunal is headed ‘Reference of a variation application’, but that is wrong as the decision-maker’s decision not agreeing to a variation is in the papers. 
6.	The non-resident parent works through a company. As so often in child support cases, there are allegations that money was earned that was not declared to the Inland Revenue and to the Child Support Agency. At the tribunal and before me, Mr Halliwell accepted that there was no evidence to prove that the non-resident parent had any income in addition to that declared in his company’s accounts. For 2002, the accounts show that the non-resident parent received £3444 as director’s emoluments and £11,000 as dividend. He also withdrew £2501 from the director’s loan account. 
7.	The tribunal decided that the non-resident parent required an additional £9,900 gross to support his life-style. It reached that figure by deducting the annual income on which the maintenance calculation was based from the total of the director’s emoluments and dividends:
(£3444 + £11,000) - £4544 = £9900.
The parent with care’s appeal
8.	The parent with care’s appeal to the Commissioner referred to the withdrawal from the director’s loan account. She argued that this should have been included as part of the non-resident parent’s income.
9.	The Secretary of State’s written submission on the appeal argued that the drawings were not earnings. This submission was based on my decision in CCS 0037/1997 at paragraph 15, in which I referred to paragraph 12 of R(U) 3/88. Both those decisions involved people who were self-employed. This case is different in that the non-resident parent works for a company, albeit it one that he owns. In the case of a company, drawings from the director’s loan account are not income; they are capital payments. That is important, because the child support scheme is essentially only concerned with a non-resident parent’s income. It takes account of capital in two ways. First, capital may generate income, for example by way of interest. Second, a variation may be agreed to in respect of assets (regulation 18 of the Child Support (Variations) Regulations 2000). However, the amount of the dividends in this case is too low to come within that provision. 
10.	The tribunal was right not to take into account the drawings from the director’s loan account. The chairman did not explain why the tribunal disregarded those drawings and his statement of the reasons for the tribunal's decision is inadequate as a result. 
The tribunal’s approach to life-style inconsistent
11.	The tribunal agreed to a variation under regulation 20 of the Child Support (Variations) Regulations 2000. This applies if
‘the Secretary of State is satisfied that the income which has been, or would be, taken into account for the purposes of the maintenance calculation is substantially lower than the level of income required to support the overall life-style of the non-resident parent.’
12.	Ms Harris criticised the tribunal for assessing the non-resident parent’s income directly rather than inferring it from evidence of his life-style. If that is what the tribunal did, it would have gone wrong in law. However, it did not. The tribunal had the parent with care’s estimate of the costs of the non-resident parent’s life-style. It heard evidence from the non-resident parent which challenged that estimate in some particulars. That evidence was on the face of it credible. The result was that the tribunal had a statement of the key items in the non-resident parent’s expenditure and a reasonable estimate of their cost. It also had an accepted statement of the non-resident parent’s income from his company’s financial accounts. What it did was to decide that the amount of the actual income was the income required to support the non-resident parent’s overall life-style. That was a practical and sensible approach. The tribunal did directly assess the non-resident parent’s income. But it did not just base its decision on that assessment. It used that figure because it accepted that that was the amount required to fund his life-style as shown by the evidence. The tribunal did not go wrong in law in that respect.
The dividends
13.	 Mr Commissioner Angus directed an oral hearing in order to consider whether the tribunal was entitled to take account of the non-resident parent’s dividend income under regulation 20. Ms Harris argued that the tribunal should not have taken this income into account. She referred to regulation 20(3)(a), which excludes a life-style in so far as it is funded by 
‘income which is or would be disregarded for the purposes of a maintenance calculation under the Maintenance Calculations and Special Cases Regulations’. 
14.	The issue for me to decide was: is dividend income ‘disregarded for the purposes of a maintenance calculation under the Maintenance Calculations and Special Cases Regulations’? The difficulty in answering this question arises from the ambiguity in the word ‘disregarded’. Dividend income is ‘disregarded’ in the maintenance calculation under Schedule 1 to the Child Support Act 1991 in the sense that it is not taken into account. The reason was explained by Mr Commissioner Mesher in R(CS) 4/05. The non-resident parent’s income for the purpose of Schedule 1 consists of his earnings, which means ‘any remuneration derived from that employment’ (paragraph 4(1) of Schedule to the Child Support (Maintenance Calculations Special Cases) Regulations 2000). But, as Mr Mesher explained:
‘9.	… if payments are truly paid as dividends on shares in a company they must be regarded as derived from the ownership of the shares and the company's decision to pay a dividend, rather than from being an employee or holding the office of director.’
However, ‘disregarded’ is also a term used in the Maintenance Calculations Special Cases Regulations to refer to two amounts that are listed in paragraph 2 of the Schedule to the Maintenance Calculations Special Cases Regulations as excluded from income. They are: (a) banking charges or commission payable on converting currency into sterling and (b) amounts payable outside the United Kingdom of which transfer to the United Kingdom is prohibited. 
15.	I accept Ms Harris’ argument that ‘disregarded’ in regulation 20(3)(a) means ‘not taken into account’ and is not limited to the amounts ‘disregarded’ under paragraph 2 of the Schedule. I have come to that conclusion for two reasons. First, as Ms Harris argued, it makes no sense to limit ‘disregarded’ to the amounts listed in paragraph 2, because they are not sums on which a life-style would be supported. Second, it would not be rational to ignore dividends in the maintenance calculation if they could be taken into account under regulation 20 subject only to the just and equitable requirement. The legislation would have to be more clearly worded to achieve that effect. 
