MD v The Secretary of State for Work and Pensions & Anor

The sum of £15,463, retained as capital in the Appellant’s business at the end of its year ending 31 March 2023, represented diverted income and should be treated as forming part of the Appellant’s taxable income.

The First Respondent should recalculate its decision of 10 April 2023, regarding child support maintenance, using this amended earnings figure of £15,463.

This matter concerns two appeals concerning the liability of the Appellant to pay Child Support (‘CS’) for his two children. The First Respondent (“R1”) is the Secretary of State for Work and Pensions, who is responsible for the Child Support Maintenance scheme (“CMS”) established by the Child Support Act 1991. The Second Respondent (“R2”) is the ‘Parent with Care” (PWC) who has the day-to-day responsibility for the two children. The first appeal (SC337/22/00041, now UA-2024-001427-CSM) concerns a decision first made by R1 on 23 June 2022, relating to liability for CS based on figures from the financial year ending, for the Appellant, on 31 March 2022. The second (UA-2024-001428-CSM, previously SC337/23/00675) relates to a decision made by R1 on 10 April 2023, and was based on the Appellant’s income and company earnings in the financial year ending 31 March 2023.

Separate Decision Notices were issued by the First-tier Tribunal in relation to the two appeals, but the Statement of Reasons covers both. My decision also relates to both appeals.

The Appellant seeks to challenge the decisions of the First-tier Tribunal (“F-TT”) which on 10 January 2024 allowed an appeal by the Parent with Care (now R2) in relation to the CS payable by the Appellant, in both years. (The Appellant was thus the Second Respondent in the tribunal below, which is potentially confusing; when I refer in this decision to the Appellant, I mean the Appellant before the Upper Tribunal).

An oral hearing of his application for permission to appeal was heard by Upper Tribunal Judge West. In a decision dated 11 June 2025, Judge West granted permission to appeal on a limited ground only. He noted that:

“In paragraph 16 of the Statement of Reasons, the Tribunal found that the retainedearnings of the company for the year ending 31 March 2022 were £9,349, while for the year ending 31 March 2023 they were £27,812 (there is a typographical error – it should have been £27,802). That finding is arguably incorrect and it was challenged by the Appellant in the grounds of appeal. According to his accountant’s letter dated 17 January 2024, the total sum of retained earnings of £27,802 include the retained earnings for both 2022 and 2023 and not only 2023. The letter demonstrates that the retained earnings at 31 March 2022 were £9,339, whilst at 31 March 2023 they were £18,463. In that event it follows that the calculation in paragraph 29 is wrong.”

Accordingly, Judge West gave permission to challenge this single point only (explaining in the remainder of his decision why the other points raised on appeal were not arguable).

The Upper Tribunal has a discretion as to whether it holds an oral hearing of an appeal, or decides the case on the basis of the written submissions and papers. In making its decision on the form of disposal, it must take into account the views of the parties (see Rule 34(2) of the Tribunal Procedure (Upper Tribunal) Rules 2008).

Since the grant of permission to appeal, each of the parties has filed written submissions setting out their position. R1 is content for the matter to be disposed on the papers. R2 has asked for an oral hearing of the appeal, but this appears to be as she is concerned that the appeal may be used to re-litigate issues on which the Appellant was not granted permission to appeal; she does not oppose remission on the issue that UT Judge West identified. This appeal is not, however, a means of rearguing points in respect of which permission to appeal was not granted. The Appellant has also filed a request for an oral hearing. He is concerned that the wrong figures for retained capital or earnings are still being used by the CMS. However, this is not an issue which relates to the two financial years actually in issue in these two appeals - see further below. Neither of these issues require an oral hearing to explore them further and I am satisfied that I can dispose of this matter fairly on the papers without holding such a hearing.

R1 has filed submissions supporting the appeal, and acknowledging the calculation error made, it is accepted, by the F-TT.

