ME v HMRC

Before turning to consider the correct application of section 16 of the TCA, I should first address how the number of hours of work are to be assessed under the statutory provisions referred to immediately above. This arises out of a point I raised in directions on the appeal. In the directions I raised a hypothetical case of a person who claims working tax credit and provides credible evidence when making the claim that she will be working for 30 hours per week on average across the year, but in September of the year it is evidenced that the claimant has only worked 20 hours a week for the weeks since April of that year. I stated that on its own this might provide reasonable grounds for believing under section 16 that the claimant is not working the necessary 30 hours a week. However, I asked whether if the evidence provided with the original claim showed that the claimant was on a contract of employment where for the first six months she was to work for 20 hours a week and then these hours would rise to 40 per week for the following 6 months, would that evidence undermine the reasonableness of HMRC’s belief in September that the 30 hours per week was not going to be met in the tax credit year. This was in the context of addressing whether evidence provided with the claim and under which the section 14 decision had been made needed to be disclosed with HMRC’s appeal response to the First-tier Tribunal under rule 24(4)(b) of the Tribunal Procedure (First-tier Tribunal) (SEC) Rules 2008 as being evidence relevant to the reasonableness of the belief under the section 16 decision.

I will return later to address more generally the issue of the relevance of evidence that led to a section 14 decision to a later section 16(1) decision and its reasonable belief test. HMRC argued that the hypothetical example I posited could not arise under the TCA. It argued that the example wrongly inferred from the yearly basis within which the entitlement to tax credits may arise as somehow dictating that the entitlement has to be spread across the whole year. Under section 3(1) of the TCA entitlement to a tax credit can be for the whole or part of a tax year and therefore entitlement may lawfully arise for part of the year only. Moreover, the terms of section 5 of the same Act did not militate against this because the award made for the whole of the tax year under section 5(1) can still only be made if the conditions for making an award are satisfied at the time the claim is made and for the period for which the claim is made.

More particularly, entitlement to working tax credit is, per section 10(1) of the TCA, dependent on the claimant being engaged in remunerative work. And, if I understood HMRC’s argument correctly, under regulation 4 of the Working Tax Credit (Entitlement and Maximum Rate) Regulations 2002 this section 10(1) test is satisfied in a case such as this appeal only if the claimant is “normally working” for not less than 30 hours per week at the date of claim (or they have accepted an offer of such work at the date of claim and that work is expected to commence within 7 days of making the claim), and that work is expected to continue for four weeks after the making of the claim. In support of this argument HMRC sought to rely on the view of Upper Tribunal Judge Levenson in CTC/4372/2014 where, agreeing with CTC/2103/2006, he said:

“The regulations do not provide much assistance when the hours of work fluctuate but this issue was considered Deputy Commissioner White……in CTC/2103/2006. He rejected the notion that the weekly number of hours worked should be calculated by taking all of the hours worked in a particular year and dividing them by the appropriate number of days or weeks. He also held that there was no requirement that [30] hours must be worked each and every week without exception. The question is what hours are normally worked. This is a question of fact to be derived from the evidence……”.

Applying these provisions to the hypothetical example I raised HMRC argued showed the error in it and why the hours worked were not to be averaged across the year. At the time the claimant in my example made the claim for working tax credits in April of the tax credit year she was not normally working for not less than 30 hours at the date of claim; that circumstance only arose in September of that year. It was not, therefore, correct to say that when working for 20 hours per week at the date of claim “the number of hours of work which the claimant normally performs under the contract of service under which [she] is employed” was not less than 30 hours per week. The claimant’s remedy would be to reclaim the working tax credit when her hours had increased to (on this example) at least 30 hours per week.

