Company car not income for child support calculation

child maintenance

Does a company car made available to a non-resident parent (‘NRP’) by his employer generate income for the purposes of calculating the NRP’s child support liability? That was the question that fell to be determined by the Upper Tribunal Administrative Appeals Chamber in KM v Secretary of State for Work and Pensions (Child support : calculation of income).

As we shall see, it is important to note that the case was decided under the old (original) child support scheme, which has since been replaced twice. Confusingly, the judgment refers to the old scheme as the ‘1992 scheme’, presumably because that is the year when the regulations relevant to the old scheme came into force. The old scheme is actually usually referred to as the ‘1993 scheme’, as that is when the child maintenance scheme first came into operation, although I have also seen it referred to as the ‘1991 scheme’, after the year that the Child Support Act was passed.

The case concerned an appeal by the NRP against the decision of the First-Tier Tribunal (‘FTT’) to include in his income the sum of £10,928, being the notional income attributable to his company car for income tax purposes. The NRP did not actually receive any car allowance from his employers, and he argued that making a company car available to an employee does not involve any earnings for the purposes of the regulations relating to the 1993 scheme.

The Upper Tribunal Judge accepted that argument. The relevant regulations identified certain matters that must be included within “earnings”. These included “any payments made by the parent’s employer in respect of any expenses not wholly, exclusively and necessarily incurred in the performance of the employment”. The NRP had not received any such payments. Accordingly the FTT had erred in law by taking into account as earnings the taxable benefit ascribed to the NRP’s company car. The provision by an employer of a company car for the use of an employee is not a payment in kind – it generates no earnings for the purposes of the relevant regulations. Therefore, any notional valuation of the benefit derived from a company car for income tax purposes must be left out of account in fixing the NRP’s earnings for the purposes of the relevant regulations.

The appeal was therefore allowed. The decision of the FTT was set aside and it was directed that there be a new child support calculation, on the basis of the NRP’s net income without the notional income attributable to his company car.

As an aside, it is notable that the parent with care (‘PWC’) did not want to get involved in the proceedings, putting forward no argument and simply making the submission that the Child Support Agency had taken the NRP to ‘court’, not her. Obviously, she may just have been wanting to stay on good terms with NRP, perhaps for the sake of the child(ren) – I suspect that some of these cases where the PWC is not directly involved can cause some strain between the parents, which obviously cannot be good for the children.

An interesting question (that is alluded to in the judgment) is: what would happen under new (2012) scheme? Essentially, details of the NRP’s income would be obtained in the same way, albeit from information supplied by HM Revenue and Customs (‘HMRC’), rather than from income supplied to HMRC. However, that is not to say that the information would then be used in the same way as under the 1993 scheme. Now, I’ve had a quick look at how it would be used under the 2012 scheme and my understanding is that HMRC would treat the benefit of the car as earnings, and that being the case those earnings would be included as part of the NRP’s income for the purposes of the child maintenance calculation. However, please don’t quote me on this, and definitely don’t ask me how the value of the benefit of the car is calculated – the rules are horrendously complicated, and time constraints preclude me from looking at the matter in the detail required to provide a definitive answer.

The full report of KM v Secretary of State for Work and Pensions can be read here.

Image by Leslie Wong via Flickr

John Bolch

John Bolch often wonders how he ever became a family lawyer. He no longer practises, but has instead earned a reputation as one of the UK's best-known family law bloggers.

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34 comments

Andrew - January 26, 2016 at 6:54pm

it makes sense, and it would make sense even if the RP pitched in. A company car is very nice but it’s not money you can share. It would be ridiculous to get into arguments about how much it is saving him – he might swear holes through pewter pots that if he did not have a company car he would do withut “wheels” altogether!

Luke - January 26, 2016 at 9:04pm

The CSA should check out whether he has a canteen at work, if so it may be subsidised and maybe they could get a cut out of that ??? I think the oxygen that he breathes is more difficult – he doesn’t pay for it but I am not sure it would qualify as a ‘benefit in kind’.
.
What it is to be a non-resident parent under the CSA…

Yvie - January 27, 2016 at 11:15am

What about the shirt off his back? That must be worth something, surely.

stitchedup - January 27, 2016 at 11:58am

What shirt?

Paul Tate - September 3, 2016 at 8:36am

Thank you for this post I’m having exactly the same challenge on 2012 scheme. They are still using the same calculation and state they no nothing about this case . I’m starting the appeals process but getting to acknowledge that the 25% rule does not even come into play as it regarding a potential miscalculation using this case as a reference was a challenge in its own right !

Mark t - September 15, 2016 at 10:02pm

Hi Paul,
I am today in the same situation and wishing to appeal for re consideration! They have mentioned I have no chance to speak as this is legislation. Please advise me of any further help as this is very unfair treatment. I do not know where to turn.

