Income sources from which a contribution can be taken
Contributions can be taken from:1CFT guidance Appendix A, •earnings;
•private pension;
•annuities;
•grants;
•trusts;
•rents;
•maintenance or child support paid to the client;
•boarders or lodgers;
•non-dependant contribution;
•bursaries;
•foster care professional fees (excludes foster care allowance).
This is not an exhaustive list.
Note: for some annuities, grants, trust and bursaries, the individual terms and conditions of an agreement/award may indicate that a contribution cannot be taken.
Wages/salary from employment
Where the client’s current income is derived from employment, pay slips for three months should be obtained. Where the client’s income varies (eg, due to seasonal work, overtime or bonuses), it may be in the client’s interest to obtain an average over a longer period of time up to a maximum of 12 months.
Any change in income after the debtor contribution order (DCO) is fixed should be reviewed and, if the overall impact on the client’s income and expenditure is that the DCO amount is no longer appropriate, reported to the trustee and a payment variation sought.
Any non-mandatory deductions should be questioned – eg, an employer voluntary savings scheme or additional private pension contributions.
Debt advisers/trustees should take account of any deductions taken through an earnings arrestment that would be defeated through entry into a statutory debt solution. It is not appropriate to verify wages from bank statements alone as these do not provide a comprehensive picture of the gross salary and any statutory or voluntary deductions that have been applied.
Example
Dean’s net income after all deductions is £1,000, but included in the deductions is an earnings arrestment of £100. The amount noted on the CFT should be £1,100.
Self-employed income
The CFT does not include budgeting categories for business-related expenditures. As business and trading cases are generally complex, clients should be signposted to an adviser with relevant knowledge and experience. In self-employed cases, a business budget sheet must be compiled to account for the costs of running their business. The client can then work out how much money they can ‘draw’ from their business, and this amount can be included as income in the CFT.
If the client does not have an accountant to prepare a business budget sheet, they can contact Business Debtline on 0800 197 6026 or visit their website at for support.
Benefits and tax credits
Where income is from UC, other benefits or tax credits, evidence should be obtained from recent award letters or other written confirmation from the relevant department. It is also possible to verify income from bank statements to clarify the amount and frequency of payment.
Entitlement to disability benefits (eg, adult disability payment (ADP) or disability living allowance (DLA)) is not based on a client’s other household income and is assessed against specific mobility or care needs. These payments must be taken into account in any assessment of income and expenditure. However, debt advisers/trustees should take into account any related increase in expenditure that may arise to meet these transport or care needs. If the client wishes, this income can be offset against any additional expenditure in these categories such as adult care costs or travel.
Carer’s allowance/carer support payment should be taken into account for income purposes, although it is expected that the actual expenditure for the person’s caring responsibilities match or exceed this payment.
Household income may include HB or the UC housing cost element for help with rent. Discretionary housing payments (see here) should be shown separately. In assessing the household position, the most transparent way to record information is to show the HB/UC in full as an income, with associated housing costs shown in full as expenditure. Where a client’s income is solely from benefits, no contribution is taken during a bankruptcy or protected trust deed. However, a voluntary contribution can be made from benefits if the client is repaying debts through the DAS.
Pensions
All pension income needs to be listed in the CFT income category.
Pension contributions that have been increased recently, which could be considered excessive, should be questioned and it should be established if the client received regulated pension advice before increasing the contributions. If the pension contributions are considered to be excessive, the client may be required to pay a higher contribution amount.
Note that advice on any decision to reduce or increase pension contributions falls within the boundary of regulated pension advice and is therefore outside the remit of advice from debt advisers/trustees. If the client has any queries about their pension contribution, they should be referred to an appropriate regulated financial adviser.
Bursaries
Where income is from a bursary, it may be possible to take a contribution from it if there is a calculated surplus income. This depends on the circumstances of each case.
Debt advisers/trustees should consider the bursary’s rules and conditions. It is acceptable to exclude the bursary as a source of a contribution payment, where the bursary is for a specific purpose (such as funding specific expenditure) or where a condition of the bursary states that the bursary will be reduced as a direct result of taking a contribution from it. The debt adviser/trustee must explain how they have treated a bursary and why they have adopted that approach.
Redundancy payments
If a client has received a redundancy severance payment before or after bankruptcy/granting a trust deed, or proposing a DAS Debt Payment Programme, it is important that the debt adviser/trustee identifies if any aspect of the payment is income in lieu of wages.
Pay in lieu of notice (PILON) should be considered as the client’s income over the period it has been paid for.
When a client is made redundant and receives a severance payment from their employer, the question arises as to whether this payment or part of it vests in the trustee – ie, it becomes the property of the trustee and no longer belongs to the client.2s86 B(S)A 2016 This question was considered in an application by Patrick McGrail under section 78(11) of the Bankruptcy (Scotland) Act 2016.3Sheriff Murphy, Glasgow Sheriff Court, 10 August 1990 The sheriff did not issue a written judgement, but the AiB understands the facts of the case to be as follows. During the relevant period,4Defined by s79(5) B(S)A 2016 Mr McGrail was made redundant and received a severance payment of £5,050. This was made up of four elements: •statutory redundancy payment: £810;
•payment in lieu of notice: £810;
•company ex gratia payment: £1,000;
•additional payment based on years of service and wages: £2,430.
The trustee conceded the PILON was income but claimed the remaining £4,240 as ‘acquirenda’. This approach was later approved by the sheriff. The client disputed this approach and applied to the sheriff for this amount be excluded from vesting in the trustee under section 78(11) of the Act. The sheriff held that: the statutory redundancy payment of £810 fell to be regarded as alimentary in nature and therefore as income which did not vest in the trustee; the other payments made by the company which were voluntary did vest in the trustee. When dealing with payments made on redundancy, it is necessary for trustees to identify the part which represents the client’s statutory entitlement and care will be required in those cases, such as McGrail, when it is company policy to pay an enhanced sum. In some cases, such an enhanced sum might be loosely termed the ‘redundancy payment’. It is important to advise a client that they need to inform their trustee if they are made redundant and to provide a breakdown of payments.
Income or acquirenda?
Statutory PILON: income
Enhanced or voluntary PILON: acquirenda
Statutory redundancy pay: income
Enhanced or voluntary redundancy pay: acquirenda
Other ex-gratia payments: acquirenda
Child maintenance
Child maintenance payments paid to the client should be included as an income from which a contribution may be deducted. This payment is paid to the adult for the maintenance of the child, with any outgoings being deducted for the child as per the appropriate trigger figures.
Evidence of maintenance contributions can be provided in the form of a court award, notice from the Child Maintenance Service, bank statements or a note provided by the paying parent, confirming the amount and frequency of the payments received. This evidence should be retained.
If the money is paid directly to the child, no contribution should be taken.