CMS enforcement: little help when needed?

Gingerbread, a charity for single parents, has recently published a report, Children deserve more, outlining the loopholes in the way child maintenance is calculated and the difficulties faced by “receiving” parents in enforcing payment of child maintenance via the Child Maintenance Service (“CMS”).

The CMS now deals with all new statutory child maintenance applications. It was set up to replace the Child Support Agency (“CSA”), which is gradually being shut down. A primary aim of the change was to reduce reliance on the statutory child maintenance service. One of the most notable changes between the two schemes is the introduction of charges both to use the CMS to make a calculation (£20), and for the CMS to collect payments when there is a failure to pay (20% of the child maintenance calculation for the paying parent and 4% for the receiving parent), in order to encourage parents only to use the CMS as a last resort.

Flawed processes

The CMS’s default method of calculating child maintenance is to use the figures of a paying parent’s earnings from employment and self-employment plus pension income reported to HMRC. However, this method ignores taxable unearned income, such as income from savings, investments, property or dividends. Taxable unearned income is increasingly common, for example where self-employed people set up owner-managed companies to draw their income in a variety of ways for tax efficient purposes. The only way for a receiving parent to have this income taken into account is to flag it up to the CMS and request a variation – see below.

Of course, the reliance on income reported to HMRC means that if a paying parent is not reporting their income to HMRC, the CMS will not take this into account under the default method – nor any non-taxable income, for example from an ISA or trust fund, or any overseas income unless it is taxable in the UK as income from employment, self-employment or a pension. In addition, the CMS will not take into account in any way any capital and assets a paying parent owns (under the CSA system “notional income” could be assumed when a paying parent had assets over £65,000).

Although there is a process to challenge a CMS calculation by applying for a variation, Gingerbread’s report highlights that the CMS is not forthcoming about this to parents. Indeed the report alleges that some CMS staff told Gingerbread that they were told not to tell parents about variations. In addition, the report describes enormous difficulties by receiving parents in the process of seeking variations. Some of the challenges faced include:

• the CMS largely only communicates by telephone, so often the parent speaks to a different person each time they contact the CMS;
• the receiving parent is not entitled to the HMRC data on which the child maintenance calculation was based;
• the CMS directs parents to HMRC where they complain that income is not being declared fully, but HMRC seldom seem interested;
• unbelievably, there is a lack of information sharing between the CSA and the CMS, so any information the CSA held regarding a paying parent’s income is not available to the CMS. The report cites examples of parents having spent years successfully challenging a CSA calculation, only then to have to start all over again when the case was transferred to CMS, resulting in a lower calculation.

Up against the system

The Gingerbread report indicates that even if a parent is able to navigate the system to have a variation application considered, nearly all variations are rejected. Then there is a “mandatory reconsideration” stage, where again generally the rejection is upheld. It is only at this stage that a parent can take the case to the Social Security & Child Support Tribunal. The report suggests that parents who make it this far have much greater prospects of successfully challenging the decision. In the tribunal, the paying parent can be questioned in detail about their finances and be directed to produce further information such as bank statements and company accounts. The tribunal panel can also include an accountant.

Even when parents have successfully challenged a child maintenance calculation, Gingerbread suggest that the CMS devotes very few staff and resources to enforcing the collection of arrears, and attaches little urgency to this.

The DWP’s general defence to problems raised about maintenance avoidance and evasion is cost. In an apparent acceptance of problems with the CMS, a specialist Financial Investigations Unit has been introduced to investigate suspicious cases, but Gingerbread still questions whether the CMS has the necessary resources and a proper system to discharge its responsibility towards all children in need of child maintenance, and proposes a number of short-term and long-term administrative and legislative changes.