Child support maintenance, based as it is upon a formula, has always been relatively easy to calculate, at least where the non-resident parent (‘NRP’) is employed. Get his or her income details from their payslips or P60, input them into a calculator, and away you go. However, when the NRP is self-employed, things can be considerably more complicated. Where do you get their income details from, and how is the figure to input into the calculator worked out?
This was the issue in the recent Upper Tribunal decision ML v Secretary of State for Work and Pensions (CSM) (Child support : calculation of income).
The case concerned child support maintenance for three children, who live with their mother, the parent with care (‘PWC’). Their father is a partner in a Limited Liability Partnership (‘LLP’) and was assessed for child support maintenance as a self employed earner on the basis of his share of the profits of that partnership. On the 21st of April 2010 he was assessed to pay £117.14 a week for the children. He applied for a ‘supersession’ (i.e. for the assessment to be set aside and replaced), on the basis that his net income had been wrongly calculated, because losses from a new restaurant business he had set up should have been taken into account.
The First-Tier Tribunal confirmed the assessment, holding that the losses from the restaurant business were not an allowable deduction from the profits of the LLP. The father appealed against this decision.
The Upper Tribunal held that if one business has a profit, and another a loss, the two must be added together to show the “gross profits” for child support purposes. Therefore, losses are deductible from profits which arise in the same tax year. Accordingly, the father’s appeal was allowed and a re-calculation of the child support was ordered, on the basis that losses from the restaurant business should be offset against the profits of the LLP which had been payable in the same tax year.
All of which seems to make sense, but is not actually the main point of this post.
The father had argued that the treatment of his financial position by HM Revenue and Customs should determine the calculation of his income for child support purposes. This, I think, is a common misconception. As the Upper Tribunal pointed out, case law in child support from its earliest days emphasised that there is a positive duty on the tribunal to ascertain the true level of earned income, rather than simply accept the figures in the accounts produced to HMRC, even if those accounts have been accepted by HMRC. This is exactly what lies behind the whole idea of child support variations relating to diversion of income by the NRP to reduce their child support liability (see my previous post here) – the fact that there may be a discrepancy between what they disclosed to HMRC and the actual situation. The Child Maintenance Service (‘CMS’), it could be said, has to look deeper than HMRC.
Sorting out child support maintenance when the NRP is self-employed can be a complex business, and is obviously a particular problem for a PWC who is expected to sort out a child maintenance arrangement by agreement with the NRP (and thereby avoid paying fees to the CMS). In such circumstances the PWC would obviously be well advised to seek the assistance of an expert family lawyer.
Photo by Daniel Rashid via Flickr