Appeal No. UA-2024-000581-CSM
UA-2024-000621-CSM
Between:
MRW
Appellant
- v -
(1) Secretary of State for Work and Pensions
(2) NT
Respondent
Before: Upper Tribunal Judge Buckley
Decided on consideration of the papers
On appeal from:
Tribunal: First-tier Tribunal (Social Entitlement Chamber)
Tribunal Case No: SC947/21/00215 and SC265/21/00056
Tribunal Venue: Manchester
Decision Date: 26 August 2023
DECISION
Amended under rule 42 of the Tribunal Procedure (Upper Tribunal) Rules 2008
The decision of the Upper Tribunal is to allow the appeal. The decision of the First-tier Tribunal involved an error of law. Under section 12(2)(a) and b(i) of the Tribunals, Courts and Enforcement Act 2007, I set that decision aside and remit the case to be reconsidered by a fresh tribunal in accordance with the following directions.
RULE 14 Order
Pursuant to rule 14(1) of the Tribunal Procedure (Upper Tribunal) Rules 2008, it is prohibited for any person to disclose or publish any matter likely to lead members of the public to identify the Appellant or the Second Respondent in these proceedings, or their children. This order does not apply to: (a) the Appellant; (b) the Second Respondent; (c) any person to whom the Appellant or the Second Respondent discloses such a matter or who learns of it through publication by the Appellant or, as the case may be, the Second Respondent; or (c) any person exercising statutory (including judicial) functions where knowledge of the matter is reasonably necessary for the proper exercise of the functions.
DIRECTIONS
This case is remitted to the First-tier Tribunal for reconsideration at an oral hearing.
The First-tier Tribunal hearing the remitted appeal shall not involve any members of the panel whose decision the Upper Tribunal has set aside.
If any party has any further evidence to put before the First-tier Tribunal this should be sent to the regional office of Her Majesty’s Courts and Tribunals Service within one month of the date on which this decision is issued. Any such further evidence must relate to the circumstances as they were at the date of the decision of the Secretary of State under appeal.
The panel hearing the remitted appeal is not bound in any way by the decision of the previous First-tier Tribunal. Depending on the findings of fact it makes the new panel may reach the same or a different outcome from the previous panel.
Copies of this decision and the submissions of the Secretary of State in the appeal to the Upper Tribunal shall be added to the bundle to be placed before the panel of the First-tier Tribunal hearing the remitted appeal.
These Directions may be supplemented by later directions by a Tribunal Caseworker, Tribunal Registrar or Judge in the Social Entitlement Chamber of the First-tier Tribunal.
REASONS FOR DECISION
Introduction
This case concerns the liability of the Appellant to pay child maintenance in respect of his son, who I refer to in this judgment as EO. I refer to the Appellant as the father. The Respondent is the Secretary of State for Work and Pensions, who has overall responsibility for the workings of the Child Maintenance Service (CMS). The Second Respondent is the father’s former partner and the mother of EO. I refer to the Second Respondent as the mother in this decision.
For the purposes of the Child Support Act 1991 (the 1991 Act) the father is the ‘non-resident parent’ and the mother is the ‘person with care’.
This appeal concerns a decision of the First-tier Tribunal dated 16 August 2023. The father has been granted limited permission to appeal against the following findings of the First-tier Tribunal:
In relation to the decision of the Secretary of State dated 13 March 2017: that the Father’s diverted income should be assessed by reference to the HMRC figure for 2014/15 of £28,098 - Ground 1: Use of HMRC figures for 2014/2015 in determining income/diverted income
In relation to the decision of the Secretary of State dated 16 April 2017: that the sum of £9,957 by way of capital allowance for a new van should be treated as diverted income – Ground 2: Van
In relation to the decisions of the Secretary of State dated 16 April 2018, 2019 and 2020: that the Father’s partner received the same dividends as the Father – Ground 3: The father’s partner’s dividends
In relation to the decision of the Secretary of State dated 16 April 2018: that the retained profits in the sum of £7,218 should be treated as diverted income – Ground 4: Retained profits
In relation to the decision of the Secretary of State dated 19 April 2021: that the Father continued to work and earn an income post February 2021 – Ground 5: Working post February 2021
The factual and procedural background is set out in the grant of permission to appeal as follows (I have changed ‘Appellant’ to ‘father’ and ‘Second Respondent’ to ‘mother’):
By a Decision Notice dated 20 May 2016, the Respondent determined that the father was liable to pay Child Maintenance (‘CM’) at a rate of £64.66 per week from 20 April 2016 in respect of EO. On 14 January 2017, the father notified the Respondent that he was no longer working as a self-employed tiler. By a Decision Notice dated 13 March 2017, the Respondent determined that the father had £nil income and so his liability to pay CM was assessed as £nil from 14 January 2021. Upon annual review and by Decision Notices dated 16 April 2017, 16 April 2018, 16 April 2019 and 16 April 2020, the Respondent determined that the father continued to have £nil income and so his liability to pay CM was again assessed as £nil.
