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Home > Judgments > 2011 archive

WM v CMEC [2011] UKUT 226 (AAC)

Appeal relating to the calculation of child support for tax evading non-resident father: should he share the benefit of his tax evasion with his children? It was appropriate and fair that the tribunal should make a variation taking accout of the non-payment of tax and national insurance.

Mr M, a non-resident parent to four children, appealed against decisions of the First-tier Tribunal as to the calculation of his child maintenance.

Mr M disclosed very low earnings (the highest being £58 per week). The FTT found that throughout the periods under appeal, he ran and controlled businesses making a profit of £56,000 per annum, which was paid to him. For some of the periods, all or part of the businesses were carried on through the medium of companies. For parts, he disclosed payments to himself of a small amount of salary.

The FTT found that save in relation to some of those payments, Mr M did not pay tax or NI in respect of the profits of businesses because they were not disclosed to HMRC.

The FTT decided that:

1 In respect of periods when all or part of the businesses were carried on by Mr M on a self-employed basis, his earnings were to be calculated without deduction of tax or NI because he did not pay any tax or NI on those earnings.

2 In respect of periods when all or part of the businesses were carried on through the medium of a company:

a. His earnings as an employed earner were to be assessed on the amount disclosed by way of earnings;

b. He was to be treated as having received by way of additional income from the relevant company sums of £56,000 per annum less the disclosed earnings as an employed earner and the sums found to have been earned as a self-employed earner above;

c. There should be a variation under reg 19(1A) of the Variation Regulations in respect of the amount of additional income under (b) (ie again without deduction of tax and NI), save in respect of periods when he was in receipt of working tax credit.

Mr M obtained permission to appeal on the ground that the FTT had erred in law in not deducting the amount of tax and NI which would have been due on the profit of the business, had he disclosed that profit to the HMRC.

Upper Tribunal Judge Charles Turnbull held that:

Self-employed earnings
• There is no escape from the conclusion that the MCSC Regulations require self-employed earnings to be calculated after deduction of income tax and NI, regardless of whether they were (or were ever intended to be) paid by the non-resident parent.

• However, where income tax and NI have not in fact been paid, the result directed by the FTT could be achieved by way of a variation.

• The FTT would have found (had it considered it) that a calculation of self-employed earnings which involved deducting income tax and NI leads to a maintenance calculation substantially lower than the level of income required to support Mr M's overall lifestyle, and that it was just and equitable to direct a variation.

• There were no reasons in the present case why it would not be fair to make a variation by reference to the whole cost of the higher lifestyle enjoyed by Mr M by reason of tax evasion (though no variation was permissible in respect of periods when Mr M or his partner were in receipt of working tax credit).

Income received from a company
• The position with regards to deductions for tax and NI from income received from a company differs from deductions from self-employed earnings.

• The Variation Regulations require effect to be given to the variation in the maintenance calculation by increasing the "net weekly income" of the non-resident parent.

• This must mean that where the non-resident parent pays no tax or NI in respect of the income received from the company, the whole of the income actually received by the non-resident parent from or via the company (without deduction of tax or NI) is taken into account for the purposes of the variation.

• If the company deducts tax at source, only the net amount received will be included for the purposes of the variation. If the income is paid gross but the non-resident parent does in fact pay tax, the decision-maker can give the non-resident parent credit for the tax under the variation by deciding that it is only just and equitable to direct a variation in respect of the net amount.

Summary by Victoria Flowers, Barrister, Field Court Chambers


_________________________

IN THE UPPER TRIBUNAL ADMINISTRATIVE APPEALS CHAMBER       

Appeal Nos.   
CCS/2632/2010
CCS/2633/2010
CCS/2635/2010
CCS/2636/2010
CCS/2637/2010

1. These are appeals by the non-resident parent (Mr M), brought with my permission, against decisions of a First-tier Tribunal sitting at Bristol on 16 June 2010. For the reasons set out below those decisions were in my judgment wrong in law and I set them aside. In exercise of the power in s.12 of the Tribunals, Courts and Enforcement Act 2007 I make the further finding of fact set out in paragraph 19 below and re-make the First-tier Tribunal's decisions in the same terms as those set out on pages 1, 2 and 3 (down to "Summary Reasons") of the First-tier Tribunal's Decision Notice dated 2 July 2010, but with the following amendments:

(1) In respect of the period from 6 11 08, direction ii) is replaced with the following: "The net earnings from self-employment are £1076.92 per week, less deductions for tax and national insurance in accordance with paras. 7 and 8 of Schedule 1 to the Child Support (Maintenance Calculations and Special Cases) Regulations 2000 ("the MCSC Regulations").

