NW v Secretary of State for Work and Pensions & Anor

When calculating child maintenance, losses from a non-resident parent’s self-employed business cannot be deducted from employment income. For historic income, the relevant regulations adopt income charged to tax and expressly permit only specified carry-forward trade loss relief. They do not incorporate trade loss relief against general income. For current income, the regulations require income from self-employment to be determined by reference to trading profits. Where there are losses rather than profits, no self-employment income is included. The tribunal must apply the legislation as enacted, even if this produces an asymmetry between the treatment of profits and losses.

The appellant was the non-resident parent of two children. The Child Maintenance Service calculated his liability using historic income reported by HMRC. He argued that losses from his self-employed business should be deducted from his employment income, either when calculating historic income or, alternatively, current income.

The First-tier Tribunal rejected that argument, although it directed a minor correction to the income figure. Permission to appeal was granted on the question whether the self-employed losses could be offset against employment income under the Child Support Maintenance Calculation Regulations 2012.

1. Appeal dismissed. The First-tier Tribunal had made no error of law.
2. Historic income is determined under regulation 36 of the Child Support Maintenance Calculation Regulations 2012 by reference to the sum of income on which the non-resident parent was charged to tax under the specified tax provisions. Applying the reasoning in FQ v SSWP [2017] AACR 24, that wording reflects the structure of section 23 of the Income Tax Act 2007: income is identified at step 1, while reliefs are deducted later.
3. Regulation 36(4) expressly permits carry-forward trade loss relief under section 83 of the Income Tax Act 2007, but section 83 permits deduction only from profits of the same trade. Regulation 36 contains no equivalent provision allowing trade losses, including relief under section 64, to be deducted from employment income.
4. Income charged under Part 2 of the Income Tax (Trading and Other Income) Act 2005 is charged on trade profits. The amount included under regulation 36(1)(d) is therefore a profit figure. Where the business has made a loss, there is no negative trading-income figure to offset against other income.
5. The same conclusion applies to current income. Regulation 39 requires current self-employment income to be determined by reference to trade profits. The reference in regulation 39(4) to reporting profits or losses confirms that “profits” elsewhere in regulation 39 does not include losses. A loss therefore produces no self-employment income for the calculation under regulation 37.
6. Arguments that this interpretation is unfair or inconsistent cannot alter the result. The tribunals must interpret and apply the legislation as enacted.

• Upper Tribunal (Administrative Appeals Chamber): appeal dismissed; the First-tier Tribunal decision of 26 January 2024 involved no error of law.
• First-tier Tribunal (Social Entitlement Chamber): appeal allowed in part only to correct the annual income figure from £48,106 to £48,100; the argument that self-employment losses could be offset against other income was rejected.