Debt Advice Handbook Scotland 1st ed - with new materialChapter 6: Statutory debt solutions in Scotland2. The Common Financial Tool Expenditure
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Expenditure
The CFT expenditure categories are:
    •essential expenditure;
    •phone costs;
    •travel costs;
    •housekeeping;
    •other expenses.
Debt advisers and trustees should always investigate whether a client’s declared expenditure could be considered too high or too low. Except for essential expenditure, there are ‘trigger figures’ for each category.
Trigger figures
Trigger figures assist debt advisers/trustees to determine whether the amounts included in the financial assessment are acceptable or whether they should be subject to further investigation or the provision of additional evidence of expenditure.
It is important that the CFT trigger figures do not form the starting point for an assessment of expenditure. The CFT assessment should include details of the client’s actual circumstances.
Only when the full expenditure has been established and relevant evidence, or explanation, obtained, should the client’s financial circumstances be compared to the trigger figures.
The AiB, the trustee or trustee acting under a protected trust deed can allow expenditure over the trigger figures.1Reg 15(3) B(S)A Regs; reg 3(3) CFT(S) Regs An explanation of why this expenditure is required must be provided, along with supporting evidence. Consideration will be given to whether this allowance is reasonable in the circumstances. For example, the client may be locked into a phone contract or paying for a phone for a child they do not live with in order to remain in contact.
 
1     Reg 15(3) B(S)A Regs; reg 3(3) CFT(S) Regs »
Essential expenditure
Bankruptcy applications submitted to the AiB in which the client’s sole income is derived from state benefits do not require evidence supporting the expenditure in the CFT. Only proof of benefits is required. In every case, the supporting evidence should, however, be obtained and retained by the debt adviser/trustee as per regulatory requirements.
The essential expenditure category does not include a set trigger figure. Debt advisers/trustees must verify all the expenditure within this category (except for evidence of a TV licence) as relevant documentation should be available. Advisers should use their judgement in determining accurate essential expenditure figures. Further checks should only be made in exceptional circumstances – eg, where energy costs are deemed excessive in relation to the property type.
The following categories should be evidenced by original documentation or by examination of payments made from the client’s bank account:
    •rent;
    •ground rent, service charges, factor fees;
    •mortgage;
    •other secured loans;
    •mortgage endowment/mortgage PPI;
    •council tax;
    •building and contents insurance.
Essential expenditure also includes other costs not directly related to housing costs. Evidence should be available for the following expenditure items from correspondence/bills from the organisations involved or from bank statements:
    •pension and life insurance;
    •magistrate or sheriff court fines;
    •child maintenance;
    •hire purchase/conditional sale;
    •childcare costs;
    •adult care costs.
Evidence should be kept for two years from when the bankruptcy was awarded.
 
Energy costs
Evidence, or a written explanation to support declared expenditure on gas, electricity and other fuels (eg, coal, oil, Calor gas and solid fuel) can include:
    •future consumption estimates determined by a qualified fuel adviser;
    •annual consumption projection statements from the fuel companies;
    •historic utility bills;
    •direct payments recorded in bank statements.
The AiB only requires sight of supporting evidence/estimates if it has been determined that the spend will exceed a specific amount. This could vary based on the energy price cap, so check the CFT guidance for updates.1aib.gov.uk/publications/notes-for-guidance-common-financial-tool/6-essential-expenditure#publication-content
 
Council tax
It is beneficial for the client’s council tax payments to be calculated over a 12-month period rather than 10 months. This ensures a more accurate monthly expenditure throughout the term of a possible DCO.
A request can be made to a local authority for the client’s council tax payments to be made in 12 instalments. However, such a change is at the local authority’s discretion and may depend on the payment method.
A council may suspend a client’s right to pay their council tax in instalments if they are made bankrupt or grant a trust deed. If this happens, their DCO amount may have to be varied if council tax was originally included in the client’s expenditure calculation.
 
Hire purchase
Careful consideration must be given to any hire purchase (HP) or conditional sale agreements that are in force. Checks should be made to establish if there is a clause whereby an agreement becomes null and void if the holder is made bankrupt or subject to insolvency proceedings. Debt advisers/trustees must ensure that they obtain proof of the type of agreement the client has entered into, as some clients are not aware of the distinctions between different types of credit agreements.
This expenditure may be allowed if the items included are essential and the payments are reasonable in the circumstances. An explanation of the expenditure allowed should be included in the CFT to highlight the items and the reason for the expenditure. Whether items bought on this type of credit agreement are essential depends on the client’s situation – eg, a car providing the only way of travelling to work would be deemed as essential.
If an item is not considered essential, debt advisers/trustees should refer the client to a specialist organisation, such as Advice Direct Scotland or Trading Standards Scotland for advice about cancellation rights and any costs involved.
If the client has declared they are making a payment towards a third party’s HP agreement or paying a reasonable amount directly to a third party for the use of a vehicle that they will not own, these payments may be treated as a legitimate expenditure, provided the client can evidence the payments made and the reason for the payments. However, consideration must also be given to the need for the client to make the payments, and they may be disallowed if the payment amounts are in excess of the client’s needs.
 