I see much force in this argument and would not wish to suggest it was incorrect, especially in the context of a case where on the facts there is no issue about averaging fluctuating weekly hours of work. On the evidence before me the appellant’s case has always been that she worked 30 hours each week (but for less than the minimum wage). I would, however, make the following short observations. First, the section 10(1) test of “being engaged in qualifying remunerative work” does not itself set any minimum number of hours per week. Second, the First condition under regulation 4(1) of the Working Tax Credit (Entitlement and Maximum Rate) Regulations 2002 does not require that the work done at the date of claim is of a specified minimum number of hours for that week. Third, if a claim is made before the start of the tax year the effect of sections 3 and 5 of the TCA is arguably that any award is for the whole of the tax year, and the entitlement at the end of the tax year under section 18(1) is for the tax year, thus suggesting that the assessment of hours worked may have an annual dimension. Fourth, the provisions of regulation 7 of the Working Tax Credit (Entitlement and Maximum Rate) Regulations 2002 concerning workers in schools and others with a recognisable cycle of employment of one year may be said to point towards a one year assessment period for determining the number of house worked, at least for those people to whom that regulation applies, and stands against (again for such workers) a narrow focus on the hours worked in the week of claim (especially if such a week falls within school holidays). Fifth, it is not clear to me that the summary of CTC/2103/2006 givenin CTC/4372/2014 is necessarily wholly accurate. I say this because in CTC/2103/2006 what was said was:

“27.

The complex way the tax credits system works means that the question of the appellant’s normal hours can be revised at the end of the period of the award when the appellant’s entitlement for that year is being finally determined.

30.

In my view the question to be asked is whether, having regard to the hours worked each week, a person can properly be said to normally work for at least [thirty] hours a week. The issue of the number of hours worked each week, and whether the overall pattern of work constitutes normally working for at least [30] hours a week are questions of fact for determination by the tribunal. The use of the word normally means that there is no requirement that the appellant works at least [30] hours in every week.

32.

I agree with the following proposition put to me by [HMRC]:

“….By following this process, a rough picture of the claimant’s working pattern can be obtained and an overall view taken of whether the hours normally worked over the period of the claim were sufficient.”

33.

There is, in my judgment, no hard and fast rule as to how many weeks in the year (or part of a year where a claimant starts work during the course of the year) must be weeks in which a person works at least [30 hours] for the conclusion to be reached that the person normally works for at least 16 hours a week. All the circumstances must be taken into account, including the expectations of the appellant and her employer as well as the actual hours worked each week. What is required is a common sense judgment reflecting an overall view of the pattern of the appellant’s weekly hours of work over the year (or part of the year) in question.” (my underlining added for emphasis)

Again, this might suggest support for an analysis of the weekly hours worked across the year.

On the other hand, the terms of regulation 7D(1)(e) of the Working Tax Credit (Entitlement and Maximum Rate) Regulations 2002 (dealing with the four week “run on”, in which a claimant is treated as being engaged in qualifying remunerative work, inter alia, after starting to work for less than 30 hours a week); the Third Condition under regulation 4 of the same regulations requiring the work which the person undertakes [at not less than (in this case) 30 hours a week] to be expected to continue for at least four weeks; the fact that special provision is made for seasonal and term time workers under regulation 7; and the requirement in regulation 21(2)(d) of the Tax Credits (Claims and Notifications) Regulations 2002 on a claimant to notify HMRC within one month of ceasing to undertake work for at least 30 hours per week, all might point to a narrower focus in a non-term time worker case on the assessment of the number of weekly hours normally worked, at least in year.

These consideration, however, as I have said, do not apply in this case as it has been no part of the claimant’s case that her hours of work varied from week to week. Her case has always been that she was working each week for 30 hours, albeit at a rate of pay below the national minimum wage.

How then was HMRC and on appeal the First-tier Tribunal to approach the in-year exercise of checking and perhaps changing the tax credit as mandated by section 16 of the TCA?

The first point to note is that the giving of notice under section 16(2), in order to obtain evidence HMRC considers it may need for considering whether to amend or terminate the award, is separate from and not a necessary precondition for the operation of section 16(1). Section 16(1) may therefore operate even where no section 16(2) notice has been served.