(2) In respect of the period from 19 2 09, direction i) is replaced with the following: "The net earnings from self-employment are £450 per week, less deductions for tax and national insurance in accordance with paras. 7 and 8 of Schedule 1 to the MCSC Regulations."

(3) In respect of the period from 10 9 09, direction i) is replaced with the following: "The net earnings from self-employment are £1076.92 per week, less deductions for tax and national insurance in accordance with paras. 7 and 8 of Schedule 1 to the MCSC Regulations. However, the sums so deducted are to be added to Mr M's net weekly income by way of variation under regulation 20 of the Child Support (Variations) Regulations 2000 ("the Variations Regulations")."

(4) In respect of the period from 21 09 09, the Tribunal's directions are replaced with the following:

"i) The net earnings from self-employment are £450 per week, less deductions for tax and national insurance in accordance with paras. 7 and 8 of Schedule 1 to the MCSC Regulations. However, the sums so deducted are to be added to Mr M's net weekly income by way of variation under regulation 20 of the Variations Regulations.

ii) Mr M has earnings from employment of £75 per week, from which no deduction is to be made for tax or national insurance because it was declared on a basis which implied no liability.

iii) It is just and equitable to direct a variation under regulation 19(1A) of the Variations Regulations in respect of additional income received by Mr M from his company. The additional income to be added to Mr M's net income by means of this variation is the sum of £551.92 per week.

iv) The total net income of Mr M, taking into account the variations, is therefore £1076.92 per week.

v) he is a single man with no children in the household."

A. Introduction
2. The appeals concerned the amount of child support maintenance to be paid by Mr M to his former wife (Ms P) in respect of their four children (now aged between 10 and 14), all of whom have since their separation in April 2004 lived with Ms P.

3. There were 4 decisions under appeal to the First-tier Tribunal. One of those decisions was appealed by both parents, so that there were a total of 5 appeals before the First-tier Tribunal. The appeals were all determined following a hearing on 16 June 2010 before a Tribunal which included a financially qualified panel member, and at which Ms P appeared and CMEC were represented, but at which Mr M did not appear. The Tribunal reserved its decision. The decision was made on 2 July 2010, by means of a lengthy Decision Notice. The facts were complex, and the Tribunal's subsequent Statement of Reasons extends to 18 pages and 170 paragraphs.

4. The periods covered by the appeals ran from 14 June 2007 down to the date of the last decision under appeal, namely 29 September 2009. However, that last decision will of course continue to determine Mr M's liability for child support maintenance until it is superseded by reason of some change of circumstances (which of course may already have happened). However, within the period 14 June 2007 to 29 September 2009 there was a period (from 29 May 2008 to 6 November 2008) not covered by the decisions under appeal, during which Mr M was in receipt of jobseeker's allowance.

5. During the period from 6 November 2008 to 10 September 2009 the assessments fell to be made on the basis that Mr M was living with a partner and her 2 children and was in receipt of working tax credit. During the remainder of the period he was single.

6. Essentially, the decisions under appeal to the First-tier Tribunal were made on the basis of the very low earnings disclosed by Mr M. The highest assessment was in the sum of £58 per week. Ms P contended in the appeals that Mr M's earnings were higher, alternatively that there should a variation on one or more of the following grounds in the Child Support (Variations) Regulations 2000 ("the Variations Regulations"): (i) assets (reg. 18); (ii) income not taken into account (reg. 19(1A)); (iii) diversion of income (reg. 19(4)); (iv) lifestyle inconsistent with declared income (reg. 20).