16.	There is another reason why the dividends should not have been taken into account. Regulation 20(3)(c) of the Variations Regulations excludes a life-style in so far as it is funded by 
‘assets as defined for the purposes of regulation 18, or income derived from those assets’.
‘Assets’ are defined in regulation 18(2) and include shares. Income taken in the form of dividends is, as Mr Commissioner Mesher explained, derived from the ownership of shares and as such is caught by this restriction. 
17.	Accordingly, the tribunal went wrong in law by taking account of the non-resident parent’s life-style in so far as it was funded by his dividend income. 
Income not taken into account and diversion of income
18.	At the oral hearing, I raised the issue of whether the tribunal’s decision could be supported on a different ground. Regulation 19 of the Variations Regulations allows a variation to be agreed to on the ground of income not taken into account and diversion of income. Regulation 19(4) provides that it applies if
‘(a)	the non-resident parent has the ability to control the amount of income he receives, including earnings from employment or self-employment, whether or not the whole of that income is derived from the company or business from which his earnings are derived, and 
‘(b)	the Secretary of State is satisfied that the non-resident parent has unreasonably reduced the amount of his income which would otherwise fall to be taken into account under the Maintenance Calculations and Special Cases Regulations by diverting it to other persons or for purposes other than the provision of such income for himself in order to reduce his liability to pay child support maintenance.’
19.	The key issue in this case was whether the non-resident parent had diverted income into dividends ‘in order to reduce his liability to pay child support maintenance’. Mr Halliwell disavowed any such argument. He accepted that the distribution of income between director’s emoluments and dividends was undertaken principally to avoid payment of national insurance. There was a consistent history of payments by way of dividend in this case and no evidence to indicate that the motive or purpose of the practice had changed from the obvious one to a desire to reduce liability for child support maintenance. 
20.	Accordingly, on the evidence and arguments in this case, no variation could be agreed to under regulation 19.
A preposterous outcome?
21.	In his final remarks at the oral hearing, Mr Halliwell said that it would be preposterous if the non-resident parent’s dividend could not be taken into account. It is not for me to comment on the policy underlying the latest version of the child support scheme. My task is to interpret and to apply the legislation. As part of the process of interpretation, I have considered whether my conclusions disclose a rational outcome. I consider that they do. Given the decision to exclude dividend income from the maintenance calculation, it would not be rational to provide that it could be taken into account in almost every case under the variation scheme, albeit subject to the discretion inherent in the just and equitable requirement. However, it would be consistent and rational to allow it to be taken into account if it was so arranged in order to reduce liability for child support maintenance. That is the combined effect of regulations 19 and 20 of the Variations Regulations.  
22.	As I told Mr Halliwell at the hearing, I have seen in other cases a Ministerial Statement which shows that the exclusion of dividend income was a deliberate decision by the policy makers who devised the amended child support scheme and by the ministers who approved it. This was not an oversight, although they may not have appreciated its significance in practice. 
23.	For the future, the law was changed with effect from 6 April 2005 by regulation 8 of the Child Support (Miscellaneous Amendments) Regulations 2005. Regulation 8 amended regulation 19 to allow a variation to be agreed in respect of income taken in the form of dividends. A new paragraph (1A) was inserted, which provides for a variation if
‘(a)	the non-resident parent has the ability to control the amount he receives from a company or business, including earnings from employment or self-employment; and 
‘(b)	the Secretary of State is satisfied that the non-resident parent is receiving income  from that company or business which would not otherwise fall to be taken into account under the Maintenance Calculations and Special Cases Regulations.’
This only applies if the income is at least £100. Regulation 19(4)(b) is also amended to remove the words ‘in order to reduce his liability to pay child support maintenance’. 
24.	Regulation 20 was also amended to prevent any overlap with regulation 19. This was done by inserting a new subparagraph (aa) into regulation 20(3) which expressly excludes from regulation 20 ‘income which falls to be considered under regulation 19(1A)’.
25.	The result of these amendments is that dividend income may be taken into account under regulation 19, but not regulation 20. Under regulation 19(1A), it may be taken into account if the non-resident parent is able to control the way in which payments are made by the company. It does not, therefore, include all payments of dividends, but only those made to non-resident parents who have legal or practical control over the financial arrangements made by the company. The test now used, under both regulation 19(1A) and 19(4), is control over the company’s financial arrangements and not the motivation or purpose for which the arrangements are made. 
26.	As this case came before the tribunal on appeal, the tribunal could not take these amendments into account. The parent with care may, if she wishes, now apply for a variation under the amended legislation. 
The maintenance calculation
27.	My jurisdiction on this appeal has been limited to the parent with care’s application for a variation. I have no jurisdiction over the maintenance calculation. However, I draw one matter to the Secretary of State’s attention. The calculation was based on an income of £4544. The only income shown by the evidence in this case is the director’s emoluments of £3444 and the dividends of £11,000. The latter are not included in the maintenance calculation. That calculation could only be based on the director’s emoluments, but they were less than the £4544 used by the Secretary of State. It follows that the figure used in the calculation must have included part of the non-resident parent’s dividend payment, which should not have been taken into account. 
Disposal 
28.	I allow the appeal and set aside the tribunal’s decision. Given the evidence before the tribunal and the concessions that have sensibly been made in this case, a rehearing is not necessary. I am able to substitute the decision that the tribunal should have given. That decision is to confirm the decision of the Secretary of State refusing to agree to a variation.
29.	I was told that neither parent had been sent, despite requests, a statement of how the Secretary of State had implemented the tribunal’s decision. I have directed the Secretary of State to provide for both parents a statement of how my decision is implemented. 

Signed on original
on 19 January 2006	Edward Jacobs
Commissioner