A contrast may be said to be drawn within section 16 of the TCA between there needing to be “reasonable grounds for believing” (my emphasis) for any amendment or termination of an award under section 16(1), and HMRC only needing to “believe” that, for example, a claimant has never been entitled to tax credits for the year, in order to serve the section 16(2) notice. I do not consider the contrast here, if there is any, is intended to enable manifestly unreasonable beliefs by HMRC to lead to notices being issued requesting information: though (i) a challenge to that exercise would not arise on an appeal (as the right of appeal provided by section 38(1) of the TCA is only in respect of the section 16(1) decision), and (ii) any unreasonable belief by definition will not provide the foundation necessary for the proper exercise of section 16(1). The section 16(2) belief still has to be that, e.g., the claimant may never have been entitled to tax credit, and so as a rational belief must be based on, or have arisen from, matters relevant to the conditions of entitlement in respect of either tax credit. Just as importantly, the belief in s.16(2) is only, for example, that the claimant may have ceased to be entitled to tax credits, whereas under section 16(1) HMRC have to have reasonable grounds for believing that, using the same example, the claimant has ceased to be entitled to tax credits.

Subsections (1) and (2) in section 16 therefore apply at different stages and have different thresholds, but the belief in each has to be rationally connected with the separate but related questions with which the subsections are concerned. In the case of subsection (2) those questions are whether the rate of the tax credit may be wrong or whether the claimant may have ceased to be, or may never have been, entitled to the tax credit. With subsection (1) the issues are the same but the questions concern whether the rate of tax credit is wrong or whether the claimant has ceased to, or never was, entitled to the tax credit; albeit only on the basis that HMRC (or the First-tier Tribunal on appeal) have reasonable grounds for believing that that is the case.

On this basis, in my judgment the lawful use of section 16(2) does not permit HMRC to engage in a ‘fishing expeditions’ in the mere hope of finding some evidence. The exercise of the notice giving power in section 16(2) has to be based on HMRC holding a rational belief that the particular claimant may, for example, have ceased to be entitled. If called upon to justify the section 16(2) notice prior to any appeal against a section 16(1) decision, HMRC would need to be able to explain the basis for its belief that the claimant might, in this example, have ceased in-year to be entitled to tax credit(s) for that year.

Given the history of this appeal recited above it is unclear what role, if any, section 16(2) played in the section 16(1) decision with which this appeal is fundamentally concerned. In any event, as I have already indicated the operation of section 16(1) can stand apart from any notice issued under section 16(2).

Before turning to the relevant caselaw, it is perhaps helpful to take stock and set as the starting point that, on the basis of the facts in this appeal, the critical section 16(1) issue was whether as at 4 November 2013 HMRC had reasonable grounds for believing that the appellant had never been entitled to working tax credit for 2013/2014.

The scope and application of section 16(1) was addressed first (in terms of the date order of the most relevant decisions I have been able to identify) by Mr Commissioner Williams in CTC/4390/2004. The relevant parts of that decision read as follows (for context, the case concerned competing claims for child tax credit by separated parents in respect of their children):

“41 Section 16 is in permissive, not mandatory, terms, as is the information power. The decision-making power is triggered by a broad test, unlike the equivalent triggers applying to enable a decision to be superseded for most social security benefits under section 10 of the Social Security Act 1998. The Commissioners (and the tribunal) had the power, not the duty, to terminate F’s award if they considered it to be reasonable to do so. The operation of that power must, however, be regulated by the Rules in Regulation 3.

42

The Commissioners considered it to be reasonable to stop F’s award because of the claim by, and award to, M. The tribunal thought otherwise. It has, of course, on appeal, the same powers as the Secretary of State. Had the tribunal in this case concluded, in the terms of section 16, that it had considered the matter in accordance with the Rules and concluded that it was not reasonable to terminate F’s award, then that may have been a decision that, if taken properly, would not be susceptible to challenge as in error of law.”

The next authority is CTC/3981/2005, which I have already addressed to some extent in paragraph 21 above. It provides the most detailed consideration of section 16(1) to date and for that reason merits extensive quotation. Following on from the paragraph 32 quoted in paragraph 21 above, CTC/3981/2005 continues to say the following of relevance:

“33.

