It’s a common question we hear from our clients, “Are dividends included in child maintenance calculations?”. The simple answer is yes, all taxable income is included in a child maintenance calculation. However, the Child Maintenance Service receives information about your income from HMRC and typically, it will only include your PAYE salary as taxable income.
If the CMS fails to include dividends received from a company, typically as a director or shareholder would be remunerated in addition to a salary, then the onus is on the individual to update the CMS so that their income is recorded correctly.
Failure to do so, can result in arrears (and these can be significant, if the typical low salary, high dividend remuneration is received), and failure to pay these on demand can result in a move from Direct Pay to Collect & Pay, and can escalate to a Deduction from Earnings Order. Continued failure to pay can result in the revocation of your driving licence and/or passport, and in extreme cases, a prison sentence.
What are the main types of income included in child maintenance calculations?
- Interest in invested money, including outside the UK; e.g. interest on savings in a bank (including income from selling a right to receive interest)
- Dividends and other distributions from UK companies (including the tax credit payable with the dividend) and foreign dividends
- Discounts from securities i.e. the profit from trading in securities such as government stocks and bonds
- Income from government stocks and bonds
- Taxable payments from a life assurance policy, life annuity contract or capital redemption policy
- Payments from a trust
- Payments from the estate of someone who has died
- Interest arising from a debt
- Artificial transactions in futures and options
What investments are exempt from child maintenance calculations?
- Interest, dividends or bonuses from an individual investment plan such as an ISA
- Income from a certified save as you earn scheme
- Income from national savings certificates and tax reserve certificates
- Venture capital trust dividends
- Tax-exempt annual payments made by an individual in the UK not for commercial reasons e.g. from a covenant
- Periodic or annuity payments of personal injury damages
- Annuity payments from a Criminal Injuries Compensation Scheme Award
- Gains from dealing in certain commodities, financial futures and options
- The capital element of purchased life annuities
- Tax-free health and employment insurance or immediate-needs annuity payments
Any taxable income from other miscellaneous sources may count as additional income. This can include, for example, casual income from one-off jobs, royalties, and other income from intellectual property such as sales of patent rights.
What certain types of income that are exempt from tax are not counted in child maintenance calculations?
- Income from an educational bursary or scholarship
- Payments to adopters
- Certain foreign maintenance payments
- Certain compensation payments to World War Two victims
- Income from domestic electricity microgeneration
- Winnings from premium bonds, lotteries and gambling
Are dividends included in child maintenance calculations and can they be used to reduce payments?
There are many legitimate ways to reduce your income, however, a paying parent must be sensible on how they apply the legitimate deductions. CMSAS Limited consultants can discuss this with you and assist in the development of a plan that is unlikely to cause concern from the CMS or receiving parent.
If a receiving parent disagrees with the revised income, they have the right to raise a mandatory reconsideration, which, if rejected, they have the right to appeal, within 30 days, to a First Tier Tribunal. Whilst it may take many months to receive the hearing at a First Tier Tribunal, arrears will be accruing, should the tribunal rule in the receiving parents favour.
Need help with child maintenance calculations & dividends?
Don’t risk significant arrears and legal action. Let us assist you in accurately calculating your child maintenance payments, including dividends and other taxable income. Contact us today to book an initial consultation and discuss your case with our experts.