7. The First-tier Tribunal found that throughout the periods under appeal Mr M ran and controlled businesses making a combined profit at the rate of £56,000 per annum, which was paid to him. For some of the periods all or part of the businesses were carried on through the medium of one of a number of companies which were successively incorporated or acquired for the purpose. For parts of the period Mr M disclosed payments to himself of a small amount of salary by the relevant company. The First-tier Tribunal found that, save in relation to some of those payments, Mr M did not pay tax or national insurance in respect of the profits of the businesses, because the profits were not disclosed to HMRC.

8. The First-tier Tribunal's approach was essentially as follows:

(i) in respect of periods when all or part of the business was carried on by Mr M on a self-employed basis (i.e. other than through the medium of a company), Mr M's earnings as a self-employed person during those periods were to be calculated without deduction of tax or national insurance, because he did not pay any tax or national insurance on those earnings;

(ii) in respect of periods when all or part of the business was carried on through the medium of a company:

(a) Mr M's earnings as an employed earner were to be assessed on the amount (if any) disclosed by way of earnings;

(b) he was to be treated as having received, by way of additional income from the relevant company, sums at a rate of £56,000 per annum less (i) the disclosed earnings as an employed earner and (ii) the sums found to have been earned as a self-employed earner under (i) above; and

(c) there should be a variation under reg. 19(1A) of the Variations Regulations in respect of the amount of the additional income arrived at under (ii)(b)(i.e. again without deduction of tax or national insurance), save in respect of periods when Mr M was in receipt of working tax credit, when no variation at all could be imposed by reason of s.28F(3) of the Child Support Act 1991 and regs. 30 and 7(5)(b) of the Variations Regulations.

9. Mr M sought permission to appeal on a substantial number of grounds, but the only ground in respect of which I gave permission to appeal was the contention that the First-tier Tribunal had erred in law in not deducting the amount of tax and national insurance which would have been due on the profit of the business which the First-tier Tribunal found to be available to Mr M, had he disclosed that profit to HMRC. That is the only point which I need consider in this decision, as I gave reasons for rejecting the other grounds at the time of refusing permission to appeal.

10. CMEC, in its submission in this appeal, contends that (i) so far as the calculation of earnings from self-employment are concerned, paras. 7 and 8 of the Schedule to the MCSC Regulations require income tax and national insurance to be deducted in calculating the earnings, whether or not tax and national insurance are actually paid; but (ii) in calculating the additional amount of income to be added, by way of variation under reg. 19(1A) of the Variations Regulations, in respect of income of a company paid to Mr M, regs. 19(5)(c) and 25 of those Regulations do not require tax or national insurance to be deducted if none was in fact paid.

11. Ms P contends that, as Mr M did not in fact pay tax and national insurance, and as the gross amount of profit was therefore available to him, it would be unfair if tax and national insurance is deducted in calculating his earnings for child support maintenance purposes, whether under the main formula or by way of a variation.

B. The legislation

Schedule to the Child Support (Maintenance Calculations and Special Cases) Regulations 2000
"7(1) Subject to sub-paragraph (6) and to paragraph (8), the net weekly income of the non-resident parent as a self-employed earner shall be his gross earnings less the deductions to which sub-paragraph (3) applies.

(1A) In this paragraph and paragraph (8) a person's "gross earnings" are his taxable profits calculated in accordance with Part 2 of the Income Tax (Trading and Other Income) Act 2005.

(3) This paragraph applies to the following deductions –

(a) any income tax relating to the gross earnings from the self-employment determined in accordance with sub-paragraph (4);
(b) any National Insurance contributions relating to the gross earnings from the self-employment determined in accordance with sub-paragraph (5); and
(c) any premiums paid by the non-resident parent in respect of a retirement annuity contract ………………

(4) For the purposes of sub-paragraph (3)(a), the income tax to be deducted from the gross earnings shall be determined in accordance with the following provisions –

(a) subject to head (d), an amount of gross earnings calculated as if it were equivalent to any personal allowance which would be applicable to the earner by virtue of the provisions of Chapter I of Part VII of the Income and Corporation Taxes Act 1988 (personal relief) shall be disregarded;

(b) subject to head (c), an amount equivalent to income tax shall be calculated in relation to the gross earnings remaining following the application of head (a) (the "remaining earnings");

(c) the tax rate applicable at the effective date shall be applied to all the remaining earnings, where necessary increasing or reducing the amount payable to take account of the fact that the earnings related to a period greater or less than one year; and

(d) the amount to be disregarded by virtue of head (a) shall be calculated by reference to the yearly rate applicable at the effective date, that amount being reduced or increased in the same proportion to that which the period represented by the gross earnings bears to the period of one year.