Following an investigation, the Child Maintenance Service Financial Investigations Unit (‘FIU’) concluded that the father had (i) misrepresented his income in that he had been in receipt of income from his position as a director of [ATC] Limited (‘the Company’); and (ii) had diverted his income into the Company. The FIU recommended that each of the decisions dated 13 March 2017, 16 April 2017, 16 April 2018, 16 April 2019 and 16 April 2020 be revised and the father’s liability to pay CM be assessed on the basis of his historic income figure of £28,098.00 from the tax year 2014/15. The Respondent accepted the FIU’s conclusions and recommendations. By a Decision Notice dated 1 March 2021, the Respondent exercised its powers under section 16 of the Child Support Act 1991 and revised each of the decisions dated 13 March 2017, 16 April 2017, 16 April 2018, 16 April 2019 and 16 April 2020. Applying the historic income figure of £28,098.00, the Respondent determined that the father was liable to pay CM at a rate of £64.66 per week from 14 January 2017. The decision was reconsidered on the father’s request on 8 April 2021 but not revised. On 30 April 2021, the father appealed to the FtT.
In the meantime, following a further annual review and by a Decision Notice dated 19 April 2021, the Respondent determined that the father’s income was again £nil and so his liability to pay CM was assessed as £nil from 16 April 2021. The decision was reconsidered on the mother’s request on 17 May 2021 but not revised. On 4 June 2021, the mother appealed to the FtT.
The FtT refused the father’s appeal against the revised CM decision dated 13 March 2017, but allowed his appeal against the revised CM decisions dated 16 April 2017, 16 April 2018, 16 April 2019 and 16 April 2020. The FtT also allowed the mother’s appeal against the CM decision dated 19 April 2021. The FtT found that, in breach of FtT’s order dated 23 September 2022, the father had failed to disclose (i) the Company’s full accounts; (ii) the Company’s bank statements (iii) records of his and his partner’s directors’ loan accounts; and (iv) records of dividends paid by the Company. The FtT concluded that it was entitled to draw inferences from the father’s failure to do so. The FtT then determined the father’s income at each relevant effective date (and so determined the ‘diverted income’) and directed the Respondent to re-assess the father’s liability to pay CM in accordance with its findings.
The father applied for a statement of reasons, which was provided. The father applied for permission to appeal to the Upper Tribunal.
The decision to give the father permission to appeal
District Tribunal Judge Oliver extended time for the application for permission to appeal and refused permission to appealon 12 March 2024on the basis that the FtT considered and attached weight to the different pieces of evidence available to it and that the statement of reasons adequately explains the findings of the FtT and the reasons for those findings. The District Tribunal Judge was satisfied that there was no error of law.
The father renewed his application to the Upper Tribunal. His Honour Judge Najib sitting as an Upper Tribunal Judge gave permission to appeal on 5 January 2025 in relation to the matters set out in paragraph 3 above. The decision is lengthy so I do not include it here.
Submissions
The Secretary of State’s representative made helpful and detailed submissions setting out the Secretary of State’s position. In summary the Secretary of State opposes the appeal in relation to the FtT’s finding that the father’s partner received the same dividends as the father (Ground 3: The father’s partner’s dividends)and in relation to the FtT’s finding that the father continued to work and earn an income post February 2021 (Ground 5: Working post February 2021).
