Close the loophole for the self-employed when making CSA payments
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Child maintenance is initially calculated based on declared earnings, and so self-employed non-resident parents have more control over how they present their income. And even though there are ways through which such declarations can be challenged, these are neither made obvious to single parents nor exercised often.
Child maintenance is based on a non-resident parent’s declared earnings. This works fine when wages can be verified via an employer and PAYE returns. It works less well when the non-resident parent is not directly employed and has control over how they present their income. So, unless challenged, a company owner paying themselves a minimum wage but having a high dividend income, will have their child maintenance liabilities calculated solely on the minimum wage. In some self-employed cases, this is an unintended consequence of a tax efficient arrangement; in others, it is a deliberate attempt to minimize liabilities.
Rules do exist which allow a single parent to request a ‘variation’ to the standard child maintenance formula in this situation, and take account of ‘unearned income’ and income diverted elsewhere. In clear-cut cases of evasion, a self-employed non-resident parent can fail to declare all their income. Where the CSA is involved, it is possible to ask for a variation on the basis that a non-resident parent’s lifestyle is inconsistent with their declared income. However this is not a straight forward process as it is up to the resident parent to offer evidence against the non-resident parent which is impossible to find.
Even though there may be a clear diversion of funds there may be little evidence available although it is quite clear the figures do not add up. A typical example is a self employed plumber of a limited company that realizes £70,000.00 gross income pa and yet claims to earn £198.00 per week. Yet the gross from the inland revenue shows £10,000 gross pa because the plumber pays himself the lowest possible income he can per week as a way of manipulating his earnings to the detriment of his child, while either diverting funds or paying himself large dividends unbeknownst to the resident parent who is receiving £16.00 per week for the child.
When speaking to the CSA the only help they give is by telling you "nothing can be done, unless you can prove it" This needs to change as the current system favors the self employed and is surely financial abuse. How many children have to suffer at the hands of greedy parents who seem only too happy to make life difficult for their children. This needs to stop now.
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