Paul - October 11, 2016 at 4:35pm

Mark
I’ve had the same response its legislation and on a court can overturn it . They agree in principle my argument and say I’ve got a very good case but I still need to take them to court to get what’s wrong right. Is this not a waist of tax payers money ?

Paul tate - September 23, 2016 at 10:52am

I feel your pain mark t I’m still challenging use this case as my legal challenge as the calculation for a company car is the same it is not a payment in kind and the judge has ruled if not a payment in kind it cannot be used. They are still talking to me and asked me to get a statement from HMRC to that effect of which I’m awaiting. Don’t hold any hope it will change their stance

Paul Tate - October 13, 2016 at 11:12am

Update

2012 scheme section 38 current income , identifies income of kind as part of the calculation this includes Beniefits but , the potential error in law is the calculation used currently as its my understanding and I’m awaiting a response they are using a company car as income recived subsection 2 of 38 instead of income via a benefits code which is subsection 4 of 38 . This is a big difference in monetary value

Stuart - November 25, 2016 at 8:28am

Thanks for the update Paul. I am also challenging them on this. I have a “leased” company car which to me is not an income as the vehicle is owned by the company. Would the calculation change if you came to an agreement with your company that they class the car as a pool car with you having sole use??

Lee - October 17, 2016 at 5:36pm

I currently pay my CMS payments, and have just taken a new role with a company car. I have just had the chance to upgrade as the car was 3 years old a new car was allocated to me.
I have opted for a smaller car as the benefit in kind P11D value is lower.
How can a company car be used as income when calculating CMS payments? A company car is not used when claiming tax credits!

Mike - January 2, 2017 at 9:47pm

Hi
I have just been transferred to the cms from csa and about died when they told me what my gross income was supposed to be! Not only are they also including my company car that I need to carry out my job but also medical insurance.
I would be really interested if there were any further updates on this.
Luckily my lease is due soon and I’m thinking of changing to a pick up or van to reduce the double tax charges I’m currently faced with, I’ll hate driving it every second but at least I’ll be able to live.

Non resident parent - January 10, 2017 at 5:41pm

Hi

I have been in discussions with the CMS and HMRC for over a year now about the benefits in kind, mainly because of my company car. I am the non resident parent as I cannot afford to live even near the area where the resident parent lives, and the children go to nursery in that area. Hence I have the children less nights even though we have share residence, therefore I pay child maintenance. (By the way he is self employed and hide his earnings behind a “company” where he is the only stakeholder).
This is a vicious circle as the less money I have, the further away I am from the children, so less nights with them, therefore higher maintenance I have to pay.

I keep arguing that it does not make sense to include the benefits in kind as earnings when it comes to calculate the maintenance! I cannot pay the other parent with a piece of the car, can I?

Also, I understand the international law supports this.

Can anyone please help??? I am desperate!!! (and banckrupted)

James - February 21, 2017 at 1:17pm

Just been told No comp car makes no difference
It’s taxable
HMRC should be giving out earning from employment only
Robbin gets no issue with paying but come on

Rossy - March 13, 2017 at 3:02pm

Hi James

So are you saying that my company car should make no difference and my payments should only be against my wages?

James - March 13, 2017 at 4:44pm

Hi Rossy
CMA use taxable income not taxable salary
As car benefit included in taxable income it IS used by CMA for assessment purposes as would be private health care gym membership fuel benefit 2nd home rental income
Think only pension excluded sorry

Joshua Liddell - March 30, 2017 at 5:58pm

Hi I am in the same boat as everyone here. I have just spoken to HMRC who are going to send me a letter stating my salaried income and my benefits in kind in a separate document.

I am also going to send the CMS a copy of my contract of employment stating my current annual salary.

Furthermore I will send in previous monthly payments and also reference the case above to push my claim that a company car should not be included in any CMS calculation.

I will update here once I receive a response from CMS.

In the meantime I would be very interested to hear who everyone else gets on with their cases, fingers crossed there will be a breakthrough and common sense will prevail then this issue will be resolved for all of us.

Good luck

Josh

James - March 30, 2017 at 7:51pm

Hi

Did CMA advise you to get letter from HMRC ???? And send wage slips
I did same as you plus 3 p60s and 12 months wage slips
HMRC confirmed my income
But CMA Base it on taxable income which includes comp car

The CMA won’t tell you about company car being used for calculation and they don’t care

B - May 2, 2017 at 4:56pm

Hi there

Did you have any luck with the above? I’ve tried the same several times during the last 3 years with no success.
Please let me know if it worked for you.