The Secretary of State is neutral in relation to the appeal relating to the following findings:
In relation to the decision of the Secretary of State dated 13 March 2017: that the father’s diverted income should be assessed by reference to the HMRC figure for 2014/15 of £28,098 (Ground 1: Use of HMRC figures for 2014/2015 in determining income/diverted income)
In relation to the decision of the Secretary of State dates 16 April 2017: that the sum of £9,957 by way of capital allowance for a new van should be treated as diverted income (Ground 2: Van)
In relation to the decision of the Secretary of State dated 16 April 2018: that the retained profits in the sum of £7,218 should be treated as diverted income (Ground 4: Retained profits)
The mother made no submissions by the original deadline. The Upper Tribunal, of its own motion, granted an extension of time. No submissions were received from the mother by the extended deadline. I determined that it was in the interests of justice and in accordance with the overriding objective to decide the appeal in the absence of submissions from the mother.
The father made detailed submissions in support of his appeal, which I have taken into account and refer to where relevant below.
Why there was no oral hearing
None of the parties asked for an oral hearing. In exercising my discretion I took account of the fact that the father and the Respondent had provided detailed written submissions. I decided that I could fairly determine the appeal on the papers and that it was proportionate and in the interests of justice to do so.
Relevant law
The Child Support Maintenance Calculation Regulations 2012 (the 2012 Regulations) provide that the income figure that is to be used for calculating a non-resident parent’s child maintenance liability is either their “historic income” (being the figure notified by HMRC in respect of the most recent available tax year) or their “current income” (being the sum of the non-resident parent’s income as an employee or office-holder, from self-employment, and from a pension calculated in accordance with regulations 38-42).
Under regulation 34:
The general rule for determining gross weekly income
—(1) The gross weekly income of a non-resident parent for the purposes of a calculation decision is a weekly amount determined at the effective date of the decision on the basis of either historic income or current income in accordance with this Chapter.
The non-resident parent's gross weekly income is to be based on historic income unless—
current income differs from historic income by an amount that is at least 25% of historic income; or
... no historic income is available; or
the Secretary of State is unable, for whatever reason, to request or obtain the required information from HMRC.
(2A) For the purposes of paragraph (2)(a), current income is to be treated as differing from historic income by an amount that is at least 25% of historic income where—
(a)the amount of historic income is nil; and
(b)the amount of current income is greater than nil.
For the purposes of paragraph (2)(b) no historic income is available if HMRC did not, when a request was last made by the Secretary of State for the purposes of regulation 35, have the required information in relation to a relevant tax year.
“Relevant tax year” has the meaning given in regulation 4(2).
This regulation is subject to regulation 23(4) (change to current income outside the annual review or periodic current income check).
Regulation 42 provides:
Estimate of current income where insufficient information available
—(1) Where—
current income applies by virtue of regulation 34(2)(a) where the amount of historic income is nil or by virtue of regulation 34(2)(b) or (c) (historic income... not available); and
the information available in relation to current income is insufficient or unreliable,
the Secretary of State may estimate that income and, in doing so, may make any assumption as to any fact.
Where the Secretary of State is satisfied that the non-resident parent is engaged in a particular occupation, whether as an employee, office-holder or self-employed person, the assumptions referred to in paragraph (1) may include an assumption that the non-resident parent has the average weekly income of a person engaged in that occupation in the UK or in any part of the UK.
The 1991 Act makes provision for the Secretary of State to agree to a variation to the usual basis for the calculation of a non-resident parent’s liability to make payments in respect of child maintenance in certain circumstances (see part 5 of the 2012 Regulations) where ‘in all the circumstances of the case, it would be just and equitable to agree to variation’.
Income which may be taken into account for the purposes of a variation includes ‘diverted income’. Regulation 71 of the 2012 Regulations provides:
—(1) A case is a case for a variation for the purposes of paragraph 4(1) of Schedule 4B to the 1991 Act where—
the non-resident parent (“P”) has the ability to control, whether directly or indirectly, the amount of income that—
P receives, or
is taken into account as P's gross weekly income; and
the Secretary of State is satisfied that P has unreasonably reduced the amount of P's income which would otherwise fall to be taken into account as gross weekly income or as unearned income under regulation 69 by diverting it to other persons or for purposes other than the provision of such income for P.
Where a variation is agreed to under this regulation, the additional income to be taken into account is the whole of the amount by which the Secretary of State is satisfied that P has reduced the amount that would otherwise be taken into account as P's income.
