Introduction
Only people who are familiar with the current and new CSA schemes, and indeed with the nature of the loophole being discussed, are expected to read this paper. Therefore, it does not waste time on education! Neither does it attempt to analyse lots of details. The effects of this loophole are not subtle. They can occur for a wide range of details.
Presentation style
Clearly, this topic is about amounts of money paid over periods of time. Therefore, it uses a graphical style of presentation.
The first graph below shows the nature of the problem being discussed. This graph shows a couple of options that are available to a parent with care, and the advantage arising from one of those options. (For simplicity, a conversion date in March 2004 is assumed, but similar results would be obtained with different conversion dates. Also for simplicity, the "relevant period" when the case is closed is assumed to be March, April, and May 2003).
This illustrative case is a very simple one. A non-resident parent earns £200 net per week, has £50 per week housing costs, and pays child support for 3 children. The three (colour coded) lines are: green - the total amount of child support paid from the start of March 2003 up to the start of March 2006 if the cases runs as the government intends it to; pink - the total amount paid in the same period if the case is prematurely converted to the new scheme; and blue - the difference (hence, the total advantage in this period to the parent with care of forcing it prematurely onto the new scheme).
Obviously, at first the parent with care loses (and this is intended to be a deterrent). But, in common with other cases discussed in this paper, the break-even point for the two options is in a year or less. In this case, the parent with care gets into profit during 2003.
Later graphs in this paper are simpler than this. There is no further point in showing the separate effects of the two options. All that matters is the difference between them, which is the advantage to the parent with care of forcing a premature conversion. So the style of graph used from now on shows just the difference, as follows. (This is the same case as the above). It should be possible to read these graphs even in black and white.
This version of the graph shows more clearly that in this case the advantage is still increasing after March 2006. That is because not only has there been premature conversion, but the phasing-in has been bypassed.
The situations examined in this paper
The situations examined are, of course, taken from the 35% or so of cases where the liability will increase under the new scheme. There are many such cases, and these include:
| 1. | Any case where there is a £0 assessment under the current scheme, but a £5 (or more) calculation under the new scheme. |
| 2. | Various cases with 2 or 3 children. Because of the way the safeguards work in the current scheme, assessments tend not to differ for different numbers of children until the non-resident parent has a relatively high income. But the new scheme yields different liabilities for extra children at much lower levels of income. |
| 3. | High housing costs. This is already well recognised by all concerned as a problem area, because the new scheme doesn't take housing costs into account. Therefore, while high housing costs reduce current scheme assessments significantly, they will not change new scheme calculations at all. |
| 4. | Cases where the new scheme calculation is higher than the caps imposed under the current scheme. The caps under the new scheme are significantly higher than those under the current scheme. |