I said that awards reflect entitlement ‘broadly speaking’, because decisions under sections 15 and 16 are discretionary. The decision-maker might decide to leave changes to be dealt with in the section 18 decision, for example because it is too late in the tax year to bother changing an award or because the changes are so frequent and varying in their effects that it is better to leave the award as it is until the end of the tax year. I am not saying that the Revenue would refuse to amend an award in those circumstances. I am merely making the point that it has a discretion that would allow it do so.

What is the scope of an appeal against a section 16 decision?

34.

[HMRC] began by arguing that an appeal against a section 16 decision lay only on judicial review grounds. I was doubtful about this argument. The need for reasonable grounds is a condition for amending or terminating the award; it is not a condition on the right of appeal. On general principle, an appeal to an appeal tribunal is by way of a rehearing and the tribunal is entitled to consider the case afresh (R(IB) 2/04 at paragraph 25). That means that the tribunal must decide for itself whether there are reasonable grounds for the relevant belief.

35.

The decision of the Tribunal of Commissioners in R(H) 3/04 is some authority for an appeal being limited to judicial review grounds. However, that was in the special and very different circumstances of appeals against overpayment decisions by landlords. And it only applies to ‘a right of appeal against an exercise of discretion that is non-justiciable because the relevant considerations cannot be discerned’ (CH/4234/2004 at paragraph 39).

36.

Later, [HMRC] put a more limited argument. [It] argued that a claimant was not entitled to rely on appeal on a change of circumstances that had not been put to the decision-maker. I found this argument more persuasive. The issue for the tribunal on an appeal is whether the decision-maker had reasonable grounds for belief. If the decision-maker did not know of the change of circumstances, it cannot provide a reasonable basis for belief. Moreover, if the change was favourable to the claimant, the date from which it could be taken into account would be fixed by reference to the date of notification to the Revenue at an appropriate office (regulation 25 of the Tax Credits (Claims and Notifications) Regulations 2002). Notification to the tribunal would not be of any significance.

37.

The scope of the appeal is governed and limited by its terms. It deals only with two matters: entitlement and the rate of the award. On appeal, a claimant may raise issues on either matter. In this case, the claimant could raise any issues on the decision in the box on the first page. That included issues relating to the basic structure of the calculation or the underlying calculations. But she could not raise any issue relating to matters that were outside the scope of the section 16 decision. In particular, she could not raise any issue relating to payment.”

Lastly, I addressed section 16(1), albeit in a somewhat different context, in SB –v- HMRC (TC) [2014] UKUT 0543 (AAC), where I said, relevantly:

“9.

The focus thus for HMRC in its appeal response was on why it had reasonable grounds for believing that the appellant had never been entitled to tax credits (as a single person). Standing in HMRC’s shoes on the appeal, that was also the focus for the tribunal: paragraph 34 of CTC/3981/2005. However, the test is whether there were reasonable grounds for the belief at the time the section 16 decision was made: see paragraph 36 of CTC/3981/2005. Of course, evidence that is provided after the date of the section 16 decision may still be relevant to the time the decision was made and whether there were reasonable grounds for believing at that time.

10.

Given the consent as to the result that should now hold on this appeal, I do not investigate further whether the “reasonable belief” is enough to terminate the award or whether that belief must then be substantiated on the facts on the balance of probabilities so as to show that the person was, for example, never entitled to tax credits for the period for which the award had been made.

11.

However, given the onus of proof rests squarely on HMRC under section 16, in my judgment the correct starting point was that it was for HMRC to make good the evidential basis for the “reasonable grounds for believing” statutory test it was seeking to rely on. Conversely, the starting point was not for the appellant to show that the award had been properly made (i.e. that she was a single claimant). She had an award made pursuant to section 14 of the Tax Credits Act 2002 and that award remained valid and lawful unless and until, here, properly terminated under section 16.”

It is the issue raised in paragraph 10 of that SB that needs to be squarely confronted and answered on this appeal.