1     aib.gov.uk/publications/notes-for-guidance-common-financial-tool/6-essential-expenditure#publication-content »
Trigger figure categories
Telephone costs
Debt advisers/trustees should get evidence of expenditure relating to home and mobile phone contracts. This should be available from sources including original correspondence/billing, online account information or through other evidence such as the purchase of pay-as-you-go top-up credits. It may be more difficult to verify pay-as-you-go credit than contract information, but information should be available from bank statements or the mobile phone company records.
If mobile phone costs are high, the reason for this should be explored and consideration must be given as to whether the existing expenditure is allowable or sustainable in the future. Where trigger figures are breached, evidence must be obtained and options to reduce future expenditure explored with the client.
Travel costs
Verifying travel costs can be difficult as fares are often paid in cash with little or no evidence retained. Therefore, advisers should take a flexible approach and assess travel costs based on the client’s circumstances (eg, location, health, mode of transport and proximity to work/amenities) and agree on what is reasonable.
It may be possible to verify expenditure in specific circumstances – eg, where a client has a season ticket or where petrol purchases can be verified on bank statements.
If the trigger figures are breached, the debt adviser/trustee must provide supporting evidence and/or an explanation to support the reason for the required travel and the amount of expenditure declared. If proof of expenditure cannot be provided, the reason for this must be given.
The debt adviser/trustee should also ensure that they discuss with the client any ongoing maintenance and servicing costs for any vehicle and include such in the CFT expenditure figures.
Housekeeping
Housekeeping covers most of the day-to-day living expenses, including household food, provisions and consumables. The evidence for this expenditure is normally obtained through scrutiny of bank statements. However, this does not cover all expenditure items, as some transactions within this category involve smaller cash purchases or transactions in a range of different shops.
Where the final assessed housekeeping expenditure is within the trigger figure limits, trustees and creditors are unlikely to query the allowance or seek further evidence. Therefore, the debt adviser/trustee does not need to obtain evidence of smaller amounts of expenditure included in the figures, if this is not easily forthcoming. However, any excessive spending or breaches of trigger figures should be documented, and evidence provided.
Expenditure on tobacco and alcohol is allowed, although the debt adviser/trustee should negotiate with clients to try to minimise the costs. It is possible that an allowance may result in a client having to make some concessions in other areas of expenditure.
Where additional spending is required on medical grounds that is not funded from a declared disability benefit, either a breakdown of spending, with details of any purchases related specifically to the medical requirement, or a summary explanation from the debt adviser, should be provided. The guidance highlights that an award of DLA (or ADP/PIP) acts as an indicator to increased expenditure in other categories.
Where there are pet costs, an explanation, and evidence where possible, should be produced. If pet insurance is being paid for, this must be evidenced.
Other expenditure
Other expenditure includes a range of expenditure that is not categorised alongside general housekeeping – eg, haircuts, meals at work or school, socialising, Christmas and birthdays. Verification of such expenditure may be difficult to obtain through documentation or examination of bank account activity.
Evidence should be available to support certain items within the other category – eg, amounts paid towards cable, satellite and internet access. These items should be supported by original documentation from the providers.
A more flexible approach should be adopted in assessing the expenditure associated with the other items within this category. Similar to other expenditure categories with associated trigger figures, any expenditure where the trigger figure is breached requires suitable evidence and/or explanation of the expenditure.
Contingency provision
Clients can have an expenditure of up to 10 per cent of the surplus income calculated, allocated as a contingency allowance or saving provision.1s16 B(S)A 2016 A maximum contingency allowance of £20 a month is permissible for each assessment.
Debt advisers/trustees should consider including the contingency allowance in every case, as it is in all parties’ interest that the client has funds available to meet the cost of unexpected future liabilities.
Example
Harry’s CFT assessment results in surplus income of £100, with no contingency provision. It can be recalculated with up to £10 included in the other expenditure category, resulting in a revised surplus of £90.
 
1     s16 B(S)A 2016 »