JE (Uganda) v Secretary of State for the Home Department

The short point raised by this appeal is whether an employer’s pension contributions form part of a person’s “earnings” for the purpose of calculating whether he meets the requirements for leave to remain as a Tier 1 (General) Migrant under paragraph 245C of the Immigration Rules.

The appellant is a citizen of Uganda who has been in the United Kingdom since 2001, first as a visitor and then as a student. In September 2009 he sought leave to remain as a Tier 1 (General) Migrant. The application was refused by the UK Border Agency (“UKBA”). An appeal to the First-tier Tribunal was dismissed by Immigration Judge Fountain. On a further appeal to the Upper Tribunal, Senior Immigration Judge Conway found no material error of law in the immigration judge’s decision and ordered it to stand. Permission to appeal to the Court of Appeal was granted by Maurice Kay LJ on a renewed application. Permission was limited to the question whether the employer’s pension contributions qualified as earnings.

I will take the relevant provisions of the Immigration Rules from the version in force at the date of UKBA’s decision, though it has not been suggested that subsequent amendments have any material effect on the issue before us.

By paragraph 245C, one of the requirements to be met by an applicant for leave to remain as a Tier 1 (General) Migrant was that he had “a minimum of 75 points under paragraphs 1 to 31 of Appendix A”. Appendix A, headed “Attributes”, awarded various points for qualifications, earnings, UK experience, and age. Paragraph 2 provided that available points were shown in Tables 1 to 4. By Table 2, so far as material, 25 points were awarded for earnings between £26,000 and £28,999; 35 points were awarded for earnings between £32,000 and £34,999. The following paragraphs appeared under the heading “Earnings”:

“13.

Earnings include, but are not limited to:

(a)

salaries (includes full-time, part-time and bonuses),

(b)

earnings derived through self-employment,

(c)

earnings derived through business activities,

(d)

statutory and contractual maternity pay, statutory and contractual adoption pay,

(e)

allowances (such as accommodation, schooling or car allowances) which form part of an applicant’s remuneration package,

(f)

dividends from investments, where it is a company in which the applicant is active in the day-to-day management, or where the applicant receives the dividend as part of their remuneration package,

(g)

property rental income, where this constitutes part of the applicant’s business, and

(h)

payments in lieu of notice.

14.

Where the earnings take the form of a salary or wages, they will be assessed before tax (i.e. gross salary).

15.

Where the earnings are the profits of a business derived through self-employment or other business activities, the earnings that will be assessed are the profits of the business before tax ….

16.

Earnings do not include unearned sources of income, such as:

(a)

allowances (such as accommodation, schooling or car allowances) which are paid as reimbursement for monies the applicant has previously paid,

(b)

dividends from investments, unless it is a company in which the applicant is active in the day-to-day management, or unless the applicant receives the dividend as part of their remuneration package,

(c)

property rental income, unless this constitutes part of the applicant’s business,

(d)

interest on savings,

(e)

funds received through inheritance,

(f)

monies paid to the applicant as a pension,

(g)

expenses where the payment constitutes a reimbursement for monies the applicant has previously outlaid,

(h)

redundancy payment,

(i)

sponsorship for periods of study,

(j)

state benefits, or

(k)

prize money or competition winnings, other than where they are directly related to the applicant’s main profession or occupation.”

The appellant, who worked as a senior audit officer for Stockport Metropolitan Borough Council, claimed to have earnings of £32,697, putting him in the 35 point bracket in Table 2 of Appendix A. This included, however, a sum of £4,299.22 by way of employer’s pension contributions. UKBA refused to take those contributions into account and in fact allowed only the sum of £26,608.07 evidenced by the appellant’s payslips, which qualified him for an award of 25 points. On that basis, and taking into account a further 35 points awarded for qualifications, the appellant’s total points under Appendix A were 65, not the required 75. (Separately from his main employment, the appellant received fees for examination marking but they are of no materiality to the issue before us.)

The appellant’s terms and conditions of employment with Stockport MBC included provision for a salary, a car allowance and a pension. In relation to pension the statement of terms and conditions said this:

“9.

Pension Scheme

You will be automatically admitted to the Local Government Pension Scheme. This provides excellent value for money, as you only pay for part of the cost of the benefits – Stockport Metropolitan Borough Council will pay the remainder. Pension contributions are also free of income tax, if you earn enough to pay National Insurance; you will pay less of it because of your Pension Fund membership. The first-class package of benefits provided by the Fund is described in the enclosed employee’s guide.

