DECISION OF THE CHILD SUPPORT COMMISSIONER
1.	My decision is given under section 24(2) and (3)(d) of the Child Support Act 1991:
I SET ASIDE the decision of the Preston appeal tribunal, held on 28 July 2006 under reference U/06/075/2006/00529, because it is wrong in law.
I REMIT the case to a differently constituted appeal tribunal and DIRECT that tribunal to conduct a complete rehearing of the issues that are raised by the appeal and, subject to the tribunal’s discretion under section 20(7)(a) of the 1991 Act, any other issues that merit consideration. In particular, the tribunal must investigate and determine these questions:
(i)	Were the withdrawals from the director’s current account received as income or capital?
(ii)	If they were income, how are they classified under Schedule 1 to the Child Support (Maintenance Assessments and Special Cases) Regulations 1992? Were they earnings under paragraph 1(1), other income under paragraph 15, or neither?
(iii)	If they were capital, did paragraph 26 or 27 of Schedule 1 apply?
Paragraphs 26 and 27 are not dealt with in the Secretary of State’s submission to the tribunal and are mentioned only briefly in the Secretary of State’s observations to the Commissioner. Accordingly, I direct the Secretary of State to make a submission to the tribunal for the benefit of the absent parent and the parent with care setting out those provisions and dealing with their possible application to the circumstances of this case. I am sure that the district chairman will allow sufficient time before listing for this submission to be provided and for the parents to prepare their cases. 

The appeal to the Commissioner
2.	Most child support appeals take a long time. In this case, the decision under appeal was only made in March this year. The Tribunal made its decision in July. The chairman provided a full statement of the tribunal's decision three weeks later and refused leave to appeal in mid-September. I gave leave to appeal in mid-October. Everyone (both parents and the Secretary of State’s representative) made their observations promptly and I am grateful to them for that. As a result, I am able to give my decision within two months of granting leave, which is half the time estimated in my grant of leave. 
3.	The appeal concerns the formula assessment of child support maintenance in respect of Antonia.  In terms of the child support legislation, the appellant is her absent parent and the second respondent is her parent with care. I shall refer to them in those terms. 
4.	The key issue is the absent parent’s income. I shall deal with that issue and with his housing costs. 
The director’s current account - income
5.	The absent parent operates through a company. That is permissible in general law and child support law has to be applied accordingly. There is no basis for disregarding the company’s existence. 
6.	The company paid no dividends in the financial year to 31 March 2005. However, the tribunal found that the absent parent was paid wages of £8058, shown in the company’s accounts as director’s remuneration. According to the tribunal, he had also drawn £5874 from the director’s current account. My reading of the accounts is that he drew £5875, but the difference is insignificant. The tribunal added the two figures together to produce an annual income for the financial year of £13932. That is what the decision notice says. The statement says £13952, but that is obviously a typing mistake. 
7.	An absent parent’s liability for child support maintenance is assessed under the provisions of Schedule 1 to the Child Support Act 1991. The provisions of that Schedule deal only with income. There is power to treat an absent parent as having income that was not actually received. (I deal with those provisions later.) Otherwise, only money received as income is taken into account. Income is distinguished from capital and the latter is not taken into account. Accordingly, there is an initial question whether money received by an absent parent was received as income or as capital.
8.	The calculation of income is governed by Schedule 1 to the Child Support (Maintenance Assessments and Special Cases) Regulations 1992. Money received, even if it is income, can only be taken into account in accordance with the provisions of that Schedule. 
9.	In this case, the absent parent was an employee and director of the company. He was issued with wage slips that showed money paid to him as earnings and subject to national insurance and income tax on that basis. The amount appears in the company’s accounts as director’s remuneration. That was obviously income. It was also earnings for Schedule 1 of the Regulations, being ‘remuneration … derived from that employment’ by the company for the purposes of paragraph 1(1). 
10.	The withdrawals from the director’s current account would be usually be classified as capital, not income. The reason was explained by Mr Commissioner Mesher in two decisions. In CCS/3671/2002, the accounts showed that the absent parent had been paid £24,263 in reduction of the directors’ loan account. The tribunal found that this was income and earnings, being remuneration derived from the parent’s employment. Mr Mesher decided that that was wrong:
‘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.’