It was accepted by HMRC that following authority such as the Tribunal of Commissioner’s decision in R(IB)2/04 (at paragraphs 19-26 in particular), the First-tier Tribunal deciding an appeal under section 38(1) of the TCA stands in the shoes of the HMRC decision maker and gives an decision the HMRC decision maker was empowered to give under the legislation they exercised when making the decision under appeal. This in my judgement is correct as a matter of principle, notwithstanding the differences in the social security and tax credits adjudicatory regimes identified in ZM above. Despite those differences, there is nothing in either the Social Security Act 1998 or the TCA which sets out the powers of the First-tier Tribunal in deciding an appeal under section 12 of the former and section 38 of the latter. Consequently, all such powers have to be implied, as was recognised in R(IB)2/04 at paragraphs 11-18. Given the unfettered right of appeal conferred by section 38(1) of the TCA, and given the recognition by section 63(8) of the TCA that the application of provisions in Part I of the Social Security Act 1998 would not be inimical to the proper working of appeals under section 38(1) of the TCA, in my judgment HMRC are right to accept that the First-tier Tribunal on appeal stands in shoes of the HRMC decision maker and exercises the same legal powers that decision maker was able to exercise when making the decision under appeal.

This, however, must in my judgment cut against one argument that HMRC sought to make about section 16(1). This was, if I understood the argument correctly, that although the First-tier Tribunal was required for itself to decide whether there were reasonable grounds for believing that, in this case, the appellant had never been entitled to working tax credit in 2013/2014, the discretionary decision then as to whether to amend or terminate the award vested solely in HMRC. This argument took as its starting point that as a matter of statutory construction section 16(1) involves two decisions, or at least that there are two parts to one outcome decision. The first decision is whether there are reasonable grounds for believing that, as here, the claimant has never been entitled to tax credit. It is only if this decision is answered in the affirmative that the second, discretionary, decision arises, namely whether to amend or terminate the award, given the closing words of section 16(1).

I reject this argument for a number of reasons. First, it is contrary to both paragraph 41 of CTC/4390/2004 and paragraphs 34-35 of CTC/3981/2005, neither of which decisions HMRC has sought to challenge on further appeal in the intervening 12 or more years. Second, it wrongly characterises section 16(1) as involving two separate decisions when on its face it only involves one decision. Third, it runs contrary to the terms of section 38(1) of the TCA which do not suggest any restriction on the First-tier Tribunal’s powers: the appeal is simply against “a decision under section 16(1)”. It also leaves unanswered what the First-tier Tribunal does when it holds, for example, that there were reasonable grounds for believing that the rate of the award should differ, or that a person has ceased at a point in the year to be entitled, but on a different basis and with different effects from that found by HMRC in the decision under appeal. If the First-tier Tribunal has no power to amend the award, how does it give any effective decision on the appeal? Fourth, this argument runs contrary to HMRC’s acceptance that the ‘standing in the shoes’ and ‘exercising the same powers’ principles identified in R(IB)2/04 apply to tax credits appeals. Fifth, it ignores, or does not sufficiently answer, a number of authorities in social security adjudication that had no difficulty in finding that a “discretionary” or “judgmental” decision vested in what is now the First-tier Tribunal: see, for example, CH/1175/2002 (paragraph 4), R(H)1/08, Wirral MB –v- AL (HB) [2010] UKUT 254 (AAC) and CJSA/1703/2006; and note also paragraph 35 of CTC/3981/2005 set out above.

I should make plain, however, that HMRC’s argument on this last point did not detract from its agreement that in deciding a section 16(1) appeal the First-tier Tribunal is required to decide for itself whether there were “reasonable grounds for believing”. It is not limited to deciding whether HMRC had such reasonable grounds.