Analysis
In considering the adequacy of the reasons of the First-tier Tribunal, the Upper Tribunal should exercise restraint and should not assume too readily that the tribunal misdirected itself just because not every step in its reasoning is fully set out (R (Jones) v First-tier Tribunal (SEC)[2013] UKSC 19, [2013] 2 AC 48 at paragraph 25). In Re F (Children)[2016] EWCA Civ 546 Sir James Munby P explained at paragraphs 22 and 23 that a tribunal’s reasons must be sufficient to enable the parties to understand why they have won or lost, and to provide sufficient detail and analysis to enable an appellate court to decide whether or not the judgment is sustainable, but the judge need not slavishly restate either the facts, the arguments or the law, and should not engage in tortuous mental gymnastics to find error in the decision under review when in truth there has been none. The concern of the court ought to be substance not semantics.
Ground 1: Use of HMRC figures for 2014/2015 in determining income/diverted income
Paragraph 34 of the FtT decision states:
13/03/2017: The appeal was refused and the decision dated 13/03/2017 was confirmed. At the effective date of 14/1/17, historic income was £28,098.00 for the year 2014/15. [The father] had ceased self-employment and was a director of a limited company. He was receiving no salary from this company and therefore his current income was nil. This is more than 25% different from historic income. Therefore, in accordance with Regulation 34 CSMC, the Tribunal could not rely on the historic income figure. The Tribunal found that, although [the father] had ceased self-employment, he had incorporated a limited company as a means of continuing his profession as a tiler, and therefore continued to generate an income. The Tribunal found that the incorporation of the company amounted to a diversion of income in accordance with Regulation 71 CSMC because, as the director of the company, [the father] had the ability to control the amount of his income, and the income that would otherwise fall to be taken into account as gross weekly income, had been unreasonable reduced. The Tribunal found it just, therefore for the CMS to rely on the FIU recommendation that the most recent historic income figure should be used to estimate the amount of the diversion for the short period between the effective date of this decision and the subsequent annual review on 16/04/2017.
Permission to appeal against the finding that the father had diverted income previously earned as a self-employed tiler into company profits was not granted.
The issue for me to determine is whether the FtT erred in:
using the historic income figure for 2014/15 (£28,098.00) rather than the income figure for 2015/2016 (£4,532) when determining the amount of the diverted income as at the effective date 14 January 2017, in particular, in circumstances where it had used the 2015/16 figure when determining the father’s income/diverted income at the effective date 16 April 2017;
failing to take account of the 2015/16 figure when determining the father’s income/diverted income at the effective date 14 January 2017; and/or
failing to give adequate reasons as to why it preferred and used the historic income figure for 2014/15 rather than the income figure for 2015/16 when determining the father’s income/diverted income at the effective date 14 January 2017.
In his submissions the father asserts that the FtT used ‘incorrect tax years’ to calculate income. He relies on the Upper Tribunal decision of SB v (1) Secretary of State for Work and Pensions (2) TB (CSM) [2016] UKUT 0084 (AAC) and a recent House of Commons research briefing entitled ‘How is child maintenance calculated.
Regulation 34 creates a presumption that historic income, rather than current income will be used to determine gross weekly income for a non-resident parent. Where historic income is the figure to be used, the father is correct that when determining the historic income of a non-resident parent, the Secretary of State cannot ‘cherry pick’ which year’s HMRC figure to use and must use the ‘latest available tax year’, as defined in the 2012 regulations.
However the FtT was not determining the amount of historic income at the relevant date. The father’s liability had originally been calculated on the basis of historic income with an effective date of 20 April 2016. At that date, the 2014/2015 figure was likely the correct figure for ‘historic income’ because at the date the request was made by CMS, HMRC would not yet have had the figures for 2015/2016.
That decision was then superseded with effect from 8 November 2016 because the father had notified CMS of a change of circumstances and there was a greater than 25% difference between the historic income figure currently in use (the 2014/2015 figure) and the father’s declared current income at the effective date. The new calculation was accordingly based on the father’s current income not his historic income.
Another supersession took place on the same grounds with effect from 14 January 2017, based on a change of more than 25% in the father’s declared current income. That decision was revised on 14 January 2021 and is the decision under appeal.
