[Solved] Annual Review

Unless the process has changed, I thought the annual review was based on the latest available gross income figure - i.e. P60 or tax return. I.e. for a subsequent annual review the subsequent 'latest available' income figure would be used in the calculation regardless of how much it was higher or lower than the previous year's income figure.

That's correct but your payment may be different if change in the amount earned up or down by 25% if not paid will not change and stay the same.

yep. You don't have to accept the calculation done by the annual review if you think its wrong. CMS give you a month to respond.

an example from their booklet:

We are given information provided to HM Revenue & Customs
that Stephen’s gross annual income for the tax year 2011/12 is
£70,000.

But Stephen gives us proof that his current gross annual income is actually £30,000. Because there is at least a 25 percent difference between the two amounts, we use this lower figure to work out his child maintenance.

https://assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/file/672432/how-we-work-out-child-maintenance.pdf

Oh ok that’s interesting -
For my annual review next month, my ‘latest available’ P60 gross income will have been reduced due to salary sacrifice contributions in to my workplace pension, however I will have also received rental property income making my tax return income significantly larger.
So if the annual review is based on P60 income, and my property income is under 25% of this, then even when the CMS is advised of this the calculated amount will not be increased ?

Interesting read and comments from Will99/Djsmith
My friend Steve is in a similar position. Who has asked me If i can research and help him as computers/web are not his strength.
He is trying to reduce the CMS payments as he spents a good chuck of his money with his children (clubs, clothes, fees etc..) and pays rental accommodation costs and then CMS payments. Which depresses him, but he trys to keep a smile front of his children.

Steve earns 50k, he adjusted his salary in 2019/20 by contributing 20% into his work pension. which is 10k and showed he earned 40k in his P60 and CMS has this figure from HMRC.
The new CMS calculations for 2020/21 has been reduced, but not by much (i think a reduction around £50 a month). He is somewhat baffled.
Steve is 49 years old and has asked should he of contributed more than 25% rather than 20% towards his pension and what sort of CMS payments would have been calculated. What can he now do for year 2020/21 and finally he would like some clarity on Will99/Djsmith last comments.

Will99
Unless the process has changed, I thought the annual review was based on the latest available gross income figure - i.e. P60 or tax return. I.e. for a subsequent annual review the subsequent 'latest available' income figure would be used in the calculation regardless of how much it was higher or lower than the previous year's income figure.

Djsmith
That's correct but your payment may be different if change in the amount earned up or down by 25% if not paid will not change and stay the same.

Hi, I think a more informed answer may have to come from someone else. However my take on it is -

'Latest available' income figure
At each annual review, the CMS will use the latest available income figure as the basis of their calculation.
So (in my understanding) it is irrelevant if the 'latest available' gross income figure in one year is 5% or 50% higher or lower than the latest available figure used for the previous year - in each case the latest available figure will be used.

25% threshold
If I understand correctly, the 25% threshold only comes in to play if the actual income figure for that specific year in question differs from the 'latest available' figure used in the calculation by more than 25%.

The other aspect on which I am unsure (until now) is whether the CMS use the latest available P60 figure for gross income (for me available about May each year), or if they use the latest available tax return figure (which can be available not until much later - in the following January).
In my case from previous experience the CMS have used my self-assessment tax return and not my P60 to get my income figure. I assume this is the case because for example in my annual review in November 2019, the CMS used my 2017/2018 income figure - this being the latest available tax return even though my 2018/19 P60 was issued in May.

Hi sorry for the late reply that is correct as I was advised that the CMS would not change unless 25% threshold only comes in to play if the actual income figure for that specific year in question differs from the 'latest available' figure used in the calculation by more than 25%. Yes they would use your self-assessment tax return.

Thank you both, I spoke to my friend who is so grateful. He is planning to contribute more money in his pension pot. He then can work out his gross salary and his CMS.

Thank you both and for this great website!

hi,

you should advise your friend to be careful and not make excessive pension contributions. otherwise he may get in trouble with CMS, and be accused of diverting income.

Agree with as like with anything your friends account would and will be monitored by big brother. (CMS)

Hang on - putting extra money in to your pension is a perfectly valid thing to do for tax efficiency reasons, or simply to invest for your retirement, so I don’t see how CMS can claim that it is to ‘disguise’ income and reduce CM payments.

i remember seeing a post from a member here, that their ex-partner once paid either 50% or even 100% of their income into their pension lol. that parent was taken to a tribunal by CMS and got in trouble.

this is their policy on it:

https://www.whatdotheyknow.com/request/565189/response/1346846/attach/html/2/PLDMG%20Diversion%20of%20income%2013017.docx.html