Notional earnings - Reg 60(3)

Isn’t this a red-herring? Whether there are payments in kind or not, a person providing services can be treated as if they were receiving the remuneration that was appropriate for those services.

So if I go and wash my rich neighbour’s windows and she doesn’t pay me the going rate for it, the regs say I can be treated as having been paid the going rate, regardless of whether she gives me £5 or absolutely nothing, or a box of chocolates and some magic beans.

But if she pays me the going rate in cash and gives me a box of chocolates and some magic beans then Reg 60(3) doesn’t come into it, and the DWP can keep their hands off my magic beans.

It seems to me that the differences between the IS and UC rules on notional earnings are largely to do with the changing employment patterns over time, and trying to avoid situations where uncertainty about whether a person is an employee or a service provider or something, might cloud the otherwise crystal clear waters of benefits legislation?

I haven’t read the caselaw referred to in the ADM: R(IS)2/98, so perhaps I’m way off the mark here?

Thanks Timothy.

Reg 60(3)(a) only allows notional earnings to be taken into account if the claimant is paid less than the going rate. If they are paid the going rate, but some of the payment is ignored for UC purposes due to other UC rules (i.e., the rule that payments in kind are disregarded), the notional earnings rule won’t apply.

However, R(IS) 2/98 says that because the IS Regs use the wording “payment of earnings”, only actual earnings (as defined by the IS Regs) are considered, and not payments in kind. But UC doesn’t use that wording.

I see, so in my window cleaning example, you’re looking at the case where the going rate is £10, but my rich neighbour only gives me £5 cash, and then gives me £5 worth of magic beans. I can’t argue that UC can’t apply Reg 60(3) on the basis that she’s not underpaying me (once the value of the magic beans is taken into account), and so UC can treat me as having been paid the full £10. Whereas if I could argue that I wasn’t being underpaid (even though half of the payment was in magic beans that wouldn’t count as income) then they couldn’t treat me as having been paid £10.

Again, I haven’t seen the caselaw, but I’m surprised that argument succeeded - seems decidedly illogical. I suppose I’ll have to see if I can find it and see if I can make sense of it.

Charles - 10 June 2022 10:55 AM

In the ADM Chapter H3 Para. H3255 quote some case law regarding IS in support of their assertion that ‘payments in kind’ actually made by an employer are to be ignored when calculating notional earnings under Reg. 60(3).

Looking at the case in question, it seems clear that the decision was based on the wording used in the IS Regs (”[w]here [...] that person makes no payment of earnings” (my emphasis)), which is different to the wording used in the Supplementary Benefit Regs (“where [...] that person makes [...] no payment”).

The UC Regs use a wording similar to that used by the Supplementary Benefit Regs, so I think the IS case law should not be followed.

I’m wondering what others think about this?

Having read R(IS) 2/98 (twice) I think Charles is right to say that it doesn’t provide an authority for saying payment in kind is to be disregarded in the notional income provision in the UC Regulations. The case was decided on the IS Regulations. They specifically exclude payment in kind from earnings (reg 35(2)(a)), apparently because of the difficulty in putting a cash value on payments in kind. The issue in the case was whether that provision also applied to the notional income provision. The Commissioner decided that it did.

There is no such exclusion in the UC Regs. They tie definitions of income and earnings in to the tax legislation, which goes into a lot more detail about what is and isn’t earnings and is or isn’t taxable. This presumably means that payments in kind were all disregarded in IS but may be caught in UC. Meanwhile, UC Reg 60(3) only refers to payment and remuneration, not to earnings at all so it seems to me we are none the wiser as to whether benefits in kind are meant to be caught.

What I’m not clear about is whether this can make any practical difference to a claimant. If I’m paid in kind and such “payment” is taken into account it’s income for benefits purposes. If I’m paid in kind and benefits in kind are not taken into account I’m treated as having a zero income for my services for the notional income provision and so get the full effect of it.

Actually, payments in kind are not included as income for UC (at the moment anyway - DWP are always careful to say that they intend to somehow bring them into account one day).

However, despite that, I still think that a strong argument can be made for the value of payments in kind to be included when determining whether someone has been paid less than the going rate for UC purposes.

I’ve read it now, and I can see your point. The disregard of payments in kind was specifically based on the meanings of “earnings” and “paid for comparable employment”. So I would agree that R(IS) 2/98 is not necessarily authority for applying the same disregard in UC.

Where does this leave us? I think this just means that we’re free to make the argument that payments in kind shouldn’t be disregarded when deciding whether there has been underpayment for the purposes of Reg 60(3). There was the specific argument in R(IS) 2/98 that payments in kind are disregarded in IS despite the previous authority in R(SB) 13/86 that they should not be disregarded under the SB Regs which said “either no payment or a payment less than that paid for comparable employment”. But in para 8 it says that the difference is that in SB, the value of the payment in kind actually counted as income when calculating the benefit - whereas it does not in IS.

So it’s a double-counting, or having-your-cake-and-eating-it argument. It seems to me that the situation in UC is closer to the situation in IS - don’t count the payment in kind as income, but also disregard it when considering whether the claimant is being deliberately underpaid. It is possible to interpret “payment for those services” in a way that only includes payments that are recognised as income by UC.