The changing landscape of the CSA
Practitioners have become accustomed with the “net income” formula that has been in force for 10 years. Generally speaking the “net income” formula creates child support liability for the NRP at 15%, 20% or 25% of pay after having deducted tax and national insurance. The percentage level is of course subject to variation depending on the amount of overnight stays that the NRP has with their children including any other children that they may have living with them.
The new formula
The formula will be based on gross income as follows:
NRP earning Gross weekly income up to £800:
One child: 12%
Two children: 16%
Three children: 19%
NRP earning Gross weekly income from £800 up to a maximum of £3,000:
One child: 9%
Two children: 12%
Three children: 15%
The above formula will only kick in once the NRP is earning above £200 gross per week. There will continue to be a flat rate for NRP earning between £100-£200 gross per week.
NRP has two children and earns a gross income of £1,500 per week will have a total liability of £212 per week.
If an NRP is earning above the £3,000 gross weekly income cap then a parent with care may need to consider making an application for a “top up” under schedule 1 of the Children Act.
NRP with other children living with them
Children living with the NRP will be known as “relevant other children.” The current discount has been reduced slightly under the new provisions. It is intended to create equal treatment to the children of both families.
The one seventh discount will continue to be awarded to NRP’s who have their children with them for more than 52 nights a year with some minor amendments.
Where pension contributions are made by the NRP these may be deducted from their gross income before the formula is run.
It should be noted that the CSA intends to charge both the Applicant and the NRP for both the receipt and distribution of child maintenance. The focus of the CSA and the Court set up in general is to encourage parties to enter into their own Family Based Arrangements without recourse to the CSA. The parties will therefore have an element of discretion in arriving at their global maintenance figure.
Managing the process
The CSA and the HMRC will be working under one umbrella for the purposes of any assessments. The CSA will contact the HMRC directly and obtain either the self assessment tax return (if self employed) or the PAYE (if employed.) The CSA will therefore no longer rely on the data that would ordinarily have been supplied by the NRP. It is anticipated that there will be savings in administration costs through this association.
The new legislation will allow further scope to the NRP to argue that their liability should be reduced under the gross income scheme.
Under the net income scheme the CSA can deem a return of 8% on any assets over £65,000. This for example may include any investment/rental properties that the NRP may own. The basis for the removal is that the CSA are basing their calculation on what the NRP actually receives and not deemed returns that have the potential to be unrealistic in the current economic climate.
Currently an NRP’s liability can be increased if their lifestyle is inconsistent with their income. This variation will also disappear under the gross income scheme.
The gross income system greatly simplifies the process whereby a NRP pays them self through dividends from their company or via rental income. Where an NRP has 'unearned income' (eg. income from property rental, dividends or interest) of more than £2,500 per annum, this income can be taken into account through a variation application. The unearned income will be established with reference to the tax return that has been filed. The Agency will contact the HMRC once an application is lodged. If the tax return does not disclose ‘unearned income’ then the Agency must proceed on the basis that the NRP has none.
If an NRP is making excessive pension contributions, or is otherwise redirecting income either through a new partner or fails to pay themselves a sufficient salary then this may be looked at in a variation.
The NRP’s liability to pay child support for those aged under 19 has been extended until a child turns 20 as long as that child is eligible for child benefit. This provision will apply across the board for both the net and gross income schemes.
It may be advisable for clients to proceed with an assessment under the current income scheme in light of the fact that the agency will simply accept the figures provided by the HMRC and when taken in conjunction with the loss of the lifestyle being inconsistent with income provision under the new gross income schemes.
This article is provided for general information purposes only and should not be applied to specific circumstances without prior consultation with us.
For further details on any of the issues covered in this update please contact Alex Anastasiou in the Family department on 020 7583 2222 or [email protected]