(5) For the purposes of sub-paragraph (3)(b), the amount to be deducted in respect of National Insurance contributions shall be the total of –

(a) the amount of Class 2 contributions (if any) payable under section 11(1) or, as the case may be, (3) of the Contributions and Benefits Act ……; and
(b) the amount of Class 4 contributions (if any) payable under section 15(2) of that Act …………

at the rates applicable at the effective date.

8(1) Where –

(a) the conditions of paragraph 7(6) are not satisfied; or
(b) the Secretary of State accepts that it is not reasonably practicable for the self-employed earner to provide information relating to this gross earnings from self-employment in the forms submitted to, or as issued or revised by, the Inland Revenue;

net income means in the case of employment as a self-employed earner his earnings calculated by reference to the gross receipts in respect of employment which are of a type which would be taken into account under paragraph 7(1) less the deductions provided for in sub-paragraph (2).

(2) The deductions to be taken from the gross receipts to calculate net earnings for the purposes of this paragraph are –

(a) any expenses which are reasonably occurred and are wholly and exclusively defrayed for the purposes of the earner's business in the period by reference to which his earnings are determined under paragraph 9(2) or (3);

(b) any value added tax paid in the period by reference to which his earnings are determined in excess of value added tax received in that period;

(c) any amount in respect of income tax determined in accordance with sub-paragraph (4);

(d) any amount of National Insurance contributions determined in accordance with sub-paragraph (4);

(e) any premium paid by the non-resident parent in respect of a retirement annuity contract …………….

(4) for the purposes of sub-paragraph (2)(c) and (d), the amounts in respect of income tax and National Insurance contributions to be deducted from the gross receipts shall be determined in accordance with paragraph 7(4) and (5) of this Schedule as if in paragraph 7(4) references to gross earnings were references to taxable earnings and in this sub-paragraph "taxable earnings" means the gross receipts of the earner less the deductions mentioned in sub-paragraph (2)(a) and (b)."

The Child Support (Variations) Regulations 2000

"19(1A) Subject to paragraph (2), a case shall constitute a case for the purposes of paragraph 4(1) of Schedule 4B to the Act where –

(a) the non-resident parent has the ability to control the amount of income he receives from a company or business, including earnings from employment or self-employment; and

(b) the Secretary of State is satisfied that the non-resident parent is receiving income from that company or business which would not otherwise fall to be taken into account under the [MCSC] Regulations"

(5) Where a variation on this ground is agreed to – 

 …………………………………………..

(c) in a case to which paragraph (1A) applies, the additional income taken into account under regulation 25 shall be the whole of the income referred to in paragraph (1A)(b).

20(1) Subject to paragraph (3), a case shall constitute a case for the purposes of paragraph 4(1) of Schedule 4B to the Act where –

(a) the non-resident parent's liability to pay child support maintenance under the maintenance calculation which is in force, or which has been applied for, is or would be, as the case may be –

(i) the basic rate, 
(ii)the reduced rate, 
 …………………………..

(b) the Secretary of State is satisfied that the income which has been, or would be, taken into account for the purposes of the maintenance calculation is substantially lower than the level of income required to support the overall life-style of the non-resident parent.

(3) Paragraph (1) shall not apply where the Secretary of State is satisfied that the life-style of the non-resident parent is paid for from –

 (a) income which is or would be disregarded for the purposes of a maintenance calculation under the [MCSC] Regulations.

(5) Where a variation on this ground is agreed to, the additional income taken into account under regulation 25 shall be the difference between the income which the Secretary of State is satisfied the non-resident parent requires to support his overall life-style and the income which has been …….. taken into account for the purposes of the maintenance calculation ……

25. Subject to regulations 26 and 27, where the variation agreed to is one falling within regulations 18 to 20 (additional cases), effect shall be given to the variation in the maintenance calculation by increasing the net weekly income of the non-resident parent which would otherwise be taken into account by the weekly amount of the additional income ……………….."