In her submissions, R2 accepts that the case may be remitted back for this reason, but she is concerned that the many issues already litigated in this appeal, and resolved by the F-TT, should not be reopened.

The Appellant has lodged submissions in which he agrees with the error identified by UT Judge West and that it needs to be corrected. He also says that the erroneous figure for retained capital (of £27,812) has continued to be used by R1 in subsequent calculations of CSM and asks for this to be corrected. In his grounds of appeal, he noted that he was in the process of buying a pharmacy and money was being retained for that purpose.

To the extent that his submissions raise the issue of financial calculations relating to the company accounts for the years other than 2021/2022 and 2022/2023, or decisions by R1 other than those of 23 June 2022 and 10 April 2023, these were not the subject of these appeals before the F-TT or, therefore, the Upper Tribunal. This same issue arose in the oral hearing before Judge West, when he commented: “The Appellant sought to argue about the annual review decisions made by the Secretary of State in 2024 and 2025 about his child maintenance liabilities for the tax years 2024/5 and 2025/6, but as I pointed out during the hearing those are separate decisions which are not within the scope of the application before me, which only relates to the decisions to which I have referred in paragraph 2 above. They are separate decisions which carry their own rights of appeal and should be pursued separately by the Appellant.” This remains the case, even if there are links between the calculations made from year to year. In my decision below, I have only addressed the decisions in issue in these appeals.

The calculation of CS is governed, relevantly, by the Child Support Maintenance Regulations 2012. This appeal concerns Reg. 71 which provides:

Diversion of income

71.—(1) A case is a case for a variation for the purposes of paragraph 4(1) of Schedule 4B to the 1991 Act where—

(a)

the non-resident parent (“P”) has the ability to control, whether directly or indirectly, the amount of income that—

(i)

P receives, or

(ii)

is taken into account as P's gross weekly income; and

(b)

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.

(2)

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.

Thus, an “unreasonable” reduction of the income that would otherwise be taken into account for the purpose of CS decision-making can be reversed by the decision-maker. What is ‘unreasonable’ is to be judged in the context of parents’ obligations to support their children and the purpose of the Child Support Act 1991. It is not necessary to find that diversions were for the purpose of reducing liability to pay CS, and they may have legitimate purposes but still be considered unreasonable having regard to those parental obligations.

In this case, what was at issue was the retention of money in the Appellant’s company. The Tribunal allowed the appeal by R2 (as she now is) against the decisions of the Secretary of State dated 23 June 2022 and 10 April 2023, which were set aside. The Tribunal found that the published accounts of the Appellant’s company showed retained earnings of £9,349.00 and £27,812.00 for the years ending 31 March 2022 and 31 March 2023 respectively. The sum retained in each was unreasonable, as a sum of £3,000 (per annum) only would be more than adequate for emergency purposes. Any retained sum in excess of £3,000 should be treated as income, to be added to the Appellant’s taxable income.

The Tribunal issued two Decision Notices:

An initial reference to the tax year ending in 31/03/2022 in the second Decision Notice was a typographical error; the reference should have been to the year ending 31/03/2023 and this amendment was made under the slip rule on 11 June 2024 (see p32 of the F-TT bundle).

The calculation of diverted earnings in the first Decision Notice (for 001427/SC337/22/00041) is not affected by the error which formed the basis for the grant of permission. The only potential error in the figure of £9349 used by the Tribunal is that according to the accountant, the accounts showed retained capital in the sum of £9339. But a difference of £10 is minimal and does not justify reconsideration of the calculations to be made, not least when the allowance of £3,000 towards expenses that the Tribunal Judge permitted was regarded as a “more than adequate” sum.

Accordingly, I dismiss the appeal in UA-2024-001427-CSM.

