LMcA-v-Department for Social Development (IS) [2016] NICom 9
Decision No:  C5/15-16(IS)

SOCIAL SECURITY ADMINISTRATION (NORTHERN IRELAND) ACT 1992

SOCIAL SECURITY (NORTHERN IRELAND) ORDER 1998

INCOME SUPPORT

Application by the claimant for leave to appeal
and appeal to a Social Security Commissioner
on a question of law from a Tribunal’s decision
dated 20 October 2014

DECISION OF THE SOCIAL SECURITY COMMISSIONER

1.	This is a claimant’s application for leave to appeal from the decision of an appeal tribunal sitting at Craigavon.

2.	For the reasons I give below, I grant leave to appeal.  I allow the appeal and I set aside the decision of the appeal tribunal under Article 15(8)(a) of the Social Security (NI) Order 1998.

3.	I make findings of fact and determine the appeal myself.  I decide that the applicant did not possess and should not be treated as possessing capital in excess of the prescribed amount from 21 May 2014 to 31 January 2016.  Provided that she has satisfied the remaining conditions of entitlement for the relevant period, I determine that she is entitled to income support from 21 May 2014 to 31 January 2016.  I direct the Department to confirm that the remaining conditions of entitlement are satisfied and, if so, to assess the rate of payment to which the applicant is entitled.

	REASONS

	Background

4.	The applicant claimed IS from 21 May 2014 from the Department for Social Development (the Department), asking for backdating to 12 May 2014.  She stated that she was receiving carer’s allowance (CA) and that her husband had ceased work, but was a company director.  Following a request for information, the Department was informed that the applicant’s husband was one of two directors in a construction company named D.. Ltd., and that the company had a dwelling house and a site for sale, valued at £185,851, a motor vehicle valued at just under £5,000 and a Bank of Ireland account containing £12,800.  The Department was given profit and loss accounts for the business for the year ended 28 February 2014.  In the accounts the capital value of the company’s assets was shown as £140,664.  On that basis the Department decided that the applicant’s husband possessed “notional capital” of £63,289.80, being half of that sum less 10% for the expenses of sale.  On 3 July 2014 the applicant was notified that her claim had been disallowed, and by a separate decision that her application for backdating of IS had been disallowed.  She appealed, but did not request an oral hearing of the appeal.

5.	The appeal was decided on the papers on 20 October 2014 by a legally qualified member (LQM) sitting alone.  The tribunal disallowed the appeal.  The applicant requested a statement of reasons for the tribunal’s decision.  This was issued on 7 January 2015.  The applicant sought leave to appeal to the Social Security Commissioner from the LQM.  Leave to appeal was refused by a determination issued on 24 February 2015.  On 31 March 2015 the applicant sought leave to appeal from a Social Security Commissioner.

	Grounds

6.	The applicant, then represented by Mr Smyth of Citizens Advice, submitted that the tribunal had erred in law on the ground that it:

(i)	wrongly took the assets of the company D.. Ltd into account as capital assets of the applicant or her husband and did not address the issue raised by the applicant that they should be disregarded under paragraph 6 of Schedule 10 the Income Support (General) Regulations (NI) 1987 (the Income Support Regulations);

(ii)	wrongly applied regulation 51 of the Income Support Regulations to the appeal, since that provision deals with intentional deprivation of capital and this was not a case involving “notional capital”;

(iii)	had failed to correctly address the capital value of the assets under consideration in the appeal, as there was no realistic possibility of these being sellable.

7.	The Department was invited to make observations on the application.  Mr Crilly of Decision Making Services (DMS) responded on behalf of the Department.  He accepted that the tribunal may have erred in law by failing to consider whether the disregard under paragraph 26 of Schedule 10 to the Income Support Regulations might have application in the case.  The Department therefore supported the application, while qualifying this with a reservation on whether this would necessarily lead to a successful outcome.

8.	However, in subsequent submissions, Mr Crilly resiled from that position, on the basis that the property in issue was an asset of the company, and that the disregard in paragraph 26 could not be applicable in the context.

