Child Maintenance Service and Ltd Company Directors

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A service user made the following requests to the Child Maintenance Service in late 2016:

(1)What measures does the CMS have in place, where a “sole” shareholder and “only” director and employee of his or her own private limited company is a non resident parent, to ensure income solely earned by that individual, whilst under contract to another business or organisation is not diverted in to such an entity and therefore under the radar of the interface with the HMRC, other than PAYE earnings as an employee of that said limited company, thus deliberately reducing the potential maintenance liability to the resident parent.

The CMS replied:

A company director that works for their own company is employed by that company. If you have any queries about how HMRC determine income for company directors please direct your queries to them.

 

For child maintenance purpose, their income will be determined in the first instance by the Child Maintenance Service requesting information about their gross taxable earnings from employment directly from HMRC.

 

(2)Should the non resident parent utilise the limited company in this way, and perfectly legitimately, what is the CMS mechanism to ensure the resident parent and child receive the correct sum of maintenance, according to true earnings of the non resident parent’s work under contract to other business or organisations, and not flagged by the HMRC and interface with the CMS.

The CMS replied:

Company directors may also receive dividend payments from their company. Such payments are not taken into account within the standard maintenance calculation formula.

 

However, either parent may request a variation of the maintenance calculation, on the grounds of “non-resident parent with unearned income”, to have any dividend payments considered for inclusion in the calculation of maintenance.

(3)Given the ability of unscrupulous / cynical non resident parents to take advantage of the above, what is the policy of the CMS on this?

The CMS replied:

An application for a variation may only be allowed if it is “just and equitable” to do so.

 

The circumstances of both parents and of any children that would be directly affected by the decision are considered prior to the decision to vary the amount of child maintenance payable being made.

(4)Under the “Right to be believed” policy of the CMS, are the appropriate questions asked of company directors, in order to ascertain true remuneration for the work they charge for in the name of their own limited company, and as “sole” shareholder and “only” director and employee of the said limited company?

The CMS replied:

All maintenance liability decisions, including variation decisions and any decision to refuse a variation, carry an underlying right of appeal to an independent Tribunal.

 

If any client believes a decision is incorrect, they may ask for it to be reviewed after which, if they remain dissatisfied with the outcome of the review, they may appeal.

The CMS added:

The Freedom of Information Act gives you a legal right of access to any recorded information held by a public authority.

 

We do not have to provide opinions or explanations, generate answers to questions, or create or obtain information we do not hold.

 

If you ask a question, rather than requesting recorded information, we will provide you with the recorded information that best answers the question.

 

Once we have provided the recorded information, we have met our obligations under the Act; interpreting the information provided is up to you.

 

Link to original FOI request:
https://www.whatdotheyknow.com/request/diverted_income_non_resident_par

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