Salary sacrifice - URGENT scared and unsure - are YOU aware?

Mikee123

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Mikee123

Is there anyone who can stipulate the law regarding this please? I have researched yet still have no answer regarding the legalities - no-one seems to know/or those who should, seem afraid to commit to a decision and this includes governing bodies. Any further information or if you are affected please get in touch. Thanks.

shoe*diva79

The new scheme is calc on gross income.

Mikee123

Thanks shoe*diva 79. I am not on this new scheme. I am after 2003 with no stoppage in case so net wage is used.

shoe*diva79

Well, you will be soon as cases are starting to be moved across.

Mikee123

From what I am aware the new cases begin with certain criteria none of which I meet and since this is a case I have been fighting actively for years I really need to get to the bottom of it to take matters much further. Do you have any idea or know of anyone who knows the laws in depth? Would there be anyone I can contact on here?

jamesd

That appears to be entirely legitimate salary sacrifice at the point of the person paying for the cars.

The rental income for the car from Mr X appears to be taxable income that needs to be declared to HMRC so they can charge income tax on it and so CSA can include it in their income calculations. Handle like any other form of tax fraud if it's not being declared to HMRC as income. I assume that CSA will then have a cut taken from it.

So far as the car for the wife, he's providing her with a benefit but it's entirely normal for husbands to provide for their wives whether the wife works or not. From your description of the CSA rules it appears that it's legitimate as a deduction in this case, but really a circumvention of the intent of the rules. Up to CSA to decide whether the appropriate laws and regulations allow them to address this.

I assume it would also be legitimate for him to use salary sacrifice down to minimum wage then pay his wife the 25% tax free lump sum available after age 55, while the wife provides much of the family spending income before then. He could presumably do this every year for the rest of his life. It has long been commonplace for husbands to provide for their wives by making pension contributions larger than the husband alone would need to sustain himself in retirement.

I assume that he could also make pension contributions then divorce her after five years and use pension splitting on divorce to transfer some of the pension pot to her in the divorce settlement. That would normally start at half but could finish as more or less. They could then remarry and repeat in five years or whatever other interval is cost-effective.

If you thought that pension contributions were not an effective circumvention technique you just weren't creative enough, or maybe just didn't know enough about pensions.

CSA using gross incomes seems like a sensible way to deal with such complexity.

HoneyNutLoop

Income for CS2 is calculated in accordance with Schedule 1 to the Child Support (Maintenance Calculations and Special Cases) Regulations 2000. Link attached:
http://www.dwp.gov.uk/docs/o-8701.pdf

However, salary sacrifice isn't a deduction made from someone's net income. When done in accordance with HMRC's rules it is a change to someone's t&c's of employment that they agree to be paid less in exchange for certain benefits:
http://www.hmrc.gov.uk/specialist/salary_sacrifice.htm

From the starting point of the CSA calculation, because the money sacrificed is not due to be paid to your NRP in the first place, it doesn't fall within their regulation for calculating income.

This subject has already been decided upon by the Upper Tribunal and reported as a Commissioner's decision. Link:
http://www.osscsc.gov.uk/judgmentfiles/j2394/R(CS)%209-08%20bv.doc

As Jamesd says, if he's renting one of the cars out, he should be declaring his profits to HMRC in a self assessment, so you could check to make sure that income is included.

You could also try to apply for a variation under diversion of income, which is governed by the Child Support (Variation) Regulations 2000 but from all you've said you may have to take your case to Tribunal to stand a chance of getting the outcome you're looking for, and even then you may be disappointed. See attached Commissioner's decision re: diversion by way of pension contributions:http://www.osscsc.gov.uk/judgmentfiles/j2974/CCS%200648%202009-00.doc
It all hinges on what is considered a reasonable level of contribution in that person's circumstances. What you consider unreasonable another person may not.

There are many things that can legitimately reduce net income - company cars lead to smaller personal allowances, so higher tax and less maintenance; child care vouchers are a form of salary sacrifice, so less income and less maintenance; many banks offer employees salary sacrifice benefit packages for things like home or health insurance, thereby reducing income and maintenance. These are all perfectly legitimate.

It's not what you were looking to hear, but there are some legal references as requested.

Mikee123

Thank you James. Thank you Honeynut.
I do not know enough about pensions.
I also do not know enough about laws.
I was not awarded any pension in my divorce settlement, nor a larger share of asset's for our children - due to my lack of knowledge and naivety.

I understand this is as you say a very effective way to reduce Child support however it is the "lease payments" that confuse me.

I understand (at least I think I do ) the first part of this benefit IE the salary sacrifice element, however the monthly lease payments are the second element of this that I do not believe should be deducted prior to calculations.

I am advised: if this is a company car on a company car lease scheme and is used 50/50% part for work use and part for business use then the calculations would only include 50% of the amount.

In this circumstance the cars are classed as owned by the company and contracts stipulate these are company cars, yet, the contract also states "must not under any circumstances be used for business purposes".


This is where the grey area seems to occur.
CSA state they agree with me and that their own laws state that only pension deduction is allowable,- and that in this instance - these payments for non relevant luxury items are being placed before children's financial support and are actually going against their own regulations. However they are unsure how to resolve.

I have contacted my M. P and a letter was sent to head of child support policy and a response received advising a variation on the grounds of diversion of income.

The variation was submitted and I was contacted to be advised that they have to deny the variation in order for an appeal to granted that this matter may be presented before a Judge in court, since no-one is sure how to proceed.

If the CSA are unsure of their own regulations and the appeals department are also unsure it's not surprising I am so confused.

CSA advise not to take a legal representative but I am starting to feel maybe I should.

jamesd

A "company car" does not in any way have to come with any obligation to use it for work purposes. Company cars exist largely because they are a more financially efficient way for a person to get a car. That means that owning or having use of the company car is cheaper for the person than just buying it outright. It's been a very common way to provide an alternative form of compensation for work, notably in the computing and technology area but also in other ones. And because it's usually cheaper, most people who have company car schemes should be expected to use them.

If you want context for what pension contributions might be normal, my gross pension contributions are about 40% of (gross pension contributions plus net pay). No CSA involvement, it's just a sensible amount for me and likely to increase.

HoneyNutLoop

I think there is a lot of confusion here. A company car does not lead to the recipient having to pay a lease. What does happen is an adjustment to their tax liability. See the attached link:
http://www.hmrc.gov.uk/cars/

You can still apply for a variation on the ground of diversion of income for a company car as illustrated by this commissioner's decision:
http://www.osscsc.gov.uk/judgmentfiles/j2331/CCS%201769%202007-00.doc
But the extent of the diversion would be dependent on your NRP's role within the company in question. If he is an employee of somone else's company it likely would just be to the extent of the extra tax he is liable to pay. If he is the sole or controlling director of his own company, it could be seen that by the company paying for the car, it has reduced it's profits and therefore the amount of income the company could have paid the NRP.

If he is being paid a car allowance which is taxable then this would be counted as income under Schedule 1 of the Child Support (Maintenance Calculation and Special Cases) Regulations mentioned above, unless evidence is provided that the payment or part of the payment is made to reimburse the NRP expenses that were incurred wholly, exclusively and necessarily in the performance of the duties of his employment. Then, the percentage of use of the car between personal and business would come into play, as they might decide only some of the car costs incurred were for business and the rest for personal. This Commissioner's decision illustrates the point:
http://www.osscsc.gov.uk/judgmentfiles/j2279/R(CS)%204_08ws.doc

Car allowances and company cars should not be confused as they are not the same thing.