Family Law Hub

Gray v Secretary of State for Work and Pensions [2012] EWCA Civ 1412

  • In a tweet: Decision makers calculating child maintenance can rely on self-emp NRP's actual profits rather than figs in tax return

    Summary:  A father's ("F") appeal against a decision of the Upper Tribunal upholding an earlier evaluation of his earnings from self-employment for the purposes of calculating his child maintenance liability.

    F was the non-resident parent ("NRP") of two children aged 16 and 13. He had remarried and had a third child with his new wife. The mother ("M") had applied to the Child Support Agency ("CSA") in 2002 for a child maintenance assessment. In 2008, the CSA made a revised maintenance assessment that F was liable to pay £6.10 per week in child support. At that time, he was a self-employed handyman and the assessment was based on his declared net weekly income of about £150 per week. In making the calculation, the CSA accepted at face value F's evidence (as shown in his accounts); they did not have and did not call for any tax calculation notice issued by HMRC. M appealed on the grounds that F had mis-stated his weekly income. The Child Maintenance and Enforcement Commission ("CMEC") made a departure direction and increased the amount payable on the basis that F's lifestyle was inconsistent with his declared income. Both F and M appealed that direction - M on the grounds that it was still insufficient and F on the grounds that it should not have been made at all. 

    The First Tier Tribunal concluded that F's income (as recorded in the accounts and tax calculation) was not reflective of his actual income. They said that the likely level of F's annual income was £18,300 after deductions for income tax and National Insurance. F appealed to the Upper Tribunal (although, as the judgment notes, F was "deeply aggrieved by the findings of the FTT that his accounts understate his earnings and he finds it difficult to understand that appeals lie on questions of law only and that neither the Upper Tribunal nor this court can interfere with the findings as to his true income made by the FTT"). The Upper Tribunal found that the First Tier Tribunal had been entitled to go behind the figures supplied by F and make its own findings of fact. Due to the importance of the point in ensuring the proper assessment or calculation of child support, leave to appeal was granted. 

    The issue for the Court of Appeal was therefore the proper method of assessment or calculation of child support for the purposes of the Child Support Act 1991 and:

    • whether a decision maker was bound by para 2A Schedule 1 Part 1 Child Support (Maintenance Assessments and Special Cases) Regulations 1992 to accept that a NRP's parent's gross income was as stated in the information provided by him to HMRC or whether the decision maker was entitled to make his/her own findings of fact as to the parent's actual income; and
    • where the decision maker made his/her own conclusion about the level of the NRP's taxable profits, whether the tax to be deducted was the notional tax due on the child support figure for earnings or the actual tax payable on HMRC's calculation of profits.

    Held: F's appeal was allowed in part. 

    In relation to the decision-maker's entitlement to make their own findings of fact, Lord Justice Ward, who gave the leading judgment said:

    "The words have an ordinary and natural meaning and the contrary position that the decision maker is bound to accept the information placed before or even the information supplied by the HMRC is far from conclusive. I must, therefore, give effect to the ordinary meaning of the words and conclude that the answer to the question posed in this appeal is that the decision maker is entitled to rely on an evaluation of the father's actual profits from self-employment in the relevant period rather than the figures submitted to HMRC in his tax return for 2007/2008. Like Judge Mesher I find the reasoning of Upper Tribunal Judges Jacob and Howell cogent and convincing and so I too endorse the conclusions of law that they have reached. In the result the appeal as it was originally presented to us must be dismissed."

    On the tax deduction point,  Lord Justice Ward concluded that if the decision maker has made a finding of fact that a NRP's profits are higher than the level accepted by HMRC,  then they must deduct the income tax (and National Insurance contributions) which would be payable on that level of profit. However, the deduction of tax must be related to the taxable profits which have been established to be the actual earnings of the NRP. Consequently F's  appeal on this point was allowed and the case was remitted to the Secretary of State for a recalculation of the child support assessment but only so as to allow for a deduction of the income tax and national insurance on the notional surplus between the earnings found by the First Tier Tribunal and the earnings accepted by the HMRC.

Case note, published: 04/12/2012

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Published: 04/12/2012

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