Mark Lee
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Is this true re Child Support Agency and service companies

Is this true re Child Support Agency and...

I have been told by a divorcing dad that CSA ignore his dividend income when computing his income for child support maintenace. This seems bizarre to say the least.  He has been running a successful business (not anywhere close to IR35 related contracting work) through a limited company for around 10 years. 

Like most other sole shareholder companies he draws a minimal salary and votes himself the balance by way of dividends. I was shocked to hear that the CSA are only interested in his salary. The level of dividends he draws (or indeed could draw, were he to allow funds to build up in his company) is irrelevant apparently.

My friend is very willing to pay significant child maintenance for his son and can afford to pay more than the minimum. However this is all that CSA will direct him to pay due to their antiquated processes and systems.  They also refuse to communicate by email.

He tells me that in trying to explain the position to CSA they indicated they are aware of the gap in the rules as they suspect many reluctant fathers leave their jobs and then get re-engaged on a contract basis through a service company so as to reduce the level of their relevant income for child support purposes.

This all sounds quite disgraceful - if it's true. Do any readers of AccountingWeb know what the position is here and how common it is?

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16th Aug 2012 12:58

Variation of income

I believe it is true that the CSA do not factor dividends into the basic calculation however if the Mother was unhappy with this situation she could apply for a variation of income. This would account for the dividends etc but also in the case of the self employed who do not declare their income etc.

Of course, this relies on the Mother knowing the situation and understanding it.

The area I am unsure of is what the CSA refers to as "deviation of income" and HMRC for tax credits purposes "depravation of income". These terms seem to cover amongst other things, where a director leaves funds in the company instead of paying dividends. I have no idea at all what the difference between legitmately re-investings profits or not is though.

 

 

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16th Aug 2012 14:24

Naivity

You might naively assume that the CSA would consider the taxable income appearing on the Self-assessment form.

But then I would naively assume that student loans would be repaid out of pre-tax income, like a professional fee ...

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By jlsTax
17th Aug 2012 08:50

Basic Assessment and review/appeal

I have certainly seen initial assessment exclude the salary, but have also had to deal with explanation funds retained in the company and why dividends not taken when preparing for Appeals Tribunal.  My impression was that this issue was not persued very hard by officers initially, but don't know whether this is the general approach.  Certainly the Appeals Tribunal intended to take an overall view and make proper judgements on such issues.

As Roland35 suggests appears dependent on parent with care being aware/advised and following up.

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22nd May 2013 18:50

Dividends and Child Support

Dividends can be taken into account as my ex partner pays himself dividends as his salary. He has been allowed to keep the £250 000 that he has accumulated in the business however as he has stated that this money is ear marked for a future software product he is working on. They accepted this story and this £250 000 was not considered an asset in the calculation of child support.

Turns out the story is false but the CSA do not dig very deep. It's far too easy for deceitful exes to hide money and justify keeping their earnings when there is no validity behind it.

 

Mandy

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