If you do not wish to be admitted to the Pension Fund then you must put this in writing as soon as possible ….”

The enclosed guide included a standard letter to employees which stated:

“On May 2^nd 1995, state legislation came into place which makes membership of the Local Government Pension Scheme automatic for all Local Government employees …. Employees contribute 6% of their pay. In addition, from 01 04 2007, your employer SMBC, contributes 12.25% of your pay at no cost to yourself.

This provides you with very real benefits at retirement date, including a monthly pension payment for the rest of your life and a single lump sum paid on retirement ….

You do have the choice to opt out, but you will need to put this in writing to us and return the attached form as soon as possible. If you do nothing you will remain in the pension scheme and your contributions will be taken each week or month, depending on your usual method of payment” (emphasis in the original).

The appellant did not exercise his right to opt out of the scheme. Thus, he remained in the scheme and contributed 6% of his pay into the scheme, whilst Stockport MBC contributed a sum equal to 12.25% of his pay.

The Local Government Pension Scheme is the subject of elaborate legislative provisions. We were referred in particular to The Local Government Pension Scheme (Administration) Regulations 2008, regulation 39 of which requires employer’s contributions to be paid by an employing authority. There has been no suggestion, however, that anything turns on the fact that in this particular employment context an employing authority is under a statutory duty to make employer’s contributions. Miss Olley accepted that under the appellant’s contract of employment Stockport MBC had also undertaken a contractual obligation towards him to pay the required contributions.

The immigration judge in the First-tier Tribunal gave unsatisfactory reasons for holding that the employer’s pension contributions were not part of the appellant’s earnings. He stated at paragraph 24 of his decision that the meaning of Stockport MBC’s standard letter to employees was that “the employer will make those payments [i.e. the employer’s contributions] on the Appellant’s behalf but out of the remuneration package that is available to him”, and that “[t]he money is paid out of the overall salary due to the Appellant and thus does not represent additional funds”. That appears to muddle up employee’s contributions, which were paid out of salary, and employer’s contributions, which were not paid out of salary and were plainly additional to salary. He then said at paragraph 30.2 that the money paid by way of employer’s contributions “is money paid from the Appellant’s earnings and is not in addition to them”, which was either to repeat the same muddle or to assume the very point that fell for decision.

The senior immigration judge in the Upper Tribunal gave clearer and more cogent reasons for arriving at the same conclusion:

“23.

However, in my view the judge reached the correct conclusion that the money is not the appellant’s and should not be accrued to his earnings. The indication from the contract is that the employer puts in the pension per annum the equivalent of 12.25% of the appellant’s income. As the judge noted, an employee can opt out of the scheme. As it, in effect, goes into a pot it cannot be accessed by the employee. The money is, indeed, not his ….”

The appellant, although unrepresented, provided the court in advance with a helpful written note (headed “Oral Presentation”) setting out the main arguments he wished to advance at the hearing. He was not able to add materially to them in his oral submissions, during which he also produced a small further bundle of documents that he invited the court to take into account. He submitted that his employer’s pension contributions were “earnings” within the meaning of Appendix A. They were made according to the number of days he worked, in the same way as payments of salary. They formed part of his remuneration package. The fact that they went into a pot which could not be accessed by him is irrelevant: no such limitation is to be found in Appendix A. The list of earnings in paragraph 13 of Appendix A is not exhaustive. The list of exclusions in paragraph 16 refers to monies paid as pension but not to contributions to pension. The appellant also relied on various aspects of the income tax and national insurance legislation, considered below, as supporting the argument that employer’s contributions are earnings.

For the Secretary of State, Miss Olley was unable to throw much light on the meaning of “earnings”, beyond referring us to the provisions of Annex A itself. She suggested that the court should adopt an interpretation of “earnings” which accords with what the average, reasonable person would understand by that term, and that this would exclude employer’s pension contributions from its scope. She submitted that the existence of a contractual entitlement to the payment of such contributions is not determinative. She accepted that UKBA’s published policy guidance on Tier 1 (General) of the Points Based System does not help: the version in force at the material time merely stated that “We will only consider actual earnings …” (paragraph 102) and went on to repeat the content of paragraphs 13 and 16 of Appendix A. She submitted that no assistance is to be derived from the income tax and national insurance matters relied on by the appellant, since they involve specific statutory provisions in their own particular context. The one potentially useful pointer that she was able to give us was strictly inadmissible since it was not the subject of evidence, let alone evidence adduced at the appropriate stage in the First-tier Tribunal: she told us on instructions that the earnings figures used in Table 2 of Annex A were derived from published workforce surveys that showed gross salaries but did not take account of employer’s pension contributions.