11.	In CCS/3499/2004, both a formula assessment and a departure direction were in issue. The tribunal decided that payments from a loan account were a means of taking current income in a way that was neither salary nor dividends. Again, Mr Mesher decided that that was wrong:
‘14.	I am satisfied that the appeal tribunal went wrong in law in the ways mentioned in paragraphs 8 to 11 above, so that its decision must be set aside. The ordinary formula for calculating child support maintenance is based on parents' income and not on their capital resources. Likewise, regulation 25 of the Departure Direction Regulations expressly excludes cases where the parent's lifestyle "is paid for ... out of capital belonging to him". I find it hard to see how a director's loan account, of the kind in issue in the present case, cannot be capital belonging to the director, in the same way that a bank account or savings account would constitute capital. For most of us a major element of our capital is made up of savings out of past income. The past income would be taken into account for child support purposes when it was received, but after that, unspent income would become capital. Even if that capital is used to pay for day to day living expenses, the payment is "out of capital". I think that I can see what the appeal tribunal was getting at in its statement of reasons, in that the company's profit and loss account for the year to 31 March 2003 (page 122) shows a post-tax profit of £71,655 (as against £26,060 in the year to 31 March 2002), yet no dividends were declared in 2002/2003, compared with £33,800 in 2001/2002. I do not need to decide how strong a case would have to be (possibly amounting almost to a sham) for drawing on a director's loan account made up of savings out of past income not to be "out of capital". Certainly, the appeal tribunal did not give any sufficient explanation to support its conclusion under regulation 25. As suggested below, its concerns might have been better considered under regulation 24.’
12.	It is always open to a tribunal to find that the accounts do not accurately record the basis on which a payment was made to a director. It could decide that payment was received as income rather than capital. It would then have to classify the payment under Schedule 1 to the Regulations. It would be earnings under paragraph 1 if it was ‘remuneration or profit derived from that employment’ as director or employee of the company. Otherwise, it would be other income under paragraph 15 if it was ‘other payments of other amounts received on a periodical basis’. It is possible that it might be neither. For example, it might be paid to the absent parent as a shareholder rather than as an employer (and so not earnings) and it might be paid as a single lump sum (and so not other income, as not periodical). In other words, it could be income that does not come within Schedule 1. 
13.	I have not had argument on the circumstances in which such a finding would be permissible. I note that Mr Mesher did not commit himself beyond saying ‘possibly amounting almost to a sham’. One relevant factor would be whether the payments had been made after discussion with the company’s financial advisers. It would be easier to find that a supposed payment of capital to a director was a disguised payment of earnings in the case of a company run informally, as small businesses often are, with the payments taken by the director being rationalised only when the accounts were compiled. 
14.	The tribunal emphasised that the absent parent had the power to control the disposal of funds by the company. That was correct and would be relevant to a departure direction under regulation 24 of the Child Support Departure Direction and Consequential Amendments Regulations 1996. I have considered whether the tribunal intended to find that, despite the apparent capital nature of the payments from the director’s current account, they were actually income. However, that is not how the tribunal’s reasons have been presented by the chairman in his full statement of the tribunal's decision. If a tribunal is going to find that the accounts misrepresent the nature of a payment, it must explain why. A general reference to the absent parent’s ability to control his income was not sufficient.
15.	Accordingly, the tribunal went wrong in law because it either misdirected itself on the meaning of income in respect of the withdrawals from the director’s current account or it failed to explain why those withdrawals were income rather than capital. 
The director’s current account – treated as income
16.	As I pointed out when granting leave, the tribunal might have been entitled to treat the absent parent as having income under paragraphs 26 or 27 of Schedule 1 to the Regulations. However, each of those paragraphs has specified conditions that must be satisfied. The tribunal did not investigate those conditions and, inevitably, the chairman did not deal with them in his full statement of the tribunal's decision. 
The absent parent’s housing costs
17.	The Secretary of State’s representative has identified a mistake that I did not spot when granting leave. It is dealt with in paragraph 10 of the representative’s observations at page 128. I need do no more than gratefully adopt what he has written there. I direct the tribunal at the rehearing to correct the mistake identified. 
The parents’ observations
18.	Sadly but, experience shows, almost inevitably, the observations of the parents have covered matters that are not directly relevant to the appeal. 
19.	I understand the parent with care’s frustration if she is not receiving payments that are due and at the apparent injustice of the absent parent being able to manipulate how he receives money from his company. However, a company is a permissible legal device and the calculation of the absent parent’s income can only be made under the appropriate provisions of the child support legislation. 
20.	The absent parent has mentioned, as parents often do, issues of contact. Those are dealt with separately from child support in both substance and jurisdiction. There is little connection between contact and the amount of child support payable. (Regulation 14 of the Departure Direction Regulations is an exception). And contact and child support are dealt with in separate jurisdictions, contact in the courts and child support before appeal tribunals and the Commissioners. The absent parent has also referred in detail to the financing of the company. Those comments will be before the tribunal at the rehearing and will be taken into account to the extent that they are relevant. 
Disposal 
21.	I allow the appeal, set aside the tribunal’s decision and direct a rehearing. 

Signed on original
on 12 December 2006	Edward Jacobs
Commissioner