	The tribunal’s decision

9.	The tribunal considered the appeal on the papers, as the applicant had not requested an oral hearing of the appeal.  She had forwarded a letter from an estate agent confirming that the new dwelling owned by the company had been for sale since January 2012, but that no viewings had been requested.  She further submitted that the motor vehicle owned by the company had been scrapped in March 2014.  She submitted that the assets of the company fell to be disregarded under Schedule 10, paragraph 6(1) [of the Income Support Regulations].

10.	The tribunal assessed the evidence relating to the property owned by the company, finding that the net assets of the company amounted to £135,730.  The tribunal found that, under regulation 51(4)-(6) of the Income Support Regulations, the applicant was to be assessed as possessing amount of capital equal to a half share of the value of the capital of the company.  No capital disregards were applied.  The tribunal found that the applicant possessed capital in excess of the prescribed limit of £16,000.

	Legislation

11.	The legislation relevant to this application is the Income Support (General) Regulations (NI) 1987.  The regulations which deal specifically with the treatment of capital in circumstances such as those in the present case provide as follows:

46.—(1) For the purposes of Part III of the Order as it applies to income support, the capital of a claimant to be taken into account shall, subject to paragraph (2), be the whole of his capital calculated in accordance with this Part and any income treated as capital under regulation 48 (income treated as capital).

(2) There shall be disregarded from the calculation of a claimant’s capital under paragraph (1) any capital, where applicable, specified in Schedule 10 (capital to be disregarded).

49. Capital which a claimant possesses in the United Kingdom shall be calculated at its current market or surrender value less—

(a) where there would be expenses attributable to sale, 10 per cent.; and

(b) the amount of any encumbrance secured on it.

51(4) Where a claimant stands in relation to a company in a position analogous to that of a sole owner or partner in the business of that company, he shall be treated as if he were such sole owner or partner and in such a case—

(a) the value of his holding in that company shall, notwithstanding regulation 46 (calculation of capital), be disregarded; and

(b) he shall, subject to paragraph (5), be treated as possessing an amount of capital equal to the value or, as the case may be, his share of the value of the capital of that company and the foregoing provisions of this Chapter shall apply for the purposes of calculating that amount as if it were actual capital which he does possess.

(5) For so long as the claimant undertakes activities in the course of the business of the company, the amount which he is treated as possessing under paragraph (4) shall be disregarded.

(6) Where a claimant is treated as possessing capital under any of paragraphs (1) to (4), the foregoing provisions of this Chapter shall apply for the purposes of calculating its amount as if it were actual capital which he does possess.

Schedule 10 provides for certain types of capital to be disregarded for the purposes of regulation 46(2).  Relevant paragraphs include the following:

6.—(1) The assets of any business owned in whole or in part by the claimant and for the purposes of which he is engaged as a self-employed earner or, if he has ceased to be so engaged, for such period as may be reasonable in the circumstances to allow for disposal of any such asset.

(2) The assets of any business owned in whole or in part by the claimant where—

(a) he is not engaged as a self-employed earner in that business by reason of some disease or bodily or mental disablement; but

(b) he intends to become engaged or, as the case may be, re-engaged as a self-employed earner in that business as soon as he recovers or is able to become engaged or re-engaged in that business,

for a period of 26 weeks from the date on which the claim for income support is made, or is treated as made, or, if it is unreasonable to expect him to become engaged or re-engaged in that business within that period, for such longer period as is reasonable in the circumstances to enable him to become so engaged or re-engaged.

(3) In the case of a person who is receiving assistance under the self-employment route the assets acquired by that person for the purpose of establishing or carrying on the commercial activity in respect of which such assistance is being received.

(4) In the case of a person who has ceased carrying on the commercial activity in respect of which assistance was received as specified in sub-paragraph (3), the assets relating to that activity for such period as may be reasonable in the circumstances to allow for disposal of any such asset.