As to the second appeal, I accept that the calculation of retained earnings used by the F-TT in paragraph 29(b) of its decision was wrong. It used both the sums retained in 2022 and in 2023 to arrive at the total of £27,812 for the year ending 31 March 2023. The accountant’s letter dated 17 January 2024 now further explains the accounts that were placed before the F-TT. It confirms that the retained earnings as at 31 March 2022 were £9,339, whilst in relation to the year ending 31 March 2023 they were £18,463; the total figure of £27,802 comprehended both. It follows that the calculation made by the F-TT in its Decision Notice was wrong.

The letter from the accountants containing this clarification is dated 17 January 2024 – i.e., it was obtained after the F-TT decision and was not available to the F-TT. Normally, post-decision material is not admissible to challenge factual finding made earlier by a Tribunal. But a factual error can amount to an error of law if it is ‘uncontentious and objectively verifiable” (E v SSHD [2004] QB 1044), and it is possible to provide proof of such errors in evidence supplied after the appeal has been concluded. I accept that the accountant’s letter demonstrates that there was a factual mistake by the F-TT that fulfils this test. It is in the interests of justice to correct it.

For this reason, the decision in SC337/23/00675 must be set aside.

If it allows an appeal, the Upper Tribunal may either remit a case to the F-tT for the appeal to be reconsidered and redecided, or it may remake the decision itself (see section 12 of the Tribunals, Courts and Enforcement Act 2007).

In this case, there was a straightforward mistake relating to the sums retained in the second year in issue. No more findings of fact are needed. In those circumstances, it seems to me that I should remake the decision.

I find that the sum of £15,463 (i.e., £18,463 less the £3,000 allowed by the Tribunal Judge as a reasonable contingency fund) represents diverted earnings and should be added to the Appellant’s taxable income, in respect of the year covered by R1’s decision of 10 April 2023.

R1’s Child Maintenance Service should recalculate the maintenance due using this amended earnings figure.

This substituted decision preserves the logic of the F-TT’s approach but corrects the calculation error made.

There is no need to remit to the F-TT for this correction to be made. Equally, there is no public interest in allowing the re-litigation, on remission, of other points which were not successfully appealed; to do so would be contrary to the interests of finality in litigation. Extending the length and complexity of these proceedings unnecessarily is also potentially contrary to the interests of the children for whose benefit the CSM scheme exists.

In reaching this conclusion, I have taken into account the point that the parties have suggested that remission is appropriate; but for the reasons stated, it seems to me that it would serve no useful purpose. I have also considered the fact that the Appellant is concerned that (a) the erroneous figure of £27,812 (or £27,802) continues to be used by the CSM in calculating his taxable income; (b) if retained capital is be treated as taxable income in one year, but is brought forward and thus still retained the following year (or later paid out as dividends or other income), it would be unfair to bring it into account again – that would be to count the same income twice; (c) it was legitimate to build up capital – he needed this to buy a business and he has now done so.

As to (b), any error relating to the ‘double-counting’ of money retained from the year end of March 2022, into decision-making for the following year has been corrected by this decision.

In relation to any wider points relating to the calculation of maintenance outside of the two financial years at issue in these appeals, the Appellant should consider and if necessary pursue his rights in relation to those years. Those years are not in issue in these appeals.

This is true also in relation to the purpose of building up capital. In relation to the years at issue in these appeals, I note that this was an argument pursued in front of the F-TT. But the Tribunal Judge found “There was no evidence produced that supported this as a reality in the near future. No businesses earmarked as possibilities” (SOR para 26). In refusing permission to appeal, the F-tT expanded this: “The Tribunal noted that [the Appellant] was saving to buy a new business, but this still amounts to potential income available for maintenance.” (Reasons, 18.08.2024). Thus, this issue was considered in the context of the years relating this appeal and it has not been successfully challenged on appeal. Again, if the Appellant considers that circumstances have since changed, this is a matter to be considered and argued, if necessary, in relation to the years that have followed.

In conclusion: the appeal succeeds to the extent that R1’s Child Maintenance Service should recalculate its decision of 10 April 2023, regarding child support maintenance, using this amended earnings figure of £15,463.