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

As the decision of the First-tier Tribunal involved the making of an error of law, it is SET ASIDE under section 12(2)(a) and (b)(i) of the Tribunals, Courts and Enforcement Act 2007 and the case is REMITTED to the First-tier Tribunal for rehearing by a fresh tribunal. DIRECTIONS A. The case is remitted to the First-tier Tribunal for reconsideration at an oral hearing. B. The new tribunal should not involve any of the panel members previously involved in considering this appeal on 22 January 2024. C. The new Tribunal must not take account of circumstances that did not apply at the time of the Secretary of State’s decision dated 30 August 2022. Later evidence can be considered as long as it relates to the circumstances at the time of that decision: see R(DLA) 2/01 and R(DLA) 3/01. D. If the parties have any further written evidence to put before the tribunal, this should be sent to the relevant HMCTS regional tribunal office within six weeks of the issue of this decision. E. The tribunal hearing the remitted appeal is not bound in any way by the decision of the previous First-tier Tribunal. Depending on the findings of fact it makes, the new tribunal may reach the same or a different outcome from the previous tribunal. F. Copies of this decision, the permission to appeal decision, and the submissions on behalf of the Secretary of State (dated 30 January 2025) shall be added to the bundle to be placed before the First-tier Tribunal hearing the remitted appeal. These Directions may be supplemented by later directions by a tribunal judge, registrar, or case worker, in the Social Entitlement Chamber of the First-tier Tribunal. REASONS FOR DECISION Factual background

1. MN was liable to pay child maintenance of £135.04 per week in respect of his three children with ZP, with effect from 12 February 2022.

2. On 30 August 2022, MN contacted the Child Maintenance Service (“CMS”) which administers child maintenance on behalf of the Secretary of State for Work and Pensions. CMS considered MN was reporting his income had changed with effect from 05 April 2022.

3. CMS accepted there had been a change to MN’s income with effect from 30 August 2022 (the date MN reported it). It notified the decision to MN and ZP in a decision letter dated 30 August 2022. The effect of the change of income was that CMS decided MN’s child maintenance liability reduced to £30.18 per week.

4. ZP requested that CMS look again at its decision (mandatory reconsideration). On 16 September 2022, CMS advised the parties it had not revised (changed) its decision. On 09 March 2023, ZP appealed to the First-tier Tribunal.

5. On 12 January 2024, a First-tier Tribunal (“FTT”) heard, and decided, ZP’s appeal. The FTT made findings that: (a) When CMS made its decision dated 30 August 2022, it used current income for MN of £9,960, which reflected a salary he was receiving as an employee of a limited company he set up on 05 April 2022; (b) MN’s historic income had been £43,643 for the 2020/21 tax year, reflecting his self-employment as a carpenter; (c) The correct historic income figure to use for MN was the £43,643 that he received for the 2020/21 tax year; (d) As MN’s current income was 25% or more different to his historic income, the child maintenance liability should be based on his current income. However, the FTT needed to consider whether it should agree to a variation to the child maintenance calculation for diversion of income; (e) One of the reasons for MN setting up the company was for tax advantages and asset protection but MN was also aware of the impact it would likely have on the CMS calculation of his child support liability. As part of this, the FTT found MN had told ZP that he would “lose the money through the [company] books”; (f) As a sole trader, MN had complete control of whether or not to set up a limited company and therefore to control the amount of income he received. By setting up a limited company, MN had unreasonably reduced the amount of his income that would otherwise fall to be taken into account as gross weekly income by diverting it for his own advantage and prioritising it over maintaining his children; (g) It was just and equitable to apply a variation for diversion of the difference between what MN would have earned in his self-employment and what he was now receiving as an employee of his limited company; and (h) Although MN had provided the FTT with his income for the 2021/22 tax year (£44,379) and for the 2022/23 tax year (£31,467), the FTT could not use either figure when calculating the variation because: (i) The 2021/22 tax year had ended by the effective date of CMS’s decision on 30 August 2022, but MN had not reported that income figure to HMRC until January 2023; and (ii) The 2022/23 tax year had not ended at the effective date of CMS’s decision.

