Does a company car made available to a non-resident parent (‘NRP’) by his employer generate income for the purposes of calculating the NRP’s child support liability? That was the question that fell to be determined by the Upper Tribunal Administrative Appeals Chamber in KM v Secretary of State for Work and Pensions (Child support : calculation of income).
As we shall see, it is important to note that the case was decided under the old (original) child support scheme, which has since been replaced twice. Confusingly, the judgment refers to the old scheme as the ‘1992 scheme’, presumably because that is the year when the regulations relevant to the old scheme came into force. The old scheme is actually usually referred to as the ‘1993 scheme’, as that is when the child maintenance scheme first came into operation, although I have also seen it referred to as the ‘1991 scheme’, after the year that the Child Support Act was passed.
The case concerned an appeal by the NRP against the decision of the First-Tier Tribunal (‘FTT’) to include in his income the sum of £10,928, being the notional income attributable to his company car for income tax purposes. The NRP did not actually receive any car allowance from his employers, and he argued that making a company car available to an employee does not involve any earnings for the purposes of the regulations relating to the 1993 scheme.
The Upper Tribunal Judge accepted that argument. The relevant regulations identified certain matters that must be included within “earnings”. These included “any payments made by the parent’s employer in respect of any expenses not wholly, exclusively and necessarily incurred in the performance of the employment”. The NRP had not received any such payments. Accordingly the FTT had erred in law by taking into account as earnings the taxable benefit ascribed to the NRP’s company car. The provision by an employer of a company car for the use of an employee is not a payment in kind – it generates no earnings for the purposes of the relevant regulations. Therefore, any notional valuation of the benefit derived from a company car for income tax purposes must be left out of account in fixing the NRP’s earnings for the purposes of the relevant regulations.
The appeal was therefore allowed. The decision of the FTT was set aside and it was directed that there be a new child support calculation, on the basis of the NRP’s net income without the notional income attributable to his company car.
As an aside, it is notable that the parent with care (‘PWC’) did not want to get involved in the proceedings, putting forward no argument and simply making the submission that the Child Support Agency had taken the NRP to ‘court’, not her. Obviously, she may just have been wanting to stay on good terms with NRP, perhaps for the sake of the child(ren) – I suspect that some of these cases where the PWC is not directly involved can cause some strain between the parents, which obviously cannot be good for the children.
An interesting question (that is alluded to in the judgment) is: what would happen under new (2012) scheme? Essentially, details of the NRP’s income would be obtained in the same way, albeit from information supplied by HM Revenue and Customs (‘HMRC’), rather than from income supplied to HMRC. However, that is not to say that the information would then be used in the same way as under the 1993 scheme. Now, I’ve had a quick look at how it would be used under the 2012 scheme and my understanding is that HMRC would treat the benefit of the car as earnings, and that being the case those earnings would be included as part of the NRP’s income for the purposes of the child maintenance calculation. However, please don’t quote me on this, and definitely don’t ask me how the value of the benefit of the car is calculated – the rules are horrendously complicated, and time constraints preclude me from looking at the matter in the detail required to provide a definitive answer.
The full report of KM v Secretary of State for Work and Pensions can be read here.