I have stressed the word “were” in the preceding paragraph because a limitation is inherent in section 16(1) as it focuses on the time (i.e. the date) during the period of the award when HMRC amended or terminated the award. In this case, that was on 4 November 2013 when it made its section 16(1) decision. It was thus at that point in time that the onus was on HMRC to show what the reasonable grounds for the belief were and why the award had then been terminated or amended. On an appeal likewise, standing in the shoes of the HMRC decision maker it was for the First-tier Tribunal to decide whether as at 4 November 2013 there were reasonable grounds for believing that the appellant had never been entitled to working tax credit in 2013/2014. This explains away a concern I had at one stage as to the fate of Tax Credit (Appeals) Regulations 2002. I accept following JI –v- HMRC (TC) [2013] UKUT 0199 (AAC) that these regulations have not applied in Great Britain since 1 April 2009. Nothing that was said by the three judge panel in VK –v- HMRC (TC) [2016] UKUT 331 (AAC); [2017] AACR 3 overrules JI on this point. My concern as to the absence of the provisions of section 12(8)(b) of the Social Security Act 1998 was in any event misplaced as section 16(1) provides its own focus as to the date the First-tier Tribunal has to give its consideration as to when the “reasonable grounds for believing” have to be established: and see further, and to the same effect, paragraph 36 of CTC/3981/2005.

The focus is therefore on the date of the HMRC 16(1) decision. Information provided after that date cannot, by definition, have provided any basis for the belief as it is not information which could have gone to that belief. However, Ms Ward accepted, in my view correctly, that such information might still be relevant if it went to the reasonableness of the belief. The example she provided was where section 16(1) had not been invoked and the claimant can show that they could have provided evidence substantiating their entitlement had they been asked to do so. As she put it “It will not be reasonable to form a belief on the basis of incomplete information”. She rightly argued that this did not mean that HMRC was obliged to exercise the evidence gathering power in section 16(2) and (3) before making a section 16(1) decision. Her point here was no more than that “a decision-maker who does not ask for relevant information will take the risk of finding that his grounds for belief were not reasonable, because not fully informed”.

The above in my judgment is sufficient to inform the basis on which a First-tier Tribunal should address an appeal against a section 16(1) decision. In short, it is for that tribunal to stand in the shoes of the HMRC decision maker and decide for itself whether there were reasonable grounds for believing either the rate of the tax credit(s) on entitlement differs from that which had been awarded or whether the appellant had ceased to be, or had never been, entitled to tax credit(s) in or for that year, and if answering in the affirmative to any of these question then deciding whether to amend or terminate the award.

Two points need to be stressed about the approach set out above.

First, the reasonable grounds for believing test is not a gateway or necessary condition to the decision maker (HMRC or First-tier Tribunal) then going on to decide in the round and on the balance of probabilities under section 16(1) whether the appellant is in fact not entitled to tax credits for the year or had ceased in fact to be entitled in the year. Following on from ZM above, tax credits adjudication, based as it is on yearly assessments, is a different statutory animal to social security benefits administered under the Acts of Parliament concerning social security benefits. Revision and supersession under sections 9 and 10 of the Social Security Act 1998 do not apply to tax credits. In revision and supersession the establishment of a ground for revision or supersession may itself be the final basis for changing entitlement to a benefit. Section 16(1) simply provides a power to interfere with the award within the course of tax year in which the decision is made. This is made plain from the closing words of section 16(1) and the language there used of deciding to amend or terminate the award. Section 16 does not empower the making of any final entitlement decision for that year. For that the provisions of section 17 and 18 of the TCA have to be gone through.

Second, and related to the first point, the focus for the First-tier Tribunal is on whether there were reasonable grounds for believing as at the decision date that the awarding decision was wrong. If that threshold is satisfied then the award may, but need not, be amended or terminated. Put another way, but mindful of the dangers of judicial rephrasing of statutory language, and trying to make some sense of the use of “entitled” in section 16, given that entitlement under the scheme authorised by the TCA only arises at the end of the tax year, the test is whether there are reasonable grounds for believing that at the end of the tax year the appellant will be found, in this case, never to have been entitled to tax credits for the year, or at least the period of the tax year up to the date of the section 16(1) decision. If such reasonable grounds for believing exist then, save for considerations as to whether the award should be amended or terminated, that is the end of the enquiry. It is not for the First-tier Tribunal to decide whether in fact at the end of the year the award will amended or terminated for the year

In terms of the above conclusions, I should say that I remain troubled by the terms of section 3(2)(b) of the TCA. Section 3(2)(b) refers to a fresh claim being needed for the tax year so as to unlock any entitlement to the tax credit(s) for any part of the same tax year in the situation where a decision is made under section 16(1) to terminate the award of a tax credit made on a claim. This prohibition on entitlement is said to be “(subject to any appeal)”. It is far from clear what effect those words in brackets are intended to have. They do, however, on their face apply in this case and that is sufficient for my not considering the issue in detail any further in circumstances of this appeal, particularly where (a) this issue was not the subject of any argument, and (b) HMRC has made clear and consistent representations that a section 18 decision will be made for the year 2013/2014 in this case. The words in brackets get out, if it is such, in section 3 do not, of course, cover where there has been no appeal made.

