Michelle Counley
For many receiving parents, the Child Maintenance Service (CMS) Financial Investigation Unit (FIU) can be a significant support, helping to secure maintenance awards that more accurately reflect the non-resident parent’s true income.
The FIU’s primary role is to investigate complex cases where there are suspicions of hidden incomes or financial manipulation by non-resident parents. This is particularly relevant for company directors or self-employed individuals who might have multiple income streams that are not immediately apparent as ‘income’ for the formula-based assessments.
Many cases involve non-resident parents minimizing their child maintenance obligations by receiving hidden incomes. While not all instances are deliberate attempts to evade payments, some are guided by accountants focused on protecting a company’s financial security, often unaware of the implications for child maintenance awards. However, there are also clear cases of intentional avoidance.
Before resorting to the FIU, receiving parents are encouraged to apply for a variation. This process can examine other areas where income might be found and can often increase a maintenance award without the need for a full investigation. This can be a quicker and less cumbersome route. But if the receiving parent lacks the knowledge to identify hidden income sources, a referral to the FIU may be appropriate.
The FIU has the authority to conduct thorough investigations, accessing various financial sources such as bank accounts, credit reference agencies, and even mortgage providers. Their findings are reported to the CMS teams with instructions to revise maintenance calculations using ‘Diverted Income’ which are often backdating several years.
Diverted Income doesn’t need to match the income shown on tax returns or payslips. It’s a broad category that the CMS can use when income isn’t fully declared.
The test for Diversion of Income is in two parts;
- Does the non-resident parent have the ability to control – whether directly or indirectly.
- Has that control been used to unreasonably reduce the income by diverting it to a third party or purpose.
The Drawbacks of FIU Involvement
One significant drawback is the potential for prolonged legal processes. The FIU investigation itself may take 18-24months to complete. If a maintenance calculation is revised to include diverted income, it will inevitably cause the paying parent to lodge an appeal to HM Courts and Tribunals, a process which can take another 18-24 months.
During this period, all future calculations and annual reviews will include the diverted income sum, leading to more appeals and delays.
Appeals will be inevitable if a maintenance calculation has been revised because of an FIU decision and if there are live appeals, the CMS is severely restricted in its ability to enforce any maintenance payments.
Court based enforcement would be inappropriate whilst the decisions are under review by the Tribunal process, and since the diverted income is considered ‘notional’ rather than ‘actual’ earnings, the CMS’s powers to deduct money from wages may also fail.
So whilst an FIU decision can significantly increase the reported income and the corresponding child maintenance liability, in reality it is likely to disrupt and prevent any payments for many years.
Long-Term Implications
Once an FIU decision is made, it will continue to apply to all future maintenance calculations. CMS officers are advised not to reverse the FIU decision without consent from the FIU team, or a Tribunal Judge, even if an abundance of evidence has been provided to verify a change in circumstance has occurred, such as the closure of the company through which the alleged diversion occurs. At face value, the refusal of CMS to remove the FIU decision is encouraging, but the result is a continual cycle of appeals against multiple decisions, extending the time before a final, enforceable decision is reached.
A typical example is a recent case we managed involving an FIU decision based on bank activity from 2013/14. Child maintenance was increased, and significant debt accrued due to the backdating of the decision. This, in turn, raised the monthly payments to an amount the non-resident parent could not sustain. His protests were ignored, leading him to cease payments altogether.
When he approached NACSA, we discovered that the company involved in the alleged income diversion had been closed for several years, and the non-resident parent’s circumstances were entirely different from those in 2013/14. Despite presenting clear evidence of these changed circumstances to CMS, each submission was refused because the decision was originally set by the FIU. Our only recourse was to apply to HM Courts and Tribunals. Since that appeal was lodged, a further two annual reviews have been notified, each including the diverted income from 2013/14 and each rejected when the mandatory reconsideration requests were raised.
What should have been a relatively straightforward change of circumstance has turned into a lengthy legal process, with no resolution in sight for the foreseeable future.
In another instance, an FIU decision mistakenly classified income from previous employment as ‘diverted income.’ This error took three years of Tribunal proceedings to resolve, during which the relationship between the parties deteriorated, impacting the paying parent’s contact with the child.
In conclusion, while the FIU can be a vital tool in ensuring fair child maintenance payments, its involvement can also lead to lengthy and complex processes. Receiving parents should carefully consider whether to pursue this route or explore alternative options first.
If you are affected by an FIU decision, or have decisions under appeal, or thinking about applying for a variation, securing sound advice and guidance is essential. Speak to us to see how we at NACSA can help support you through the process. If you would like to contact Michelle Counley you can do so here.