C. The calculation of self-employed earnings
(i) The main formula
12. In my judgment there is no escape from the conclusion that paras. 7 and 8 of the Schedule to the MCSC Regulations require self-employed earnings to be calculated after deduction of the appropriate rates of income tax and national insurance, regardless of whether such amounts were or were ever intended to be paid by the non-resident parent.

13. This was a case where para. 8 (and not para. 7) applied, because in the circumstances it was not reasonably practicable for Mr M to provide information relating to his gross earnings from self-employment in the form submitted to HMRC: see para. 8(1)(b). However, para. 8(2)(c) and (d) and 8(4) require the amounts of tax and national insurance which are to be deducted from gross earnings to be determined in accordance with para. 7(4) and (5).

14. It is quite clear, when one looks at the provisions in para. 7(4) relating to the calculation of the amount of income tax to be deducted, that (i)(reversing R(CS) 1/05) an amount of earnings equal to the personal allowance is to be disregarded, even if the non-resident parent's personal allowance had in effect already been utilised in relation to other earnings (e.g. by way of a PAYE Coding in respect of employed earnings); and (ii) the tax rates for the relevant year are to be applied to the remaining earnings, regardless of the non-resident parent's actual position in relation to matters such as relief for pension payments, payments to charity etc, and in my judgment regardless of whether he in fact disclosed the earnings to HMRC and paid or ever intended to pay any tax. Thus, the non-resident parent may in fact have paid no tax for a variety of reasons, e.g. that he made pension payments equal to the amount of his taxable earnings, or that he did not disclose the earnings, but those factors are irrelevant to the computation required to be performed by reg. 7. The same in my judgment applied to national insurance contributions.

15. I have considered whether, in a case such as the present where income tax and national insurance was not in fact paid, the result which the First-tier Tribunal directed could be arrived at by another route – i.e. by means of a variation.

(ii) Variation under reg. 19(1A)?

16. The first possibility is that of a variation under reg. 19(1A) of the Variations Regulations. The primary class of income which reg. 19(1A) was intended to catch (thereby mitigating the effect of R(CS) 4/05) was dividend income. However, it goes wider than that. The condition in reg. 19(1A)(a) is satisfied where the non-resident parent has the ability to control the amount of income which he receives from "a company or business, including earnings from employment or self-employment." It is therefore not limited to the situation where a business is operated through the medium of a company, but is capable of applying where the non-resident parent simply carries on a business as a self-employed person. However, the condition is reg. 19(1A)(b) is that

"the Secretary of State is satisfied that the non-resident parent is receiving  income from that company or business which would not otherwise fall to be  taken into account under the [MCSC Regulations]".

17. It can be argued that the amounts which paras. 7 and 8 of the Schedule require to be deducted from self-employed earnings by way of tax and national insurance are, if no such tax and national insurance is in fact paid, "income which would not otherwise fall to be taken into account …." under the Schedule. However, that seems to me to be an unduly strained construction of those words. In my judgment they apply only to types or categories of income which would not otherwise fall to be taken into account, and not to income of a type which is taken into account, but which is required to be computed in a manner which does not accord with reality. 

(iii) Variation under reg. 20?
18. The second possibility is that of a variation under reg. 20 of the Variations Regulations. Under reg. 20(1)(b) the Secretary of State must be satisfied that "the income which has been, or would be, taken into account for the purposes of the maintenance calculation is substantially lower than the level of income required to support the overall life-style of the non-resident parent."

19. The First-tier Tribunal's reasoning was to the effect that, since Mr M did not disclose his earnings to HMRC, the whole of the net profit of £56,000 was available to him to support his lifestyle (see, in particular, para. 146 of the Statement of Reasons). I therefore think that it is clear that the First-tier Tribunal would have found, had it considered it, that a calculation of self-employed earnings which involves deducting income tax and national insurance leads to a maintenance calculation which is substantially lower (i.e. to the extent of the tax and national insurance deducted) than the level of income required to support Mr M's overall life-style. I am further of the view that the First-tier Tribunal would have considered that it was just and equitable to direct a variation increasing Mr M's net weekly income by the amount of tax and national insurance which is required by paras. 7 and 8 of the Schedule to be deducted. I am of the same opinion.