The concern in outline is that the end of year final notice duty under section 17(1) of the TCA arguably only applies where “a tax credit has been awarded for the whole or part of a tax year”. If, however, the award has been terminated from the beginning of the year under section 16(1) because there were reasonable grounds for believing the claimant had never been entitled to the tax credit(s) and no further claim has been made in that year, that arguably may have the effect that a tax credit has not been awarded for the whole or a part of the year. The contrary argument may be that all that section 17(1) is looking at is whether in fact in the tax year just gone an award of tax credits was in fact made, regardless of whether it was later terminated under section 16(1). Even if this is the case, however, the decision under section 18(1) of the TCA, after the giving of the section 17(1) final notice, is concerned with whether the person was entitled to tax credit(s) for the year. But the terms of section 3(2)(b) of the TCA would seem arguably to preclude entitlement for any part of the same tax year where a section 16(1) termination decision has been made in the year unless a fresh claim is made.

The answer may lie in HMRC never in fact terminating awards under section 16(1) even in cases where there are reasonable grounds for believing the claimant has never been entitled to the tax credits for the tax year, but instead amending the award and replacing it with a nil award from the outset of the year. Section 16(1) does not dictate that in such cases a termination decision must be made. If unappealed section 16(1) termination decisions would have the effect of blocking out the application of the full year entitlement consideration under section 18(1), it may be that in recognition of this HMRC has sensibly taken the amending to a nil award approach to get round this effect.

Reverting finally to the First-tier Tribunal’s decision in this appeal, HMRC accepted that it had erred in law by not applying the reasonable grounds for believing test under section 16(1) and instead wrongly asked itself whether the appellant was on the evidence entitled to working tax credit. It had also erred in law in relying on the PAYE evidence because on the evidence available that could not have been before the decision maker when they came to the decision on 4 November 2013 and so could not have formed any basis for a belief held on that date. I agree with all of that. However, HMRC argue these errors of law were not material to the decision the First-tier Tribunal arrived at because on any rational analysis of the earnings declared by the appellant herself for the previous year and the national minimum wage figure, she could not have been normally working for 3o hours a week.

I see the force in this argument, up to a point. However I remain concerned that at least one part of the appellant’s evidence and argument after the First-tier Tribunal’s decision was made might suggest that she had provided HMRC at an earlier stage or on an earlier claim with evidence that she was working for less than the minimum wage, for a relative, but for 30 hours each week, and it was that evidence that had led to her being awarded working tax credit on an earlier claim (see paragraph 17 above). This I appreciate may seem slight. However in a context where there was no disclosure by HMRC as to the evidence that had led to the earlier successful claims for working tax credit, it seems to me that this evidence (if it exists) would be relevant to the reasonableness of HMRC’s later belief that the appellant was not working for 30 hours a week. I also bear in mind here that the section 18 decision once made is likely to render all of these points redundant.

The First-tier Tribunal’s decision dated 21 August 2014 is therefore set aside. The Upper Tribunal is not in a position to re-decide the first instance appeal. Subject to the effect of any supervening section 18 decision, the appeal will have to be re-decided completely afresh by an entirely differently constituted First-tier Tribunal (Social Entitlement Chamber) at an oral hearing. The appellant is strongly encouraged to attend that hearing. HMRC is required to provide the new First-tier Tribunal with the further submission directed under direction (3) above.

The appellant’s success on this appeal to the Upper Tribunal on error of law says nothing one way or the other about whether her 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 and once it has properly considered all the relevant evidence.