The CMS and the FtT were not calculating historic income as at 14 January 2017. Accordingly the requirement under the 2012 Regulations to use the ‘latest available tax year’, as explained in SB (and, presumably, in the relevant part of the House of Commons report relied on by the father) did not apply.
This ground of appeal relates instead to the calculation of the amount of diverted income in accordance with and for the purposes of regulation 71(2). Under regulation 71(2) the additional income to be taken into account is ‘the whole of the amount by which the Secretary of State is satisfied that P has reduced the amount that would otherwise be taken into account as P's income’.
The FtT had concluded that the father had diverted income previously earned as a self-employed tiler into company profits.
Under regulation 39(4) of the 2012 Regulations the amount that would otherwise be taken into account as the father’s self-employment income on 14 January 2017, if he had remained in self-employment at the effective date, was the profits for the ‘most recently completed relevant period’ i.e. the most recent completed tax year. As at 14 January 2017, the ‘most recently completed period’ was the financial year 6 April 2015 to 5 April 2016.
I accept that it is open to a FtT to use available HMRC evidence concerning past income to assess the amount that would otherwise be taken into account at the effective date, but given that the FtT had used the 2015/2016 figures for other purposes and given that the 2015/2016 figures were the profits for the most recently completed period it was incumbent on the FtT to explain why it preferred to use the historic income figure for 2014/2015.
I find that it was not sufficient simply to state that it was ‘just’ for the CMS to rely on the FIU recommendation to this effect. I note in the Secretary of State’s response to the appeal to the FtT, the FIU recommendation is described as ‘unusual’ and ‘difficult to justify’ (PDF 11). Without an adequate explanation it is not clear why the FtT reached the decision that it did.
On that basis I find that the FtT did not provide adequate reasons for its decision to use the historic income figure from 2014/2015 as the basis for its assessment of the amount of diverted income as at the effective date.
I find that there was an error of law in the FtT’s determination that the father’s income/diverted income was £28,098 at the effective date 14 January 2017. This error is material, because if the FtT had not erred it might have reached a different decision in its assessment of income/diverted income at the effective date.
Ground 2: Van
The issue for me to determine is whether the FtT erred in determining that the sum of £9,957 by way of capital allowance for a new van was diverted income by:
failing to make adequate findings of fact in relation to the purchase/acquisition of the van by the Company, in particular as to what funds were used to purchase/acquire it; and
failing to give adequate reasons as to the nature and effect of the capital allowance and why it fell to be treated as diverted income.
The FtT concluded that current income rather than historic income should be used to calculate liability at the effective date of 16 April 2017 for the reasons given in paragraph 35. The FtT concluded that, at 16 April 2017, the use of the limited company was a diversion of the income previously earned as a self-employed person. The father does not have permission to appeal against that finding.
The FtT then had to determine the amount by which it was satisfied the father had reduced the amount that would otherwise be taken into account as the father’s income. The FtT concluded that, at paragraph 35 that:
‘… the annual income diverted into company profits was the same level as the previous year’s profits from self-employment. [The father]’s self-employed income for 2015/2016 was £4,532, however this was after a capital allowance for a new van of £9,957. The Tribunal estimated that his ongoing profits were therefore at an annual amount of £14,489.’
In my view the FtT’s reasoning is clear. It was not assessing the father’s income or profits from self-employment in 2015/2016. If it had been, the deduction of the capital allowance of £9,957 for a new van purchased and used for the business in that financial year would have required some explanation.
The FtT was instead assessing the amount by which it was satisfied the father had reduced the amount that would otherwise be taken into account as the father’s income at the effective date of 16 April 2017. Under regulation 39(4) of the 2012 Regulations the amount that would otherwise be taken into account as the father’s income in April 2017 was the profits for the most recently completed relevant period. That period is the financial year 2016/2017. The FtT used the figures from 2015/2016 to enable it to estimate what the father’s income from self-employment would have been in the following year (his ‘ongoing profits’).
There is no reason to carry forward a deduction for a capital allowance arising out of a one-off purchase of a van in the previous year, unless the tribunal had concluded that the father had purchased another van, for the same amount, which he would have claimed as a capital allowance if he had been self-employed. The FtT found that a new van was purchased in 2018, but that would not affect the profits at the relevant effective date. For those reasons, I find that there was no need to provide any explanation for not carrying forward that deduction.