20. However, the question is then whether a variation on that basis would be precluded by reg. 20(3)(a) of the Variations Regulations:

"(3) Paragraph (1) shall not apply where the Secretary of State is satisfied that the life-style of the non-resident parent is paid for from –

(a) income which is or would be disregarded for the purposes of a maintenance calculation under the [MCSC] Regulations"

21. It was held by Mr Commissioner (as he then was) Jacobs in CCS/1320/05 that "income which is or would be disregarded" is not limited to the very narrowly defined types of income which by para. 2 of the Schedule to the MCSC Regulations "shall be disregarded", but includes also types of income which are simply not among those which the Schedule requires to be taken into account in calculating "net weekly income". Thus, in that case (where the relevant time was before the coming into effect of reg. 19(1A)) dividend income could not be taken into account by means of a variation under reg. 20. The Commissioner's second reason for reaching that conclusion was that "it would not be rational to ignore dividends in the maintenance calculation if they could be taken into account under regulation 20 subject only to the just and equitable requirement. The legislation would have to be more clearly worded to achieve that effect."

22. In the present case the income which supported Mr M's lifestyle was a type or category of income which is taken into account under the Schedule, but part of which is in effect required to be ignored owing to way in which the net income is required to be calculated. In my judgment the part of the gross income which, in arriving at the "net weekly income", is required to be deducted by way of tax and national insurance, does not naturally fall within the words "income which is ….disregarded for the purposes of a maintenance calculation …." Those words seem to me to be appropriate only in the case of a category of income which is not taken into account at all in the formula. If it is a type of income which is taken into account, but the net income is required to be calculated in a way which produces an amount of income which is much smaller than that which the non-resident parent in fact had available to him, then in my judgment reg. 20(3)(a) does not prevent reg. 20 applying. One can well see why, for the purpose of the formula calculation, it would have been considered desirable to have a method of computation of tax and national insurance which did not depend on the non-resident parent's actual tax position, or even on whether he in fact paid tax or national insurance at all. But the rationale behind the lifestyle inconsistent variation is to enable the maintenance calculation to be adjusted by reference to actual lifestyle. One can see arguments both ways on whether, as a matter of policy, there should be an exception in the case where a non-resident is able to afford a higher lifestyle by evading tax. On the one hand, why should the absent parent not share the benefit of that evasion with his children? On the other, should children benefit from the fact that tax has been unlawfully evaded, and when the absent parent may at the end of the day be pursued for it by HMRC? At the end of the day the outcome must in my judgment be governed by the natural meaning of the words in reg. 20(3)(a).

23. If, of course, there are in the particular case reasons why it would not be fair to make a reg. 20 variation by reference to the whole cost of the higher lifestyle enjoyed by reason of tax evaded (e.g. that it is likely that the absent parent will in fact have to pay the tax to HMRC), a variation could be refused on the ground that it would not be just and equitable to direct one: s.28F(1)(b) of the Child Support Act 1991, or a variation could be directed in respect of only part of the additional cost of the higher life-style: RC v SSWP [2009] UKUT 62. As I have said, I do not consider that there are any such reasons in the present case.

24. However, no variation is permissible in respect of periods when Mr M or his partner was in receipt of working tax credit: see para. 8 above.

D. Variation under reg. 19(1A) in respect of income received from a company
25. However, in respect of income (other than earnings) which the First-tier Tribunal found to have been received by Mr M as a result of the business being carried on by a company, and which the First-tier Tribunal directed should be taken into account by means of a variation under reg. 19(1A), the Secretary of State is in my judgment right in submitting that the position as regards deductions for tax and national insurance is different from that which applies in the case of a calculation of self-employed earnings under paras. 7 and 8 of the Schedule.

26. By reg. 25 of the Variations Regulations "effect shall be given to the variation in the maintenance calculation by increasing the net weekly income of the non-resident parent which would otherwise be taken into account by the weekly amount of the additional income …". By reg. 19(5)(c) "in a case to which paragraph (1A) applies, the additional income taken into account under regulation 25 shall be the whole of the income referred to in paragraph (1A)(b)".