…

26. Any premises or land where the claimant is taking reasonable steps to dispose of those premises or that land, for a period of 26 weeks from the date on which he first took such steps, or such longer period as is reasonable in the circumstances to enable him to dispose of those premises or that land.

	Hearing

12.	I held a hearing of the application.  The applicant was present and was represented by Ms Kiley of counsel on behalf of Citizens Advice.  The Department was represented by Mr Crilly of DMS.  I am grateful to both for their helpful submissions.

13.	Ms Kiley indicated at the outset that she would not be relying on all of the submissions previously made by Mr Smyth in the application for leave to appeal.  She placed reliance upon the application of disregards in Schedule 10, paragraph 6 and 26 of the Income Support Regulations.

14.	She outlined the circumstances and indicated that the factual findings of the tribunal were not contested, resulting in an agreed figure of £135,730 net assets.  She accepted that the applicant’s husband was one of two directors of the company.  This meant that he could have been attributed as possessing a half share of the company’s assets, subject to a further reduction of 10% under regulation 49.  By my calculation this would have resulted in a figure of £61,078.50.

15.	Ms Kiley submits that the tribunal stopped at that point without considering the application of capital disregards.  This led to an error of law, as both paragraph 6 and paragraph 26 of Schedule 10 had potential application.  The tribunal did not give any reason for holding that the disregards would not apply.

16.	Ms Kiley indicated that section 2 of the Social Security Contributions and Benefits (NI) Act 1992 (the 1992 Act) defined categories of earners.  She referred me to the definitions of “employed earner” and “self-employed earner”.  She referred to the judgement of Judge LJ in the Court of Appeal in England and Wales in the case of Chief Adjudication Officer v Knight (reported as R(IS)14/98).  She submitted that the tribunal had not considered the question of whether the applicant’s husband was a self-employed earner, bringing him within paragraph 6.  She further referred to the Great Britain Commissioner’s decision in CIS/5481/1997, submitting that complex issues were involved, perhaps requiring the involvement of a financial member.  She submitted that the tribunal had to consider whether the property of the company was or was not an asset on normal accounting principles.  The tribunal, she submitted, had ignored the difficult questions arising.

17.	Ms Kiley submitted that the tribunal was obliged to consider the application of disregards under Schedule 10 as a whole and had failed to do so.  Further, she relied on paragraph 26 and submitted that the tribunal had wrongly failed to disregard the premises in question for a reasonable period.

18.	In response, Mr Crilly agreed with Ms Kiley that regulation 51(6) led back to regulation 46(2).  This specifically referred to the disregards in Schedule 10.  However, he submitted in regard to paragraph 6 that the applicant’s husband was an employee of the company.  He relied upon a decision of the Upper Tribunal, CH/2975/2014, concerning a similar provision in the Housing Benefit Regulations 2006.  The Upper Tribunal judge found that for the purposes of the equivalent paragraph in the HB regulations to paragraph 6, the assets of the company were not owned by the claimant.

19.	However, while accepting that paragraph 6 could potentially be engaged, Mr Crilly submitted that it was not engaged on the particular facts of the case.  In relation to paragraph 26, Mr Crilly further submitted that the disregard could not apply on the facts of the case.

	Assessment

20.	By regulation 23(1) of the Income Support Regulations, the capital of a claimant’s partner is to be treated as the capital of the claimant.  Where a claimant is a member of a couple, “partner” means the other member of that couple.  It is not in dispute that the applicant and her husband are members of a couple.  Therefore, the capital of the applicant’s husband is to be treated as the capital of the applicant.  Also by regulation 23(1), any reference to the claimant for the purposes of Part V of the Income Support Regulations shall be construed as if it were a reference to the claimant’s partner.

21.	The applicant’s husband is one of two directors of a company, D.. Ltd, which has issued two shares – one to the applicant’s husband and one to the other director.  As a matter of company law, D.. Ltd is a legal entity distinct from the individual shareholders.  The assets and liabilities of the company are its own.  The shareholders are entitled to a share in the company profits while it continues to carry on business and a share in the distribution of the surplus assets of the company if it is wound up.

