More maintenance shocks lie in store: Reduction in tax relief will leave some pounds 28 a month worse off, writes Andrew Bibby

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The Independent Online
SEPARATED parents already reeling from unexpected Child Support Agency assessments for maintenance could face a further financial blow from the state next month.

Reductions in the tax relief on maintenance payments to former spouses will leave some people more than pounds 28 a month worse off. Child support payments will not automatically be adjusted to compensate.

About 400,000 people will be affected by the restriction of tax relief on maintenance to 20 per cent from the start of the new tax year on 6 April. At present, relief is available at taxpayers' marginal tax rate.

The move is linked to the similar change in the married couple's allowance, announced by Norman Lamont in the March 1993 Budget. However, its timing may be unfortunate, given recent controversy over Child Support Agency maintenance assessments.

Maintenance payments (up to a limit of pounds 1,720 a year: pounds 33 a week, or pounds 143 a month) are generally eligible for tax relief if they are made under a Court Order, a legally enforceable written agreement, or a CSA assessment. To qualify, maintenance must be to divorced or separated spouses (not unmarried partners). A further rule is that the spouse must not have remarried. Different conditions apply for agreements dating from before March 1988, which in some circumstances can be rather more generous.

The restriction of relief to 20 per cent will mean an additional pounds 28.66 a month in tax for most 40 per cent tax- payers who pay at least pounds 1,720 a year in maintenance. Most standard rate taxpayers in this position will pay pounds 7.17 a month more in tax.

Dave Holder, of the National Campaign for Fair Maintenance, one of the groups participating in the network against the Child Support Act, has already received his new tax coding. 'I get tax relief on the maintenance I pay at the moment and my relief has obviously gone down dramatically,' he says.

He maintains that there are two schools of thought among people in his position. 'Arguably, if people are going to get screwed by the Child Support Agency, the least the Government could do is to up the tax relief. But they're actually reducing it.'

Mr Holder emphasises that the issue is not a simple one: extra relief would mean an increase in net income and could therefore lead to higher maintenance assessments. 'They would be giving it at one end and taking it back at the other.'

Under Child Support Agency procedures, maintenance levels are reassessed each year, but parents have the right in the interim to seek a review of their level of maintenance if their circumstances change. However, the change must normally be substantial enough to alter maintenance by pounds 10 or more a week. For most, the reduction in tax relief alone is unlikely to make this difference.

The rules are different where parents paying CSA-assessed maintenance have been reduced to the 'protected income level' (linked to the level of income support) where fresh assessments are carried out for maintenance changes of pounds 1 or more.

The situation is complex, partly because the original CSA calculations of income may not have taken the tax relief fully into account when working out a parent's net income (since the CSA looks back at past levels of income, this could be the case for new maintenance claims where no tax relief has previously been payable, for example).

However, Emma Knights, co-author of the Child Support Handbook published by the Child Poverty Action Group, says parents paying maintenance will find that their net income falls next month not only because of the tax relief reduction to 20 per cent, but also because of the increase in National Insurance contributions and the other tax rises. Together these changes could amount to a much more significant change in circumstances.

'While I certainly wouldn't want to say to everyone, given the changes, that they should automatically go along to the Child Support Agency and get reassessed, they do need to talk to somebody who understands the assessment formula,' says Ms Knights.

Local advice bureaux, already trying to cope with a flood of inquiries about child support, may yet find that they have even more cries for help.

(Photograph omitted)

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