I find that the FtT made adequate findings of fact to support its conclusions and that the reasoning was adequate. There is no error of law in its assessment of annual income at the effective date of 16 April 2017.
Ground 3: The father’s partner’s dividends
The issue for me to decide is whether the FtT erred in finding that the father’s partner received the same dividend as the father by:
failing to explore and/or make adequate findings of fact in relation to the father’s partner’s entitlement to dividends;
failing to explain what, if any, inferences it drew when coming to the conclusion that it was “likely” that the father’s partner received the same dividend as the father each year and why it drew those inferences; and
failing to give adequate reasons as to why the lack of evidence to the contrary made it “likely” that the father’s partner received the same dividend as the father each year or for its conclusion more generally - in particular, in circumstances where the FtT also found that it was unlikely that the father’s partner was “contributing anything to the running and profitability of thebusiness”.
The FtT reasons at paragraph 31 were as follows:
‘[The father’s partner] was a shareholder of the company with 50% of the shareholding. In the absence of any evidence to the contrary, the Tribunal found it likely that she received a dividend in the same amount as [the father] each year. [The father] was the director with experience, knowledge and skill in the business of the company, namely tiling, therefore, the profits of the business were derived from his expertise. [The father’s partner] had no such expertise and, as confirmed by [The father], held directorships in 4 other companies. The Tribunal found, therefore that it was unlikely she was contributing anything to the running and profitability of the business. The tribunal found, therefore, that the payment to her of dividends was an unreasonable diversion of income to avoid liability for child maintenance in accordance with Regulation 71…’
The father had been ordered to provide company information including a full list of dividends and company accounts. The FtT had found that his refusal to provide the company accounts was obstructive. The FtT found that the father and the father’s partner were both shareholders with 50% of the shareholding.
I agree with Ms Ivimy that the default position is that dividends are payable to shareholders pro-rata to their shareholdings, and that the default position does not depend on the practical contribution of those shareholders to the business. Ms Ivimy refers to Palmer’s Company Law, Vol 3, paragraph 9.706, but the principle is also referred to in, for example, Gore-Brown on Companies, Chapter 25, paragraph 20. The Supreme Court in Marex Financial Ltd v Sevilleja [2021] AC 39 at [103] stated:
It is a significant principle of company law that, in the absence of agreement to the contrary such as that expressed in the terms of a share issue, shares confer the same rights and impose the same liabilities: see for example section 284 of the 2006 Act and Birch v Cropper (1889) 14 App Cas 525, 543, per Lord MacNaghten.
This is reflected in article 30 of the model articles for private companies limited by shares, which apply by default.
In those circumstances, and in the absence of any evidence before the FtT of any agreement to the contrary, I find that it was permissible to draw an inference that it was likely that one 50% shareholder received the same dividend as the other 50% shareholder.
The FtT explained that the basis of its inference was (i) the father’s partner’s 50% shareholding and (ii) the absence of any evidence to show that she did not receive a dividend in the same amount as the father every year. Having set that out, I find that the FtT’s reasons were sufficient to enable the parties to know why they won or lost on this point and sufficiently detailed to enable a decision to be made as to whether the judgment on this point is sustainable.
I find that there was no error of law in the finding that the father’s partner received the same dividend as the father every year.
Ground 4: Retained profits
I have to determine if the FtT erred in determining that the retained profits in the sum of £7,218 fell to be taken into account when determining the father’s income/diverted income by:
taking into account the retained profits in the sum of £7,218 because to do so amounted to double counting;
failing to make adequate findings of fact as to how the retained profits in the sum of £7,218 were used or otherwise exhausted or how the relevant dividends and directors’ loan were funded; and
failing to give adequate reasons as to why the relevant dividends and directors’ loan were not funded in part by the retained profits in the sum of £7,218 and/or why both the retained profits in the sum of £7,218 and the relevant dividends and directors’ loan fell to be taken into account.
