Yesterday I wrote about the complexities that can be involved in family cases, and how those dealing with them must be prepared to face the whole gamut of human experiences and circumstances. Of course, one of the most common areas of complexity is in the financial arrangements that people enter into, whether for tax avoidance or other, less acceptable, reasons.
A small demonstration of this sort of complexity occurred in the recently published child support decision DR v SSWP and NR (CSM) (Child support : calculation of income). The case concerned a claim for child support maintenance for four children who live with their mother. Although the report does not go into details, the case clearly has a long sorry history, with the father falling into arrears way back in 2004.
The decision in the report relates to an appeal against a child support maintenance assessment. There were in fact cross appeals by both parents, but here I will concentrate upon one issue: the calculation of the father’s net income, for the purposes of the child support maintenance assessment.
The father, described as a “highly skilled person testing computer software”, declared that his earned income was just some £12,345 per annum net of tax. However, he also received other sums from his employer, which he claimed were loans that were repayable. The loans were not regular and the amounts varied from year to year, but in round terms they brought the father’s net annual income up to around £80,000. Not surprisingly, the mother claimed that the loans were part of the father’s income, and should therefore be included for the purpose of the child support maintenance assessment.
The issue had, in fact, already been considered by the Family Court, in connection with an application by the mother for financial provision for the children under Schedule 1 of the Children Act. In those proceedings, the District Judge had made a very clear finding regarding the father’s income:
“…in the year ended 5 April 2011 his gross income was £12,413.50 and £10,338.70 net that is to say £861.56 per month net. Would he do the job for which he is employed to for that sort of money? The answer comes a clear “no”. He has another source of income … He receives regular payment which are said to be “loans”. … The father says that … HM Revenue and Customs … have approved the scheme to the extent that they say that no tax is payable on these payments presumably because there is a theoretical yet contractual right to recover the payments … To my mind his loan payments are as much part of the father’s income as payments which are made and subject of PAYE deductions. It is simply a tax efficient way of the payments being made to him and, as far as it goes, HMRC have said that those payments are not taxable. However I do not accept that [the employer] will ever seek to recover those payments. It is disingenuous for the father to say that those loan payments are not part of his income. To say otherwise would lead to the ridiculous conclusion that this highly skilled person testing computer software would be working for £12,000 per annum gross.”
To cut a long story short, the District Judge’s findings were accepted by the First-Tier Tribunal in the child support proceedings, and the father appealed to the Upper Tribunal, whose decision is the subject of this report.
The Upper Tribunal found that the decision of the First Tier tribunal was correct, and therefore dismissed the father’s appeal. Upper Tribunal Judge Paula Gray found that the First Tier Tribunal was entitled to adopt the findings of the Family Court. In any event, she said:
“The father has never answered the obvious question as to why he would choose to work for around £15,000 gross p.a. and loans that he had to repay when according to the Office for National Statistics Annual Survey of Hours and Earnings the median wage of a male employee was some £27,500 in the tax year to April 2008, and given his prior earnings and high commercial value. It is really that critical issue which led to the allegation that the arrangement was a sham arising.”
Note that once again the treatment of the father’s income by HMRC did not determine how it would be treated for the purposes of child support maintenance. This is an issue that I have previously written about here, in this post.
I would just like to finish this post with another quote from Judge Gray, in which she mentioned the issue of complexity (in relation to the child support provisions – an exception to the rule that family law is straightforward!) and urged that that complexity should not distract us from the important issues. She said:
“It is easy in these cases, where there are arguments as to the extent of the assessable income of a non-resident parent and the matter turns on the intricacies of the complex child support provisions, to forget that the essence is the maintenance of children. Whatever the precise calculation that may be arrived at after a great deal of legal argument, in most cases the non-resident parent has a financial duty to maintain his children and should be doing so at some level whilst the argument rages.”
The full report in DR v SSWP and NR can be read here.