22.	However, by regulation 51(4) of the Income Support Regulations, where a claimant stands in relation to a company in a position analogous to that of a sole owner or partner in the business of that company, he shall be treated as if he were such sole owner or partner.  It is not in dispute that the applicant’s husband stands in relation to the company in a position analogous to a partner.  In such a case, by sub-paragraph (a) the value of his holding in that company shall, notwithstanding regulation 46 (calculation of capital), be disregarded.  By sub-paragraph (b), he shall, subject to paragraph (5), be treated as possessing an amount of capital equal to the value or, as the case may be, his share of the value of the capital of that company and “the foregoing provisions” of Chapter VI of the Regulations shall apply for the purposes of calculating its amount as if it were actual capital which he does possess.

23.	The application of regulation 51(4) of the Income Support Regulations to the applicant’s case has the effect of dis-applying normal company law principles.  The value of the applicant’s husband’s shareholding in D.. Ltd falls to be disregarded under regulation 51(4)(a).  Instead by regulation 51(4)(b) he is treated as possessing an amount of capital equal to his share of the value of that company as if it were actual capital.  However, by regulation 51(6), the rules for calculation of capital in Chapter VI of the Income Support Regulations also apply to such capital.  These rules include regulation 46(2) and Schedule 10.

24.	In a written submission from the applicant made prior to the hearing of the appeal, the tribunal was asked to apply the disregard in Schedule 10, paragraph 6 to the deemed capital assets of the applicant’s husband.  From the statement of reasons, it appears that the tribunal has not considered the application of the disregard, but rather it appears that it had determined that it had no potential application in the case.  I am satisfied that the tribunal has erred in law by failing to consider whether the capital disregard claimed by the applicant could apply on the facts of the case.  The parties are also in agreement to that extent.  However, they continued to differ over the scope of paragraph 6 and its application in the circumstances of the case.

25.	The parties both accepted that, in paragraph 6 of Schedule 10, “the assets of any business owned in whole or in part by the claimant” include the amount of capital which the claimant is treated as possessing under regulation 51(4)(b).  However, whereas Mr Crilly submits that the applicant’s husband was no longer engaged as a self-employer earner, the applicant maintained that he was.  Mr Crilly has pointed out that, if it was the case that the applicant’s husband was engaged as a self-employed earner, the value of the company would fall to be disregarded under regulation 51(5).  He submits that the facts demonstrate that the company is no longer trading.

26.	The applicant has sought to introduce post-hearing evidence to support the argument that the company was still trading.  This includes evidence regarding the maintenance of the visual aspect of the site of the dwelling house while it is for sale.  It also includes evidence to suggest that a dwelling house which had been left structurally complete since January 2012, but not finished inside, had been finished internally after May 2015.  I have not received a formal application for the admission of this evidence.  In any event, I do not consider that the evidence submitted can demonstrate that the business of the company is continuing and that the applicant’s husband is a self-employed earner on the basis of the activity claimed.  The main activity of the business had been property development.  That activity has ceased due to the downturn in the property market.  The activity described relates solely to achieving the sale of the assets of the company in a context where it has already ceased its main activity.  To that extent I accept the submission of Mr Crilly.

27.	Mr Crilly submits that whether the applicant’s husband could have been a self-employed earner, following Chief Adjudication Officer v Knight (reported as R(IS)14/98), is something which depends on the facts of the case.  Mr Crilly does not accept on the facts of the present case that the applicant’s husband was a “self-employed earner”.  He refers to section 2(1)(b) of the 1992 Act, where the term is defined as follows:

2.—(1) In this Part of this Act and Parts II to V—

(a) “employed earner” means a person who is gainfully employed in Northern Ireland either under a contract of service, or in an office (including elective office) with earnings; and

(b) “self-employed earner” means a person who is gainfully employed in
Northern Ireland otherwise than in employed earner’s employment (whether or not he is also employed in such employment).