I think it important to avoid over-elaboration in relation to the issue before us. The draftsman of Appendix A has not attempted any detailed definition of “earnings” but has dealt with it by listing matters that are included or are not included within the term and in that way has covered most of the cases that might be expected to arise in practice. In the context of a set of rules designed to be understood and applied on the one hand by applicants for leave to remain and on the other hand by officials within UKBA, that is a sensible approach. In deciding on the correct treatment of an item not expressly covered by the existing lists, one needs to consider the ordinary meaning of “earnings”, any guidance to be derived from the existing lists themselves and any light that may be thrown on the point by considerations of policy.

The problems of trying to import a solution from other contexts are illustrated by Commissioners for Her Majesty’s Revenue and Customs v Forde and McHugh Limited [2012] EWCA Civ 692, upon which the appellant relied. The case concerned certain payments made by an employer for the benefit of an employee to the trustees of a funded unapproved retirement benefits scheme. The question was whether the payments attracted a liability to pay class 1 national insurance contributions, which depended in turn on whether they were “earnings” within s.3(1)(a) and s.6(1) of the Social Security Contributions Act 1992, namely “any remuneration or profit derived from an employment”.

It was common ground between the parties that such payments would not be “emoluments” as defined in s.131 of the Income and Corporation Taxes Act 1988 (“the expression ‘emoluments’ shall include all salaries, fees, wages, perquisite and profits whatsoever”) and that they would therefore not be subject to income tax, save for the effect of specific statutory provision in s.595 of that Act whereby employer’s contributions to an employee’s pension scheme are deemed to be income of that employee for income tax purposes.

Rimer LJ considered that the ordinary meaning of “earnings” was the same as that of “emoluments” and that the 1992 Act should not be interpreted as giving it a wider meaning (see paragraph 60). He was, however, in the minority. The majority (Arden LJ and Ryder J) held that the payments did form part of the employee’s “earnings” within the meaning of the 1992 Act. They reached that conclusion by reference to the particular statutory language and legislative scheme, but their reasoning was of some complexity. In the case of Arden LJ, at least, it included the view that two relevant principles of income tax which led to the payments not being treated as emoluments for income tax purposes did not apply for the purposes of the 1992 Act: those two principles were indefeasibility (that a contingent entitlement to a benefit is not sufficient to trigger liability to income tax) and convertibility (that emoluments are limited to money and that which can readily be turned into money). Her analysis of this is at paragraphs 86-124 of the judgment. Ryder J agreed with her on many points but set out his own reasons for reaching the same conclusion, at paragraphs 63-82.

If anything is clear from that case, it is that the treatment of employer’s pension contributions for the purposes of income tax and national insurance is of no assistance in answering the question now before us. Such treatment depends upon the interpretation of a detailed set of statutory provisions within their own legislative context. The result cannot be transposed to the very different context of paragraph 245C of the Immigration Rules.

For the same reason I do not consider that any assistance is to be derived from Kuehne + Nagel Drinks Logistics Limited v Commissioners for Her Majesty’s Revenue and Customs [2012] EWCA Civ 34, upon which the appellant also relied. The question in that case was whether certain payments made to employees on the transfer of their employment were liable to income tax and national insurance contributions, and in particular whether they were “earnings … from an employment” for the purposes of s.9 of the Income Tax (Earnings and Pensions) Act 2003. I see nothing in the court’s analysis which helps us here. Nor is any help to be derived from other provisions of the 2003 Act, such as s.224 (whereby contributions paid by an employer under non-approved personal pension arrangements made by the employee are to be treated as earnings from the employment for the tax year in which they are paid), s.308 (whereby no liability to income tax arises in respect of earnings where an employer makes contributions under approved personal pension arrangements made by an employee) and s.386 (whereby a sum paid by an employer in accordance with a non-approved retirement benefits scheme and with a view to the provision of relevant benefits for or in respect of an employee counts as employment income of the employee for the relevant tax year). Such provisions simply underline the complexity of the treatment of employer’s contributions for the purposes of income tax and the inappropriateness of trying to carry anything across from that context to the present context.

