Who will benefit from the CSA’s new “gross income scheme”?

Wednesday 15 May 2013

For many years the Child Support Agency (CSA) have based their assessments upon the “non-resident parent” paying a percentage of their net income. That percentage has been 15% for one qualifying child, 20% if there are two children and 25% for three children or more. That figure is then reduced by 1/7^th for each night on average that the children stay overnight with the “non-resident parent” each week.

However, the calculation method is going to change to one based on gross rather than net income. The new Gross Income Scheme was actually introduced on 10 December 2012, although this is currently only in force for new applicant families with four or more children with the same father, which will presumably be a relatively small proportion of families involved with the CSA. It is anticipated that the new Scheme will at some point eventually be rolled out to all new Child Support applicants.

The basic formula for calculation under the gross income system is:

• For gross income between £200 and £800 per week the non resident parent will pay

12% of their gross income for one qualifying child
16% of their gross income for two qualifying children and;
19% of their gross income for three or more children

• For gross income between £800 and £3,000 per week the non resident parent will pay

9% of their gross income for one qualifying child
12% of their gross income for two qualifying children and;
15% of their gross income for three or more children

As with any new method of calculating child support there are always going to be winners and losers. Take for example a “non-resident parent” who earns £30,000 per year gross. Under the net income scheme (and assuming they are not paying into a pension) £30,000 gross currently equates to around £1,935 per month.

If there are three children then the basic assessment would be 25% of £1,935 i.e. £483.75 per month. However under the Gross Income Scheme when it comes in, it would instead be 19% of £2,500 per month i.e. £475 per month, around £13 per month less.

The tables are then turned however if the same “non-resident parent” was paying (say) £500 per month into a pension, reducing their net income from £1,935 to £1,435. Under the net income scheme the basic assessment would be 25% of £1,435 i.e. £358.75. Under the Gross Income Scheme it would actually be 19% of the gross £2,500 per month i.e. £475 per month, around £117 per month more.

The impact of the new Gross Income Scheme could in our view potentially discourage saving into pension funds as to do so will no longer be deductable as has historically been the case under the net income scheme.

It must also be remembered that the CSA has an income threshold over and above which any further income is effectively disregarded. Under the Gross Income Scheme this will be £3,000 gross per week. Under the net income scheme it is £2,000 net per week. However, once a CSA maximum assessment has been made an application can potentially be made to the Court for a “top-up” maintenance award pursuant to Schedule 1 of the Children Act 1989. This is a complex area of law where we have considerable experience and expertise.

Finally, the new system will rely on figures for Gross Income provided by HMRC. We suspect that this will make it much harder for parents to successfully argue that the “non-resident parent” has misrepresented their income as the CSA will presumably take the view that if HMRC are satisfied then is little point them investigating further as has previously been the case. This should however make the CSA quicker to make their assessments as they should not need to spend as long carrying out enquiries about the income of the “non resident parent.”