When many parents are separating, they turn to the Government’s online calculator to help in agreeing on the child maintenance payments.
It is a good idea for parents to reach their own agreements, but using the online calculator might not be the best option if the parents are not well versed with the rules. It is also important for parents who have formally applied for the assessment to be on their guard. What is the Child Maintenance Service?
Make sure you use up to date and accurate income figures
When calculating child maintenance, the gross income figures without deductions for national insurance and tax is going to be used. Income is going to include employment income, social security income, pension income, and trading income (this is going to be calculated using the figure after trade loss relief). Gross income is going to be adjusted so it takes into account the pension contributions that were made that year.
If the Child Maintenance Service does a formal assessment, they are going to use gross income determined by figures provided by HMRC under pay as you earn regulations or self-assessment tax return. When negotiating a private agreement, you should accept a drawing statement or a wage slip as evidence of gross income. Get your last year’s tax return or P60 and find more details if you notice any discrepancies.
If the income differs from the historic income and the figure is 25% or more of the historic income, then the CMS can decide to use the current income. HMRC is going to provide the historic income figures, but the current income figures can come from any sources that are considered to be reliable by the decision-maker.
Checking for additional income
The CMS can consider a variation if there is evidence that the parent paying for the child support;
- Has unearned income
- Has an income from assets that exceeds the prescribed value of £31,250
- Has diverted income
- Is on a nil or flat rate but has £100 or more in gross weekly income
Income from investment and savings and rental income is not going to be automatically used in calculating gross income. This is why you might have to make a variation application to help in asking for this income to be included.
Something you need to pay close attention to diversion of income. There are many different ways that this can happen. Some of them include employing their relatives and paying them more than the market rate. Some choose to get the company car instead of being paid a higher salary. Gifting a share of the business to a relative or a new partner. Failing to pay themselves a dividend. These are some of the most common ways people divert their income.
Another area to look at is excessive pension contributions. There is no limit when it comes to how much they can pay in pension contributions. You can apply for a variation if you think that they are making excessive pension contributions, or they have set up an arrangement to use it to reduce their child maintenance liabilities.
Checking whether it is possible to apply for a variation because of special expenses
Expenses can be categorized into five groups:
- Contact costs
- Prior debt
- Expenses because of disability or a long-term illness of a relevant other child
- Payment of loans, mortgages, or insurance policies
- Boarding school fees
Application for a “top-up” maintenance order
In cases where CMS has made the calculation based on the maximum level of assessable income, the court can give an order for “top-up” maintenance. The maximum assessable income is £156,000 per year. When there is a “top-up” order in place, the paying parent will be required to make payments over the calculation of CMS. It doesn’t replace or extinguish the CMS calculation, but it is going to be added on top of what CMS calculated.