Thanks and good luck

Mr Justin Burton - April 3, 2017 at 7:48pm

Please click on this link as it might help us all, I’ve shouted and screamed at them on the phone about this but they don’t care all they want is the max amount of money it’s a joke. http://www.citizensadvice.org.uk/family/children-and-young-people/child-maintenance/child-maintenance-2012-scheme/child-maintenance-calculation/the-2012-child-maintenance-scheme-calculating-maintenance-income/

Nick - May 4, 2017 at 4:49pm

Thanks for this tread, I was starting to think I was the only one this was happening too.
They’ve basically calculated mine on just u der 5k a year. So that’s calculated into my earrings and I’m paying more CMS
This can’t be right.. It’s daylight robbery!!
Don’t get me wrong I’m proud to pay for my son as there are fathers out there that dodge and leave mothers without anything g. But let’s be fair about it for god sake!!
I’ve been told there is nothing I can do, basically roll over and take it.
Thought about seeking legal advice but that’s another cost I can’t afford.
Thank god I haven’t a fuel card too, they take that into account too so that’s another 5k on top totalling an extra 10k earnings in the CMS eyes.

Jonny - May 18, 2017 at 4:07pm

Like many of you, I’ve been arguing this injustice for nearly a year now. My car payments go through as notional payments on my payslip for tax purposes (Payrolling of benefits) and so I therefore don’t actually receive the money and it doesn’t feature in the make up of my salary. It works this way because I get personal use of the car (used to travel to see my kids) and therefore have to pay tax on it. The notional amounts are a percentage of the cars P11d value (what the car was worth when new) and these increase slightly year on year, I’m told it’s a method that HMRC are actively encourgaing companies to use.
CMS request the gross earnings off HMRC and this will of course include any taxable benefits, including your notional payments…. Completely and utterly wrong!! (in my opinion) Imagine going the Bank and asking for a Mortgage or a loan and citing your notional payments as proof of your ability to repay that debt… it ain’t happening!
I’m a big advocat of the absent parent paying to support their childrens upbringing but we should only be paying what we can afford and for me that can only be calculated on your actual income.
In my opinion, CMS need to concentrate on those parents that are avoiding paying for their kids by not declaring their income correctly, that’s were the CMS shortfall in monies collected lies, further punishing all of those responsible parents that do pay for their kids is wrong….. Rant over, good luck everyone.

Ralf - May 22, 2017 at 8:07pm

I changed from a CSA arrangement to the current Child Maintenance system last October and due to my company car I saw my payments increase by £150 a month. I accepted this after numerous phone calls and checking their sums. However, I’m now looking at changing my job which would increase my gross pay by around £10k, while giving me a higher spec company car with a £10k increase in list price (they already have the car so I can’t select a lower P11D value or emissions). After doing the sums it appears that my CMP will increase by several hundred pounds leaving my nett monthly earnings pretty much the same as they are now, with more stress for the job and even if I change the car when it’s up for renewal, as my gross taxable income won’t drop enough, my CM payments will stay the same. So it looks like I’ll have to stick with my current job and keep the payments as they are (don’t get me wrong, I’m perfectly happy for my payments to increase, as long as my nett pay also increases for the extra work / hours I’ll be putting in). How can this be right?

Andrew - May 23, 2017 at 9:37am

This is just one aspect of the insoluble problem: how do you play fair by children without leaving the NRP with no motive to better himself?
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As we used to say at school; an irresistible force meeting an immovable object!
.
Joint life spousal maintenance is similar except that there you deprive two adults of any reason to try to make more of themselves.

Mother of 2 - May 23, 2017 at 10:34am

I am in a pretty similar situation!!!
Can anyway please help???

I feel like giving up everything and just live on benefits, it seems to work out a lot better

Brian - July 3, 2017 at 6:02pm

This is very sad to read and in complete agreement. The NRP get’s screwed over beyond what is fair and it does remove the drive to better yourself if you see no or minimal benefit. Most dads are sick of the battle with the NRP and/or CMS so who has the money or fight left to fight a failing battle.

I lose the BIK off my tax code. They add the BIK value to my income but I lose the same in tax free income. How can no one see this in a double wammy scam and totally unfair is beyond me. What this needs is a rich dad to take it to Court and get a precedent set. Where is he?

If you can, over pay your pension, use child care vouchers if you need, cycle to work scheme. The fact that RP income is not even considered is ridiculous. I tried to make a personal arrangement like previously but she’s not interested. Maybe if CMS interrogated the RP’s income also, then there would be more inclination for a mutual agreement outside of CMS. What is also completely wrong is that the RP can make an application to CMS and pay £20 to take on a case – IRRESPECTIVE OF THE FACT THE NRP HAD PAID THE AGREED AMOUNT ON TIME ALWAYS. The system is a stress causer and available to the NRP as a spite mechanism. They should only take on cases when a parent doesn’t pay, misses payments or the amount is not agreed. If not agreed, the parties should be forced to mediate at shared cost first of all – just like in a court application. Overall a better relationship between NPR and RP will be maintained and this is in benefit of the child. Isn’t this what it’s all about? CMS ROT IN HELL WITH YOUR POOR CUSTOMER SERVICE!