At paragraph 29 the FtT found as follows:
In the year ending December 2017, the business had a retained profit of £7218.00 [187]. A director’s loan was taken by [the father] in the sum of £9320.00 during the year ending December 2018 [191] and a director’s loan in the sum of £5315.00 for the year ending January 2020 [200]. In the absence of the full audited accounts, profit and loss accounts, company bank accounts and Director’s loan accounts, the Tribunal could not conclude that the retained profit and director’s loans were reasonable, and inferred from [the father]’s refusal to provide the information that they were an unreasonable diversion of income in accordance with Regulation 71 CSMC. The Tribunal found that, as a director of the company, [the father] had control of the amount of income he received and that the income that would otherwise have been taken into account for child maintenance purposes was reduced.
On the basis of this finding the FtT made the following findings in relation to the decision of 16 April 2018:
16/04/2018: The appeal was allowed. The decision dated 16/04/2018 was set aside. The CMS was directed to recalculate liability from the effective date of 16/04/2018 based on an annual income figure of £25,278. This comprises the following:
Current income of £8060 [349];
A variation for unearned income in the form of dividends in the sum of £5000 in accordance with Regulation 69 CSMC [349];
A variation for diversion of income in the sum of £5000 paid to his partner in accordance with Regulation 71 CSMC;
A variation for the diversion of income in the sum of £7218 for profits retained by [the Company] in accordance with Regulation 71 CSMC.
It is not clear from the FtT’s reasons whether it considered the question of double counting. If the retained profits were used in the following year to pay the director’s loan or the dividends, and all those amounts are treated as diverted income, then the same amount is deducted twice.
In those circumstances it was incumbent on the FtT to explain why it concluded that retained profits should be treated as diverted income. Without that explanation the parties are not able to understand why that decision was reached, and it is not possible to tell if the FtT’s calculations did include double counting in the way described.
For those reasons I conclude that the FtT erred in law by failing to provide adequate reasons for its conclusion.
Grounds 5: Working post-February 2021
The issue for me to determine is whether the FtT erred in concluding that the father continued to work and earn an income post February 2021 by:
failing to make adequate findings of fact as to whether the father continued to work and earn an income post February 2021 and if so, by what means or under what guise;
failing to make adequate findings of fact as to whether the father was working full time or part time;
failing to give adequate reasons for its conclusions that the father continued to work and earn and income post February 2021.
The FtT’s findings relevant to this issue are as follows:
On 19/12/2016, he incorporated [the Company]. At incorporation, he was the sole director, however his partner, [redacted], was appointed as a director on 04/12/2017. [The father] confirmed in oral evidence that from the date of her appointment, the shared in the company were owned on a 50/50 basis between him and [his partner], up until he resigned his directorship in February 2021.
The issue for the Tribunal to determine, therefore, was the level of [the father]’s income after he ceased work as a self-employed tiler and became the director of a Limited Company providing tiling services in December 2016.
In order to assist the Tribunal to do this, on 23/09/2022, the Tribunal issued directions to [the father] to provide the following:
Full company accounts for [the Company] for the accounting years ending in the period December 2016 to April 2021, including a detailed profit and loss account
Bank statement for the company for that period;
Details of movements on the Directors’ Loan account for that period;
A full list of dividends paid out for the same period.
…
[The father] told the Tribunal that he ceased his employment as a tiler when he stopped being self-employed in December 2016 and from that point, he received only nominal income in his role as the director of [the Company], stating that the business employed sub-contractors to undertake the tiling work and was not intended to make a profit.
[The father] had a mortgage for a property in his sole name with a balance of £76,890 at 29/12/2020. The start date for this mortgage was 28/01/2016 and the monthly repayments were £374.00 [315]. When asked how he managed to repay the mortgage if he no longer had a regular income, [the father] stated that although he is responsible for the repayments, it is not he who makes the repayments and the bank are aware of this. The Tribunal found this explanation to be highly implausible, particularly as [the father] did not produce any documentary evidence, such as bank statements, to support this.
[The father] had a hire purchase agreement with BMW Financial Services from 10/06/2017 to 03/11/2019 with repayments of £463 per month [314] and a further hire purchase agreement with them from 26/10/2019 with monthly repayments of £673 per month.
[The father] took out a personal loan on 19/09/2019, with monthly repayments in the sum of £478.00. The outstanding balance at 29/12/2020 was £18,567.00 [314]. When the Tribunal asked [the father] how he intended to repay the loan he replied that he did not intend to repay it, and refused to answer questions about why he took out the loan and how he intended to repay it.