6. The FTT decided it was just and equitable to calculate the difference between MN’s self-employed income for 2020/21 (£43,643) and his employed income through his company (£9,960). Using this, the FTT decided that the amount of the variation for diversion should be £33,683. It remitted the matter to CMS to calculate MN’s child maintenance liability on the basis of his historic income (£9,960) plus the variation (£33,683).

7. The FTT therefore allowed ZP’s appeal. Having received a request for a Statement of Reasons, the FTT decided to treat the Decision Notice as its Statement of Reasons. On 21 June 2024, the FTT issued a decision refusing MN permission to appeal to the Upper Tribunal. Permission to appeal

8. On 06 August 2024, MN applied to the Upper Tribunal for permission to appeal against the FTT’s decision.

9. Having been sent the papers for the application, I was able to listen to an audio recording of the FTT hearing. On 09 December 2024, I granted MN permission to appeal against the FTT’s decision on the basis it was arguable the FTT had made one or more of the following errors of law: (a) Whether it should have put, to MN, ZP’s allegation about losing the money through the books, before finding as a fact that he had said this: The FTT made an express finding of fact that MN told ZP he would “lose the money through the [company] books”. The audio recording of the hearing on 12 January 2024 confirms the FTT did not invite MN to comment on this at the hearing. Nor did ZP put it to MN during the hearing (for example, during the section where she asked him questions). MN had said during his closing submissions that he was not hiding any money. This could be interpreted as disagreeing with ZP’s arguments he had intended to divert his income. The wording of paragraph 6 of the FTT’s Decision Notice indicated, however, that the FTT relied on the finding of fact about MN making that statement, as part of its reasoning for concluding he had diverted gross weekly income within the meaning of regulation 71 of the Child Support Maintenance Calculation Regulations 2012 (the 2012 regulations). This requires an assessment that the reduction of income is unreasonable. It was arguable the FTT should have invited MN to comment on that assertion, since it appeared to be material to its decision. (b) The FTT’s reliance on MN’s earnings in the 2020/21 tax year when calculating the amount of income it decided was diverted under regulation 71: there were clear reasons why the FTT could not use MN’s 2022/23 income for this calculation, including that the tax year was not complete at the effective date of the decision (30 August 2022) and the overall figure earned included circumstances not obtaining at the date of CMS’s decision (which cannot be taken account under section 20(7)(b) of the Child Support Act 1991). However, it was arguable that MN’s income for the 2021/22 tax year might satisfy the definition of a relevant period for regulation 39(1), (2) and (4) of the 2012 regulations; and (c) Adequacy of factual findings and / or reasons for the decision it was just and equitable to agree to a variation: the FTT stated at paragraph 12 of its Decision Notice that it was just and equitable to agree to a variation. However, the FTT did not explain why.

10. The effect of granting MN permission to appeal was that he became the Appellant in the proceedings before the Upper Tribunal and ZP became the Second Respondent in these proceedings. The Secretary of State’s submissions

11. Ms H. Taylor is the Secretary of State’s representative in these proceedings. She supports the appeal in a helpful written submission dated 30 January 2025. Ms Taylor invites the Upper Tribunal to set aside the FTT’s decision dated 22 January 2024 for containing a material error of law, for the reasons set out below.

12. Failing to make adequate findings of fact and / or provide adequate reasons for its decision that it was just and equitable to agree to a variation: Ms Taylor submits that the FTT attempted to explain its reasoning at paragraph 9 to 12 of the Decision Notice. Those paragraphs acknowledged that setting up a limited company for his business was a legitimate thing for MN to do for tax purposes. The FTT also stated however that it was: “…satisfied and found as a fact that by setting up his limited company, [MN] had unreasonably reduced the amount of his income which would otherwise fall to be taken into account as gross weekly income by diverting it for his own advantage and prioritising that over maintaining his children”. (paragraph 12 of Decision Notice)

