The CSA and Dividends – how does it work?

bongo33

Background

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I am on CS1 supporting two children from my previous marriage via the CSA. I am leaving my current job in July to join a company as a director.

I have mortgaged my house for £220,000 to buy my shares into the company which will mean an increase in housing costs so its unlikely to change maintenance, and the money paid is well beyond child needs by the governments means tested figures.

My salary will be the same but I am switching jobs for the travel perks, free use of a leased car, a share in a holiday villa (all directors own an equal share) and dividends. My accountant suggested this move of career to improve tax efficiency.
Accountants might be tax gurus but do not fully understand Child support rules.

Apart from me admitting to it to the CSA and ex-wife does not have access to this information, how would the CSA know about dividends and their amounts?

I have asked the CSA on its telephone support line, but two different advisers contradicted each other when giving their answers to following two questions.

Questions

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1. How does the CSA charge maintenance on dividends?

2. Can I put dividends into an offshore Discretionary Trust? These have obvious tax benefits, but its not known whether the CSA can or does charge entry/exit fees or an annual maintenance charge on assets held in a DT, or even know a trust structure even exists?

kelloggs36

the forms that you complete asks the questions about your income, including dividends, so you are legally required to tell them about them when you are asked about your income. They will look at the last year's dividends and divide them over 52 weeks to get a weekly income figure.

Soubrette

If you are living a lifestyle that needs to be funded by more than your apparent income, then your ex can ask the CSA to investigate how you are getting the money to fund it.

My ex thought he could just leave his dividends in the company account until his children were over 18 - a tribunal ruled that he had to give a certain proportion based on the reality of the situation, ie he was choosing not to take that money in order to avoid paying child benefit. However, he was a one man band company director so had complete control over how he could take out any money in the company account.

kelloggs36

Under CS1 it doesn't matter if the NRP controls it or not, as long as they get the dividends, they are assessed.

bongo33

If I dont mention about dividends, can the CSA know about them?

Discretionary Trusts. this is the accountancy profession buzzword that comes up every time child maintenance and dividends are mentioned. a) How does the CSA know about DTs? and b) How does the CSA assess them?

Soubrette

Under CS1 it doesn't matter if the NRP controls it or not, as long as they get the dividends, they are assessed.

Really? I can't imagine why our trough guzzling self serving MPs changed that rule!! Probably similar to the way they've exempted themselves from the IR35 type rules they've introduced for the rest of us and they've put off that tricky job of assessing their own pensions despite looking hard at other civil servants.:mad:

bongo33 wrote: »

If I dont mention about dividends, can the CSA know about them?

If they ask and you deny their existence then you are committing fraud. If they don't ask but dividends are mentioned as assessable in the forms you complete and you don't include them, then you are committing fraud.

Discretionary Trusts. this is the accountancy profession buzzword that comes up every time child maintenance and dividends are mentioned. a) How does the CSA know about DTs? and b) How does the CSA assess them?

I can't tell you about these things, perhaps an accountant would be able to, all I can say is that my ex did not divulge his dividends and did lead a lifestyle that was not commensurate with his income. He therefore had to attend a tribunal where he had to provide all financial statements from both his company and his private life, including credit cards, bank statements etc. As the party who had asked for the Tribunal I had copies of every single thing he had to provide, I imagine this was not very pleasant for him as I know I felt uncomfortable with the amount of financial information I knew about him.

He had to pay child maintenance based on what the company had, not based on what he took out of the company - phrases like 'looking at the whole picture' were used by the judge.

If the CSA believe that you have set up any form of investment/scheme purely to avoid paying child maintenance then they can ignore it and treat it as actual income, same as if you divert the dividends to someone else purely to avoid paying child maintenance.

However we are on CSA2 which may make a difference.

millwall34

I can see where you accountant is coming from.

He is mortgaging your property to raise your housing allowance ready for when you put in your change of circumstances. I suspect this is to align your liability so it is consistent with CS2 because CS1 payers are charged more money for the same liability.

The borrowed capital is used to buy your shareholding in your new company but your dividends are not paid to you, instead it passes to your trustees. I suspect the type of discretionary trust will be an accumulation and maintenance trust which you and your accountant or lender (or even your spouse!) are discretionary joint trustees.

When your CSA liability finishes, the trustees will close the trust and pay off the mortgage on your house using the settled capital. It will still attract a tax charge but does not attract a CSA charge.

The arrangement works well because the CSA cannot charge borrowed money as income, therefore, get your shareholding paid without attracting a CSA liability.

You only declare on the form all your income and assets. Money held upon trust which you have no control does not count because its neither income nor assets, its a debt secured on your house. It is that debt is all the CSA sees when they search your credit report.

There is no means for the CSA to know the names of your trustees because trust accounts with a bank do not show on your trustees credit reports either, therefore no method of even knowing a trust actually exists.

This is loosely based on the Melville scheme for CGT with some tweaks to make it compatible with child support regulations. Its perfectly legal but more common with higher net worth individuals.

bongo33

Thank you, that was very well explained, and I do remember something called a "melville debt scheme" mentioned but I didnt understand what was or why he wanted to convert dividends into debt. My concern was the invested money in the trust might not accrue as well as the interest on the mortgage but I can see the gain is the 4% mortgage is nothing near than the upto 40% otherwise charged by the CSA.

Soubrette

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If you are living a lifestyle that needs to be funded by more than your apparent income, then your ex can ask the CSA to investigate how you are getting the money to fund it

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Lifestyle was looked into but its not relevant because there is no change of gross income for a CSA investigation to find. Im not sure how the CSA measure lifestyle anyway, the big three being car holidays and home. Car will be leased and funded by the company therefore taxed as wasting asset which reduces net assessable income for CS1. Travel and expenditure is for the most part business travel and not chargeable by CS1. and home is mortgaged and becomes "housing costs" under CS1.

Kimitatsu

Millwall can I ask a question since I think you have solved a problem for me If one of the trustees is a married partner can the recipient not be seen to have a beneficial interest and so it could be included at a tribunal?

Just curious

Many thanks

jetta_wales

There really should be a cap on CSA assessments then all this wouldn't be necessary for those Reno already pay a great deal and the loop holes could be closed for those who use such methods to pay little or nothing.

PreludeForTimeFeelers

jetta_wales wrote: »

There really should be a cap on CSA assessments then all this wouldn't be necessary for those Reno already pay a great deal and the loop holes could be closed for those who use such methods to pay little or nothing.

There is a cap on assessments, the maximum child maintenance amount is £400 per week on CS2.