The Tribunal found [the father]’s evidence about his mortgage, loans and hire purchase agreements to be evasive and unreliable. The Tribunal found that the mere fact that [the father] was entering into such agreements to be evidence that he was in receipt of a steady income and expected to remain so for the foreseeable future. Indeed, in respect of the hire purchase agreements signed in 2017 and 2019, and the personal loan agreement signed in 2019, the Tribunal found that [the father]’s would have had to provide evidence that he had sufficient income to meet the monthly repayments at the time they were entered into.
In the year 2016-2017, the business had a tangible asset with a value of £9000, which was confirmed by [the father] as a company van [182]. During 2018, this van was upgraded to one with a value of £13475 [190]. [The father] had a hire purchase agreement for a BMW car separate from the business. The Tribunal concluded that the fact he retained a company van, in addition to a personal vehicle, was evidence that he was continuing to work as a tiler.
Based on the above facts. the Tribunal concluded that the company was intended to make a profit, that it continued to trade in the business of tiling and that [the father] was the employee who was carrying out the majority, if not all, of the tiling work himself, and not relying on sub-contractors. The Tribunal found, therefore, that he continued to earn an income from his profession as a tiler, albeit from 2016, this was under the guise of a limited company, rather than as a self-employed sole trader.
…
The Tribunal found that [the Company] was trading and turning a profit from its incorporation to the period ending with the effective date of 16/04/2020.
…
[The mother] appealed against the decision of the CMS dated 19/04/2021 that [the father] had no liability to pay maintenance from the effective date of 16/04/2021.
[The father] had ceased to be employed as a director at [the Company] in February 2021.
The information from HMRC returned a historic income figure of nil for the tax year 2019-2020 […].
The Tribunal found the information in relation to current income to be unreliable, based on its findings that [the father] was continuing to earn an income from his profession as a tiler.
The Tribunal therefore estimated [the father]’s income in accordance with Regulation 42 CSMC using the ASHE figure for the average annual income of a ceramic tiler at the relevant time of £23,598.00.
Historic income was nil at the effective date of 16 April 2021. Where historic income is nil, that figure must be used unless current income is greater than nil (regulation 34(2)(a) and (2A)). If current income is also nil, historic income must be used.
If current income applies by virtue of regulation 34(2)(a) and the amount of historic income is nil, and the information in relation to current income is insufficient or unreliable, the Secretary of State may estimate that income under regulation 42(1).
‘Current income’ at the effective date of 16 April 2021 would be self-employment income from 5 April 2020 to 5 April 2021 if the father was self-employed on 16 April 2021. If the claimant was employed on 16 April 2021, his current income would be his income at 16 April 2021 as calculated under regulation 38. The tribunal made no findings of fact on whether the claimant was employed or self-employed at the relevant date. Nor did it make any finding that there was any amount of current income at the relevant date. Without those findings it is not clear on what basis the FtT concluded that it had the power to estimate current earnings under regulation 42(1). The reasons are not sufficient to give the parties a reasonable understanding of the basis on which the FtT’s conclusions have been reached and it is not possible to know whether the tribunal may have misdirected itself or omitted to take account of some material consideration.
For those reasons I conclude that the FtT erred in failing to make adequate findings of fact as to whether the father continued to work and earn an income post February 2021 and if so, by what means or under what guise.
Conclusion
I find that the First-tier Tribunal erred in law as set out above. Those errors were material.
For those reasons the appeal is allowed and the decision is set-aside. Because further facts need to be found and because the First-tier Tribunal is best placed to find those facts, I am not able to re-make the decision and I remit the matter to be re-heard by a newly constituted First-tier Tribunal.
The father’s success on this appeal to the Upper Tribunal on error of law says nothing one way or the other about whether the appeal will succeed on the facts before the First-tier Tribunal, as that will be for that tribunal to assess in accordance with the law on the basis of its findings of fact.
Sophie Buckley
Judge of the Upper Tribunal
Authorised by the Judge for issue on 20 June 2025
Amended decision authorised by the Judge for issue on 23 July 2025
Anonymity: The appellant in this case is anonymised in accordance with the
practice of the Upper Tribunal approved in Adams v Secretary of State for Work
and Pensions and Green (CSM) [2017] UKUT 9 (AAC), [2017] AACR 28.