28.	The gist of the submission of Mr Crilly is that the applicant’s husband is a director of D.. Ltd, which is an “office with earnings” and therefore that he is an employed earner.  He submits that a person can only be either an employed earner or a self-employed earner in respect of a specific position in a business at any one time.  Therefore, he submits, the applicant’s husband cannot have been a self-employed person and a director of D.. Ltd.

29.	Nevertheless, it is not absolutely the case that “employed earner” and “self-employed earner” are mutually exclusive terms.  Under the definition in section 2 of the 1992 Act, a person can be a self-employed earner whether or not he is also engaged in employed earner’s employment.  I accept, as Mr Crilly submits, that remuneration as a director may bring the applicant’s husband within the category of “employed earner”, although there is no actual evidence of such remuneration.  However, the principal basis on which the applicant’s husband might have expected to gain financially from the company was as a shareholder.  I do not consider that it is accurate, as Mr Crilly has done, to view the applicant’s husband’s relationship to the company as one of being in a “specific position in a business”.  While he held the specific position of director, he was also a shareholder.  Section 2 of the 1992 Act does not preclude him from being an employed earner as a director and a self-employed earner as a shareholder at the same time.

30.	Alternatively, the effect of regulation 51(4) is to require the applicant’s husband to be treated as if he were a partner in the company.  I consider that the requirement to treat him as a partner implies that he should be regarded principally as a self-employed person.  He was not a salaried director.  I consider that any remuneration received for duties as a director (and therefore as an employed earner) is not inconsistent with his being viewed as a self-employed earner.

31.	I consider that the applicant’s husband was a self-employed earner.  I further consider that the assets of D.. Ltd fall to be disregarded under paragraph 6 of Schedule 10 to the Income Support Regulations on the basis that the claimant has ceased to be engaged as a self-employed earner.  The tribunal failed to address this issue and, as such, has materially erred in law.

32.	I grant leave to appeal.  I allow the appeal and I set aside the decision of the appeal tribunal.

33.	Alternative argument was opened before me on the possible application of paragraph 26 of Schedule 10 to the particular case.  As the period of the disregard would be identical to that in paragraph 6, and as the assets in the case, being premises, would fall under both categories of disregard, I shall say no more about the possible application of paragraph 26.

	Disposal

34.	I see no strong advantage in remitting this matter to an appeal tribunal.  For the reasons I have given above, I accept that the disregard in paragraph 6 of Schedule 10 to the Income Support Regulations applies in the case.  Such a disregard should apply for such period as is reasonable to allow for the disposal of the assets.

35.	Having set aside the decision of the appeal tribunal, I accept the evidence which has been placed before me by the applicant.  This includes a letter from L...... E......, who indicate that the new dwelling was placed on the market in January 2012 when it was in an incomplete state and valued at £200,000.  Since then I understand that there has been an upturn in the property market.  I accept the evidence that, with a loan of £50,000 taken out in May 2015, the property has been completed and placed on the market for sale at an asking price of £350,000.  There have been 13 viewings of the property.  There is currently an offer for the property of £275,000.  It is hoped that a sale may complete in January 2016.

36.	I consider that it is reasonable in all the circumstances of the case to permit a period for disposal of the assets of the company from the date of claim on 29 May 2014 to 31 January 2016.  This takes into account the unfinished nature of the dwelling until after May 2015 and the downturn in the property market since in and around 2008.  I consider that the capital value of the assets of D.. Ltd falls to be disregarded from 21 May 2014 to 31 January 2016.  Provided that the applicant satisfied the remaining conditions of entitlement to IS throughout this period, I find that she is entitled to IS from 21 May 2014 to 31 January 2016.

37.	The applicant has claimed backdating of IS from 15 May 2014 on the basis that her husband had claimed jobseekers allowance on a credits only basis from that date.  I am not satisfied that I can treat the claim for IS as made from the earlier date under the regulations governing backdating (regulation 19, Social Security (Claims and Payments) Regulations (NI) 1987).

(signed)  O Stockman

Commissioner

15 February 2016