CH/329/2003
DECISION OF THE SOCIAL SECURITY COMMISSIONER
- This is an appeal by the claimant, with the leave of a legally qualified panel member, against the decision of the appeal tribunal sitting at Bargoed ("the appeal tribunal") on 21st October 2003. The respondent is the Caerphilly County Borough Council ("the Council"). For the reasons set out below, that decision is erroneous in point of law. I therefore set it aside and refer the case to a differently constituted tribunal ("the new tribunal") for rehearing.
- The appeal arises in the following way. On 17th July 2002, the claimant completed an application form applying to the Council for council tax benefit ("CTB"). The form, with accompanying documents, was received by the Council on 22nd July 2002. On 25th July 2002, the Council decided that he did not qualify for CTB because his weekly income, calculated in accordance with the regulations, exceeded his applicable amount to the extent that CTB was not payable.
- The claimant has three sources of income. In April 2001, he began running a small business. Consequently, he is self-employed and receives earnings from his business. In addition, he receives disabled persons tax credit. He also has a lodger who pays him rent. As I understand the matter, this appeal is mainly concerned with his business earnings which, for simplicity I shall refer to as his "earnings".
- When he applied for benefit, the claimant supplied details of the takings and expenses of his business for a period which he describes, at page 17 of the papers, as being from 31st March 2001 to 31st April 2002. In fact, I think he was probably referring to a 12 month period running from 1st April 2001 to 31st March 2002. I shall assume so for present purposes although, since I am remitting the matter for rehearing, my assumption, if incorrect, can be corrected at the rehearing. In accordance with conventional practice, the Council calculated his current weekly income on the basis of what he had earned in the preceding business year. This, when added to his disabled persons tax credit and the rent he received, and after making reductions provided for in the regulations, meant that his income was too high to enable him to receive CTB.
- The claimant contended that his income in the year 31st March 2002, was no guide to his current earnings. This was because his business had suffered some sort of downturn from about April 2002, and he was now receiving little or nothing in the way of earnings. He contended that the regulations, to which I shall come in a moment, permitted the Council to have regard to what he was currently receiving and that the Council should have done so. He appealed to the appeal tribunal but his appeal was dismissed. He was, however, given permission to appeal to a Commissioner.
- It is appropriate to begin with the legislation. The basic rule is contained in regulation 15 of the CTB (General) Regulations 1992 (SI 1992/1814).
(1) Where a claimant's income consists of earnings from employment as a self-employed earner his average weekly earnings shall be estimated by reference to his earnings from that employment over such period as is appropriate in order that his average weekly earnings over the benefit period may be estimated accurately but the length of the period shall not in any case exceed a year.
(2) For the purposes of this regulation the claimant's earnings shall be calculated in accordance with Chapter IV of the Part.
The important words for present purposes are "over such period as is appropriate in order that his average weekly earnings over the benefit period may be estimated accurately". CTB is not awarded indefinitely. It is awarded for a set period of up to 60 weeks. The period of the award will be decided in advance and it is "average weekly earnings" over that period that the regulation is focussing on. Such average weekly earnings must, of necessity, be estimated but the estimate must be as accurate as is reasonably possible. It appears that any reasonable period can be taken provided it does not exceed one year. Chapter IV of the regulations (regulations 21 to 23) contains rules for calculating how a self-employed earner's net income is to be arrived at. See in particular regulation 22. These rules are important but do not affect the issue before me – which is what period should be adopted in order to estimate accurately the claimant's earnings over the benefit period.
- Pausing there, the earnings of self-employed persons, whether carrying on business as a sole trader, or in partnership with others or through some other arrangement, can give rise to difficult problems. Such earnings are dependent on the profits of the business and those profits will vary from year to year and from time to time within a business year. For most businesses, there will be good times and bad times resulting in good years and bad years. For many, if not most businesses, there will be some sort of seasonal fluctuation in work. Many retailers make most of their profits during the Christmas period. For others, such as someone selling sports clothing and equipment, the busy period may be in the summer and early autumn. For hoteliers the busy periods will usually be the summer and other holiday periods. They may even shut at dead times of the year. Many sorts of building and ancillary work are mainly carried out in the summer when the weather is better and hours of daylight longer. In some cases, the amount of money being received by a business in a particular period may be no indication of how busy or successful that business is during that period. A business may be very busy indeed but receiving no money. This can be for many reasons. For example, because it is engaged on a large contract for which it will not be paid until the job is completed or, again, because the owner is too busy to send out bills or even because he chooses not to send them out for his own reasons such as minimising his tax liabilities.
- However, for all kinds of reasons, it is frequently necessary to calculate or estimate how much money a business is making. For example, to see how successful it is and to ensure that it is not being run at a loss. Again, in order to decide how much tax the owner should pay. For the purposes of filing accounts with the appropriate authorities or supplying them to those who need to know about the business – such as banks and lending sources. Another reason is for the purposes of applying for grants or benefits. Different recipients of the accounts will have their own requirements. Many of these will be set out in legislation. It is common business and accountancy practice to prepare accounts on an annual basis. That is to say, to prepare sets of accounts on the basis of successive periods of 12 months. That, at least, irons out seasonal variations and other, short term fluctuations, and provides a measure of equity. A seasonal trader or worker may well be able to show that, say, during the winter months he has earned little or even made a loss. However, over a period of 12 months, which will include both the season and off-season, he may have made a respectable profit. Many kinds of farming involve the farmer working hard for most of the year but he may only receive money when the crops he grows are harvested and sold.