Another statutory provision on which the appellant relied was Schedule 35 to the Finance Act 2009 which provided for a charge to income tax, known as “the special annual allowance charge”, where the total adjusted pension input amount for a tax year in the case of a high-income individual who was a member of one or more registered pension schemes exceeded the amount of the special annual allowance as defined. Whilst this had the effect of exposing certain pension contributions to income tax, it said nothing about whether they were earnings, and even if it had done so it would again have been of no assistance in relation to the very different context of the present case. I should also note that Schedule 35 was subsequently repealed, subject to specified savings.

There is, however, one point to be extracted from the material considered above that may be of assistance for the present case. It is what was said in Forde and McHugh about the ordinary meaning of “earnings”. I have in mind not so much Rimer LJ’s observation that the ordinary meaning was the same as that of “emoluments” (which takes one straight into an area into which, for reasons already given, I do not think it right to go) but his apparent acceptance of submissions made on the subject by counsel for the employer. Those submissions were summarised as follows at para 58 of the judgment:

“… ‘Earnings’, he said, are what the employee receives for his work. It is another word for income. No employee, on learning of his employer’s contribution to a scheme such as the present one, would say that his earnings had just gone up. He will of course recognise that they are an investment that will enable a pension to be paid to him in due course by way of deferred remuneration, being a pension which, when paid, will be earnings. He will recognise also that the investment is a payment for his benefit. It is not, however, ‘earnings’.”

It is not clear whether the other members of the court accepted those submissions: the route that led them to a different overall conclusion from that of Rimer LJ did not require them to express an opinion on the point. For my part, however, I see a lot of force in the submissions as representing how the matter would ordinarily be understood. Although an employer’s contributions to a pension scheme are part of the employee’s overall package of benefits, they are different in kind from monies that he receives or is entitled to receive for the work he does – they do not form part of his income – and it does not seem to me to be a natural use of language to refer to the contributions themselves as earnings. In the ordinary course the pension attributable to those contributions might be regarded as earnings once it is in payment, since it represents deferred remuneration for the work done during employment. In the present context, however, it is made clear by paragraph 16(f) of Appendix A that monies paid as a pension are not included within earnings for relevant purposes.

Further, given that a pension itself is not included within earnings for relevant purposes, it is difficult to see why the employer’s contributions to the pension should be so included. Different considerations apply to the employee’s contributions. They come out of the employee’s salary and it is common ground that the gross amount of the salary counts as earnings. The fact that the employee, by remaining in the pension scheme, chooses to have a certain percentage of that salary used for the payment of contributions by him into a pension scheme does not affect the position. His earnings are the same as they would be if he opted out of the pension scheme and did not make any employee’s pension contributions at all.

The fact that, as the senior immigration judge put it in the Upper Tribunal, the employer’s contributions go into a pot which cannot be accessed by the employee (and in which he has only a contingent interest) is probably just another way of looking at the point already considered, that the employer’s contributions do not themselves form part of the employee’s receipts or income for the work he does.

Save for the important point that a pension is not included within earnings, the lists in paragraphs 13 and 16 of Appendix A do not appear to me to provide any real assistance in determining the issue before us. The most that can be said is that the list in paragraph 13 is generally consistent with the view that an employee’s earnings are what he receives for his work, or his income from employment, though it is not altogether clear (and we do not need to decide) whether the allowances referred to in paragraph 13(e) are limited to monies actually received by way of allowances or also include the monetary value of benefits in kind such as free accommodation.

In the course of argument, various points were raised about the securing of equivalence, for the purposes of the award of points under Appendix A, between different jobs and benefit packages. For example, in relation to employment in the public sector, as compared with the private sector, it has often been said (though it may no longer hold true) that lower salaries are compensated by better pension arrangements; yet, the argument goes, Appendix A will not reflect such a feature, and will not therefore reflect a job’s true worth relative to other jobs, unless an employer’s pension contributions are treated as part of the employee’s earnings. It seems to me, however, that that kind of argument seeks to introduce into Appendix A a degree of sophistication and potential complexity that cannot have been intended by the draftsman. There is nothing in the appendix itself to support such an approach. The published policy guidance, as I have said, is of no help at all. As regards broader considerations of policy, it can no doubt be said that one of the purposes of the appendix is to award points according to the value of the applicant to society, but we have not been shown any policy material that throws light on how that value is to be assessed or that might justify anything other than the straightforward approach favoured above.

For those reasons I conclude that the employer’s pension contributions were correctly left out of account by UKBA in the calculation of the appellant’s earnings for the relevant purposes and that the Upper Tribunal did not err in law in so holding. I would therefore dismiss the appeal.

I agree.

I also agree.