Jon - July 6, 2017 at 10:40am

Well said Brian,
The old CSA struggled to collect a large part of the national NRP payments, largely down to the fact that a lot of them didn’t declare all their (cash in hand) earnings, builders, taxi drivers etc… The shortfall was huge.
The new system still doesn’t capture that particular group, so in order to try and bridge the gap and make themselves look more creditable and improve their figures, they take a little more off the group they can impact.. people like us.
I’m a massive advocat of the NRP paying to support their kids, but it has to be fair and this system simply isn’t… in my opinion.

Jon - July 6, 2017 at 11:19am

Just to be clear.. I’m not picking exclusively on all builders and taxi drivers, I use those groups based on personal experience, I appreciate it doesn’t apply to all builders and taxi drivers… but I know of a number of cases of people who earn good money but don’t declare it all and consequently pay a minimum child support… Not something I condone, just a fact you can’t ignore.

DC - July 21, 2017 at 3:23pm

Hi, I have started a new job and employer makes a payment each month on my wage slip which they call ‘Car opt out’. It is not what I would traditionally call a company car as I have to buy the car, run it, maintain it etc and need it to complete the job and travel 2 hours every day to get to work. Is it right for CMS to add this car payment to my Salary to start their calculations with an inflated Salary figure? Any advice would be much appreciated?

James - July 21, 2017 at 3:39pm

Hi D.C.
They base it on Taxable income not Taxable salary
So yes they can . It is disgusting that this happens
I’m in same boat pay tax on 9000 per annum for company car this is included as taxable income

Have complained tons of time to no avail even my MP
not interested
To sensitive

David - July 24, 2017 at 9:38pm

I have read all the above – I have just spoken to the CMS after being moved from the CSA and they told me the very same thing..
So not only do I pay Tax for the vehicle but now its BIK is added to my income and I am screwed by the CMS for a further slice % of something i don’t see??
So i might well ask my company to take my car away – the tax deducted will improve my take home then ill get my own car using that budget… assuming my company will allow me to do this??
Why do parents that want to pay end up carrying the can for those that avoid it…
Why has no MP done anything about this… ??? id like to hear from anyone that has had any success.

Update to this – I have made an appointment to see my local Conservative MP Ill let you know how I get on… also I have noted the Citizen Advice page that categorically states that Company Cars are not part of earned salary benefit that should be included in CMS Calculations…
https://www.citizensadvice.org.uk/family/children-and-young-people/child-maintenance/child-maintenance-2012-scheme/child-maintenance-calculation/the-2012-child-maintenance-scheme-calculating-maintenance-income/

Jonny - July 25, 2017 at 11:09am

Good luck David.. I echo your comments 100%, I look forward to seeing how you get on.. it’s an absolute sham.

Simon Dando - August 6, 2017 at 9:27am

Again like many I was thinking it was only me this was happening to. This is now my 3rd year and in that time my payments for my 3 kids have gone to 521 to around 920 per month now.

Like all of us here I cannot begin to understand why a company car means more maintenance. It is a double screw as I am paying tax on the car and then more maintenance.

So on their logic, I could not have a company car (needed for the job I do though), pay less tax so I take home more but pay less maintenance. All sounds a bit backwards to me!

I do not have a car allowance. A car owned by the company is allocated for me to use and I pay tax on the P11D value. I am not paid any extra for having it. Also, my fuel costs are deducted from my monthly salary so when I asked the CS people about taking that into account if they are insisting taking the car into account, I was met with a pause and then a comment of ‘yes I can see the deductions on your pay slips…….but…….well I’m sure you get than money back in other ways’

As someone said, we need a rich dad to get a court case together or we all get together to put this wholly unfair system in the spotlight once and for all.

Sean - September 13, 2017 at 1:44pm

Just read through the thread, I have today come up against the same issues, I took my examples to an extreme by stating to the CMS that if I was to not earn a salary but was given a company car that had a taxable benefit of lets say £10k (so to be clear no hard cash paid into my bank account whatsoever, only the virtual value of the company car), then I would still have to make a payment………………………………… another example I used was to have a salary of say £10k and the company provides a £150K Rolls Royce as a company car with a BiK of say £52K then I would be paying Child support that would physically leave me with no money and I’d have to go and get a monthly loan to meet the payments……………………Examples are to the extreme however this is the ludicrous situation the law has left itself in. Causing friction between amicable agreements between divorced parents let alone the friction between disputing parents.

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