13. Ms Taylor submits the FTT failed to explore and adequately explain why it was unreasonable for MN to have set up a limited company and subsequently reduce his income. Ms Taylor submits the FTT also failed to adequately explain why it believed it was just and equitable to apply the variation. She submits the failure to adequately explain this is an error of law: “The reasons for a decision must be intelligible and they must be adequate. They must enable the reader to understand why the matter was decided as it was and what conclusion were reached on the ‘principal important controversial issues’, disclosing how any issue of law or fact was resolved.” (South Bucks District Council v Porter (No 2) [2004] UKHL 33)

14. Ms Taylor does not support the appeal on the other two appeal grounds.

15. In relation to the first appeal ground, Ms Taylor submits that MN explicitly stated in the appeal papers that he did not accept ZP’s allegations about losing the money through the company books (Addition C, page 1 of appeal bundle). Ms Taylor also refers to what the FTT Judge wrote at paragraph 6 of his Directions notice dated 05 April 2024 directing its Decision Notice to stand as the Statement of Reasons with some additions. This referred to what MN said in his submission at the end of the hearing when he said he was not hiding anything and then said he was not doing anything wrong. The FTT Judge wrote: “When it made its decision, the Tribunal was well aware that the Second Respondent did not accept the Appellant’s assertion about him having said he would lose the money through the company books”. Ms Taylor submits that what was in the papers in terms of this allegation was sufficient to give MN prior notice of the issue and an effective opportunity to make effective representations. She relies on paragraph 14 of A M EC Capital Projects Ltd v Whitefriars City Estates Ltd [2005] 1 All Er 723 as the basis for this being the correct test. Ms Taylor submits the FTT did not make an error of law on this point.

16. In relation to the second appeal ground, Ms Taylor submits that the FTT could not use MRN’s income in the 2021/22 tax year because that tax year figure was not available to the CMS until 13 January 2023 (Addition K, page 3 of FTT appeal bundle).

17. ZP has provided a reply to MN’s appeal. A summary of what she has written is that she is not in the financial position to employ a solicitor for legal advice or an accountant to advise in relation to MN’s accounts. ZP writes that since their separation, MN has attempted to avoid or has refused to contribute to their children’s day to day lives. ZP writes that the application for appeal is another attempt to avoid paying maintenance or to have the current sum reduced. ZP disagrees that MN was not aware of the arguments about his financial position before the hearing and agrees with Ms Taylor’s submission that he was aware of the assertions she was making before the hearing took place. ZP acknowledges MN’s appeal is based on the FTT failing to give adequate reasons for its belief he was diverting income.

18. ZP states she maintains MN was diverting income to his limited company to reduce his maintenance payments and MN continues to be of the opinion that it is her responsibility to meet the children’s needs. She describes what these needs include. ZP emphasises that MN told her categorically before she applied for child maintenance that if she made contact with CMS, he would get his accountant to lose all his money. She submits MN’s accounts indicate his earnings have not reduced significantly, yet his employment has not changed, and he continues to work on a subcontract basis as he did before setting up his company. ZP also asserts MN’s reduced income is not reflected in his lifestyle, which he has maintained.

19. In response to what the other parties have written, MN has written that he denies, in the strongest terms possible, that he has avoided contributing to his children’s day to day lives. He refers to issues following the break-up including the payment of debts, and the items for their children that he describes having paid. MN states that he did not say to ZP that he would lose all his money. He denies having a luxurious lifestyle. MN states he set up a limited company for tax benefits and progression with the idea of it being established in time for his children to have the opportunity to join the company. MN sets out the sales figures for his company in 2023 and 2023, and states that out of these, he has to pay legitimate company expenses relating to his trade and pension contributions. MN states that after administrative expenses, the operating profit in his company is substantially lower and the maximum he could extract in any one year is about £30,000. He states he does not understand why the CMS assessment is not based on the amount of gross earnings he could receive if he extracted all profits from the business in addition to his PAYE. Why there was no oral hearing of this appeal

20. None of the parties asked for a hearing. I took that into account. Having looked at the matter for myself, I decided an oral hearing is not required. The Secretary of State and MN agree that a material error of law has been made. It was proportionate to determine the appeal on the papers. My decision

21. At the permission stage, I only needed to be persuaded that it was arguable with a realistic (as opposed to fanciful) prospect of success that the FTT had made an error of law in a way that was material.