- Coming back to regulation 15(1) it follows that the usual way of estimating a self-employed person's average weekly earnings over a benefit period will be by looking to see what he earned in his last complete business year. At any rate, that will normally be the starting point. A self-employed person who applies for CTB should be prepared to produce the necessary accounts, even if he considers they are not relevant, and for such accounts to provide at least the starting point of the calculations. In the present case, the appeal tribunal referred, in effect, to Chapter IV of the regulations. When one looks at regulations 21 to 23, they make most sense in relation to the usual convention of looking at what had occurred in the preceding business year and basing the calculations on the account of that year.
- However, regulation 15(1) does not require that year to be taken into account in all cases. It merely refers to "… over such period as may be appropriate … but the length of the period shall not in any case exceed a year". Regulation 15(1) merely recognises that there will be many cases where the preceding business year will not be appropriate and it is designed to deal with such cases. Take a very simple example. A man runs his own business as a roofer. He is successful and earns a reasonable amount. However, he is a sole trader and employs little help. Towards the end of a successful year he falls off a roof and is badly injured. He hopes to recover, and therefore keeps the business going, but his progress is slow. He can, therefore, earn little or nothing but may still have a number of expenses to meet. In such circumstances, his previous year's accounts would be no guide to his likely earnings (if any) in the current year. Likewise where someone can clearly demonstrate a collapse in profits for other reasons.
- In the present case, the claimant supplied his previous year's accounts but claimed that his business was suffering badly from about April 2002. That meant that an issue arose as to what was the appropriate period to be used in order that his average weekly earnings over the benefit period might be estimated accurately. It was an issue that the appeal tribunal was required to determine. The claimant contended that the conventional basis, and therefore the accounts for the year ended 31st March 2002, should not be used. He contended that, roughly, the first quarter of the current business year should be used in order to estimate his average weekly earnings over the benefit period. The proper approach to that dispute was for the appeal tribunal to consider the claimant's reasons and his evidence, and make appropriate findings. On the basis of those findings it should have reached a conclusion and given reasons for that conclusion. The appeal tribunal should have started from the basis that the earnings for the year ended 31st March 2002, provided a basis for the necessary estimate unless good reasons to the contrary were shown and a sensible alternative basis was put forward. Was the alleged collapse in the business profits proved and was it a real collapse as opposed to merely a cash flow problem which might be expected to correct itself in the course of the year? What were the reasons for the collapse? These matters needed to be investigated and findings made. If the appeal tribunal decided that a collapse had occurred was it sufficiently serious to mean that the previous year's earnings were no guide to those of the current year? If so, what should be done and what evidence did the claimant offer about his current earnings? Did these provide a better basis for an accurate estimate?
- Much will depend on the facts. A tribunal which goes through this process might well arrive at the conclusion that there was no reason not to use the previous year's accounts – whether with or without adjustments. For example, if it decided that either the alleged downturn in the business had not been proved or that it was of a temporary or seasonal nature. Those are conclusions which a tribunal may legitimately reach if the evidence provides a basis for them.
- In the present appeal, however, non of these processes took place. The appeal tribunal simply assumed that the previous year's accounts should be used and it appears not to have countenanced arguments to the contrary. In its statement of facts and reasons it said this.
"The assessment period is a means of calculating the income and expenses for self-employed persons. This is whatever period is appropriate to enable an accurate assessment of average weekly earnings in the benefit period. It must not be longer than one year. The general principle is that income and expenses in the past (in the assessment period) are used to calculate Housing Benefit and Council Tax Benefit in the future (in the benefit period).
Housing Benefit Regulations 21(1), 23; Council Tax Benefit Regulations 13(1) 15.
[For people] who have been self employed for some time the assessment period is almost always in the past. For example, Department of Work and Pensions advises that the assessment period should normally be that of the last year's trading accounts."
The appeal tribunal, in the penultimate paragraph of the statement, went on to say this.
"I accept the formula as set out by Caerphilly County Borough Council as this is the formula they use when assessing self employed persons in respect of their entitlement to Housing Benefit and they base their assessments on the guidelines set up by the Department of Work and Pensions."
- That was too simplistic an approach and ignores the clear wording of regulation 15(1). The appeal tribunal should have considered the claimant's arguments and ruled upon them. It did not do so and it thereby erred in law. I therefore allow the appeal and set aside the decision below. I am not in a position to give a final decision and I therefore remit the matter to the new tribunal for a complete rehearing.
- The task of the new tribunal is made easier in one respect. A claim for CTB was made just over three months into the claimant's then current business year. That year ended on, I think, 31st March 2003. Although regulation 15(1) uses the words "shall be estimated" I do not consider that that means that the most correct and up-to-date figures available have to be ignored. I therefore direct the claimant to supply to the new tribunal and the Council, not less than 28 days before the rehearing, (a) details of his earnings from 1 April 2002 to 31st March 2003 and (b) details of his earnings from 1st April 2003 to 30th June 2003. I am not sure what, if any, issues still arise in respect of the claimant's disabled persons tax credit or the rent he receives from his lodger. The new tribunal must, of course, consider any appropriate points which the claimant may wish to raise, rule on such points and record its decisions.
- Finally, one of the claimant's grounds of appeal was that this appeal was heard together with another appeal of his involving a different decision of the Council refusing him CTB in respect of a different period on the grounds that he did not have continuous good cause for a late claim. He takes the view that it was improper for the two appeals to be heard together. I reject this ground. It is common for appeals involving the same parties and similar subject matter to be heard together. It saves time and public money and has other advantages. No particular reason has been identified why these two appeals should not have been determined together.
- For the reasons which I give, I allow the appeal and remit the matter to the new tribunal.
(Signed) J.P. Powell
Commissioner
Dated: 29th August 2003
