Contractors' Questions: Can the CSA claim my mileage reimbursements?

Contractor’s Question: I have a limited company with myself as its sole employee. I use my own car and claim the 45p/mile rate. But the Child Support Agency is looking at classing this as an income and might claim a percentage. I’ve told them that it’s an out-of-pocket expense and said it’d be unfair for them to claim part of it. Who’s right; and what should I do?

Expert’s Answer: Running your own business presents so many fantastic opportunities but of course opens doors to many different areas you would normally not need to consider. One such area is Child Maintenance Payments. Critically, understanding just how your income is assessed by the Child Maintenance Service (CMS) is a difficult topic to get your head around.

There are so many technical and circumstantial considerations and trying to navigate this topic is not always black and white. A browse of the CMS website (the CMS deals with new applications; the CSA with existing ones) will help you see that there is no simple answer. As you might expect, the amount of child maintenance you may be liable to pay is first assessed against your annual income, which is then broken down to a weekly figure. This figure is then used to calculate just how much you need to pay.

Salary is an obvious consideration – I’m sure you’ll agree that this should be, and will be, considered in determining that annual figure. Rental income, interest from savings and investments as well as dividends are all considered as ‘Unearned Income’ and included too.

Be careful of who you make a shareholder of your company. This is important as the CMS will consider what they call ‘Diversion of Income’. This is where profits of your company are distributed to other shareholders for tax planning purposes -- those diverted profits could be considered too.

Reimbursed expenses are a grey area where the receiving party (to whom the maintenance payment is made) can ask the CMS to look at certain types of income not classically defined as income, like expenses. This is called ‘Additional Income’. Equally so, the CMS “must consider whether a variation to the annual calculated income is just and equitable – fair to everyone”. To this end, my advice would be that if your expenses are being considered, in the interest of a just and equitable outcome, you also demonstrate that the costs incurred are genuine and necessary for the work you undertake. If so, then those facts should be considered by the CMS and your annual income figure should be adjusted downwards accordingly.

So, unfortunately no simple answer for you as each case will be individually assessed. However, your expenses could well be taken into account. Ensure that you are able to justify the necessity for the expense in the first place.  

The expert was Darryl Keyte, co-founder of contractor accountancy firm The Accounting Crew.

Thursday 2nd March 2017