27. Thus, what by reg. 25 is required to be increased is the "net weekly income", which is the amount of income at which the calculations required by the Schedule are seeking to arrive. That must in my judgment mean, in a case where the non-resident parent pays no tax or national insurance in respect of the income, that the whole of the income actually received by the non-resident parent from or via the company, without deduction of tax or national insurance, is taken into account for the purposes of the variation. If the company deducts tax at source before paying it to the non-resident parent, only the net amount received will be included for the purposes of the variation: reg. 19(1A)(b) concentrates on the income received, and it does not seem to me that it need be grossed up. If, on the other hand, the income is paid gross, but the non-resident parent does in fact pay tax, the decision maker or tribunal can in effect give the non-resident parent credit for the tax, under the variation, by deciding that it is only just and equitable to direct a variation in respect of the net amount: RC v SSWP [2009] UKUT 62.

E. Summary
28. My conclusions are therefore that, in respect of income found by the First-tier Tribunal to have been received by Mr M as a self-employed earner, (i) the Tribunal was wrong to hold that the fact that Mr M did not pay tax or national insurance contributions meant that they did not need to be deducted in arriving at his "net weekly income" under the Schedule, but (ii) that (save in respect of periods when Mr M or his partner was in receipt of working tax credit, where no variation is permissible), the result reached by the Tribunal could be achieved by means of a variation under reg. 20, by which Mr M's net weekly income is increased by the amount of the income tax and national insurance which paras. 7 and 8 of the Schedule required to be deducted.
29. As I have said in para. 19 above, in my judgment it is clear that, had it proceeded on the basis of a correct view of the law, the First-tier Tribunal would have considered it just and equitable to direct a variation on the basis which I have referred to in para. 28 above, in respect of periods when neither Mr M nor his partner were in receipt of working tax credit.

F. Postscript
30. The grounds of appeal to the Upper Tribunal were prepared on Mr M's behalf by Messrs. David Burrows, a firm of solicitors who frequently acted in child support matters. However, that firm has ceased to be in business. No written submissions were made on Mr M's behalf in these appeals in reply to those of CMEC and Ms Porter. By a Direction made on 15 April 2011 I issued a draft decision to the effect set out above, and gave the parties one month in which to present any further written submissions, or request an oral hearing. I did so because the possibility of in effect adding back, by means of a variation under reg. 20, the amounts required to be deducted from self-employed earnings in respect of tax and national insurance, was one which had not been canvassed in the submissions of either CMEC or Ms Porter, or in my Direction giving permission to appeal. I considered that the parties should have the opportunity to comment on it.

31. CMEC has filed a submission agreeing with my draft decision. By letter dated 16 May 2011 Family Law Clinic Ltd. wrote to the Upper Tribunal stating that they were now representing Mr M. The letter continued:

"Our client ……. has been in dispute with his former accountants who withheld from him his tax papers including details of his earnings. He has now instructed Messrs Cleevewood Accountancy of ……………

[Mr M] has instructed us that the money which passed through his personal bank account was business turnover not his personal money. He states that he could not open a business account due to his poor credit rating following his bankruptcy.

Messrs Cleevewood have today sent us an email which we attach. As will be seen they have now submitted four Tax Returns showing income for the years 2006-2010 inclusive showing total income as stated therein. We should make it clear that this is the first communication which we have received from them.

We have asked the accountants to supply more information but in view of the time-scale set in this matter are sending this letter as this stage by way of our client's further written submission in relation to the provisional conclusion of the Upper Tribunal."

32. The enclosed letter from the accountants stated that they had submitted tax returns for Mr M showing total income of £3900 for 2006-7 and £5200 for each of the three years 2007/8, 2008/9 and 2009/10.

33. It is plainly far too late to attempt to raise factual matters of the nature dealt with in the letter of 16 May. The tax returns submitted conflict with factual findings made by the First-tier Tribunal. Appeal to the Upper Tribunal lies only on the ground of error of law, and my Direction of 15 April 2011 invited submissions only on one of the issues of law dealt with in my draft decision. The letter of 16 May is therefore of no assistance to Mr M. 

Disposal
34. I therefore make the decisions set out in paragraph 1 above. 
 
Charles Turnbull
Judge of the Upper Tribunal
13 June 2011