22. At this substantive stage, I need to be satisfied on the balance of probabilities that the FTT did make an error or errors of law that were material.

23. I am satisfied, on the balance of probabilities, that the FTT made a material error of law in relation to the appeal grounds addressed by Ms Taylor at paragraphs 12 to 13 above, dealt with in more detail by her submission dated 30 January 2025.

24. ZP acknowledges that one of the issues for the Upper Tribunal is the adequacy of the FTT’s reasons. Her representations are not that the FTT provided adequate findings of fact and reasons for its decision, but that that what MN did was unreasonable and was designed to divert his money away from maintaining his children. Those represent, however, two different matters. It is not sufficient simply for a First-tier Tribunal to reach an outcome that one party agrees with in a contested appeal. As explained in South Bucks (see paragraph 13 above), the First-tier Tribunal must provide adequate reasons so the parties can understand why the appeal was decided in the way it was.

25. The principles set out in South Bucks and other relevant cases have been summarised by the Senior President of Tribunal’s Practice Direction on Reasons for decisions in the following way (at paragraph 5): “Where reasons are given, they must always be adequate, clear, appropriately concise, and focused upon the principal controversial issues on which the outcome of the case has turned. To be adequate, the reasons for a judicial decision must explain to the parties why they have won and lost. The reasons must enable the reader to understand why the matter was decided as it was and what conclusions were reached on the main issues in dispute. They must always enable an appellate body to understand why the decision was reached, so that it is able to assess whether the decision involved the making of an error on a point of law. These fundamental principles apply to the tribunals as well as to the courts.”

26. Here, the FTT has failed to provide adequate reasons to explain why it considered it was just and equitable to make a variation to increase MN’s child maintenance liability and to the extent that it did. When paragraphs 6 and 11 of the Decision Notice are considered together, they provide some explanation of why the FTT considered MN satisfied regulation 71 of the 2012 regulations and therefore that it could consider agreeing to a variation for diversion of income. But that was not the end of the matter.

27. Section 28F(1)(a) and (b) of the Child Support Act 1991 make clear that a variation may be agreed to if CMS (or the FTT) is satisfied that the case is one falling within the relevant regulations, and it is their opinion that in all the circumstances it would be just and equitable to agree to a variation. The FTT effectively stated that section 28F(1)(b) was met, but it did not give adequate reasons why. Furthermore, the FTT arguably needed to make some findings of fact, on which it could found its reasoning that it should agree to make a variation and why it should be the £33,683 (and whether and why MN could afford that rather than some other sum).

28. I am therefore satisfied that the FTT made a material error of law in relation to the appeal ground summarised at paragraph 9(c) above.

29. In those circumstances, it is not necessary to resolve the other appeal grounds in order to resolve MN’s appeal to the Upper Tribunal. Conclusion, including disposal

30. Having decided the FTT’s decision involved a material error of law, it is appropriate to exercise my discretion to set aside the Tribunal’s decision dated 22 January 2024 under section 12(2)(a) of the Tribunals, Courts and Enforcement Act 2007. Having done so, section 12(2)(b) of that Act provides that I must either remit the case to the First-tier Tribunal with directions for their reconsideration or remake the decision.

31. None of the parties asked me to decide the case myself. This is a case where more facts need to be found, and the Tribunal needs to evaluate the evidence. The First-tier Tribunal is best placed to evaluate the evidence, including using its financial expertise, and to make appropriate findings of fact.

32. I therefore remit this matter (which, before the First-tier Tribunal is ZP’s appeal) for rehearing before a new First-tier Tribunal. It will make a fresh decision about what MN’s liability for child maintenance for his children with ZP should be at the effective date of 30 August 2022.

33. Although I have set aside the FTT’s decision dated 22 January 2024, I am not making any findings, or expressing any view, about what MN’s liability for child maintenance should be as at 30 August 2022. The next tribunal will need to hear evidence, make its own findings of fact, and provide its reasoning for the decision it reaches. Judith Butler Authorised by the Judge for issue: 10 October 2025 Upper Tribunal Judge