Important changes to child maintenance system proposed

The payment of child maintenance is one of the biggest issues of contention between separated parents, affecting huge numbers of children. Over the years the government has made various attempts to improve and perfect the child maintenance system, and the latest proposals were published last week by the Department for Work and Pensions (‘DWP’).
The proposals contain some important potential changes, both for parents paying child maintenance and for parents receiving it.

Before we look at the proposals, a quick recap as to how the child maintenance system got to where it is.

Different systems

Until 1993 child maintenance was dealt with by the courts, there was no formula as to how the courts should calculate the maintenance, and there were therefore considerable variations across the country as to how much maintenance should be paid.

In 1993 the Child Support Agency (‘CSA’) came into being. It used a formula to calculate child maintenance, but was notoriously inefficient at recovering maintenance from the paying parent.

The CSA was replaced in 2012, by the Child Maintenance Service (‘CMS’). The CMS tries to encourage parents to set up their own ‘family based’ child maintenance arrangements, but where this is not possible the CMS offers two services: ‘Direct Pay’, where the CMS calculates the amount of maintenance to be paid and parents arrange the payments between themselves; and ‘Collect & Pay’, where the CMS calculates, collects and manages the payments. Parents have to pay a fee for the Collect & Pay service.

The calculation of a child maintenance liability by the CMS is based on information about the paying parent’s income from Her Majesty’s Revenue and Customs (‘HMRC’). The amount of maintenance is reviewed annually.

As at December 2020 there were 756,500 children covered by CMS arrangements, including 492,400 children covered through Direct Pay arrangements and 259,100 children covered through the Collect & Pay service.

So to the new proposals.

Modernising and improving the child maintenance system

The DWP say that the proposals are aimed at modernising and improving the CMS. The proposals cover six areas:

1. Unearned income:

Until now any unearned income (e.g. income from property and interest on savings) that the paying parent has has not been included in the maintenance calculation. This has meant that some paying parents have been able to organise their financial affairs to reduce their financial liability for their children. The proposal is that unearned income will in future be included in the calculation.

2. Self-employed evidential requirements:

If a self-employed paying parent’s income reduces the change can only be taken into account outside of the annual review if they provide evidence of a more recent tax return they have submitted to HMRC. This means the CMS is only able to take self-employed income changes into account after the current tax year has ended and a new tax return is submitted, which can mean that the paying parent is required to pay more than they can afford. The DWP proposes that this be addressed by easing the evidential requirements to allow self-employed income changes outside of the annual review, where there has been a loss of income and a new tax return reflecting the loss of income has not yet been submitted to HMRC.

3. Extinguishing low level debt:

The DWP would like to introduce powers that will allow the CMS to extinguish small volumes of low level child maintenance arrears, where the value of the debt is substantially less than the cost of collecting it.

4. Insolvency of employer:

The DWP also proposes that arrears be extinguished where child maintenance has been deducted from a parent’s earnings where their employer has gone into administration and they are unable to recover the outstanding arrears from the trustee handling the employer’s insolvency.

5. Digital notifications:

Currently the CMS is required to serve some letters via a postal method. The DWP proposes that they be allowed to send notifications digitally, where that is the customer’s preferred method.

6. Information regulations:

Lastly, the DWP proposes that the list of organisations that are required to provide them with information in a timely manner when requested to do so be expanded to include private pension providers, academy proprietors, the Motor Insurers’ Bureau and all types of companies that offer, promote or sell investment management services or facilitate share trading.