Ruling closes child support loophole for self-employed

A loophole that allows fathers to avoid heavy maintenance payments was closed last week, when a single mother won an appeal that could force the Child Support Agency (CSA) to reopen up to 50,000 assessments.

Helen Smith, a part-time office administrator, had her child support for her three children increased under the ruling from 11.29 GBP to 343.73 GBP a week. The dramatic rise resulted from a child support commissioner’s ruling last month that the CSA wrongly applied the Miscellaneous Amendment Regulations 1999, allowing the income declared in self-employed traders’ tax returns to be used as a basis for calculating child support. Her husband, Robert Smith, ran a car hire business, drove a 45,000 GBP Mercedes and his company had recorded annual profits of 169,000 GBP.

According to James Pirrie, a partner at the Central London firm Family Law in Partnership, who represented Helen Smith, the decision provided important guidance on the way in which the earnings of the self-employed should be considered. In particular, it considered whether capital allowances should be brought in to the reckoning so as to reduce the earnings of the self-employed earner. The ambiguity was introduced with the 1999 regulations.

“It’s surprising that it’s taken four years for a case to come through to clarify the point,” he said. According to the solicitor, the Child Support Commissioner argued that those regulations should be interpreted as “providing administrative convenience” and “not the opportunity for the self-employed to bring into account capital allowances against income that would otherwise be liable to assessment”. As a result, capital allowances were not to form part of the CSA’s calculation and income was to be considered ‘gross’ and without capital allowance or depreciation. Up until now, the CSA had assumed that capital allowances were to be brought into account and the decision is therefore likely to have profound effects upon a range of assessments in its current caseload. According to the CSA, there are around 50,000 “non-resident parents” who are self-employed who might be affected.

“The Government thought that it was plugging the loophole and did something to change the level of the assessments, but never told Parliament that, and so ministers thought it had depreciation bought into the reckoning,” Pirrie argued. “We were left with two systems, one of which ignored it and one of which, according to the Government interpretation, didn’t.”