Re1205 - Maintenance payments: Payments required for Retrospective Periods

Court orders, legal agreements and CSA assessments can require maintenance payments to be made in relation to a period before

the date on which the order, agreement, or assessment becomes legally enforceable. But those payments cannot be 'due' for tax purposes before the court order, agreement or CSA assessment itself is actually made.

This was decided in the case of Morley-Clarke v Jones, 59 TC

567, for court orders. The principle was established for deeds in Waddington v O'Callaghan, 16 TC 187. CSA assessments are treated in the same way. See Re1196 for more guidance and an example of payments made under a CSA assessment.

Position from 1 july 1988

If payments required for a retrospective period are made

• before the date of the court order, legal agreement, or CSA assessment under which they are payable - ignore them for tax purposes, unless they can attract personal allowances as voluntary payments, see Re1150
• on or after the date of the court order, agreement or CSA assessment - treat them as due on the date that the court order etc itself came into force, unless a later date for payment is set by the order, agreement or CSA assessment.

If

• there was an earlier legal obligation and
• payments were made in accordance with that obligation during the period for which the retrospective payments are required by the later court order agreement or CSA assessment

take them into account in working out tax liabilities of the payer and recipient on the basis of the earlier obligation. Any increases paid in anticipation of the new order, agreement or assessment should be ignored.

Both the courts and the CSA can make interim orders or assessments where it is necessary to provide a former or separated husband/wife or child with maintenance before the information needed to make the final order or assessment is available. These interim orders or assessments are treated in the same way as final orders/assessments for tax purposes. It sometimes happens that the final order or assessment when made is retrospective before the date of the interim order or assessment or increases the payments under it. The increased payments and those for the period prior to the making of the interim obligation have to be made on or after the date of the final obligation if they are to be tax effective, as they are not due until that date.

Court orders sometimes state that `credit shall be given for payments (for a retrospective period) already made'. Deal with these under Re1206.

Written agreements involving payments for a retrospective period may replace or amend an earlier legally-binding oral agreement made before 15 March 1988. Relief might be due or liability arise for the payments under these earlier agreements. If a taxpayer claims that such an agreement existed, see Re1152, to decide if any relief might be due for, or tax liability arise on, these payments.

Position to 30 june 1988 - statement of practice sp6/81

Payments for a retrospective period under a court order made before 1 July 1988 could be dealt with differently under the Inland Revenue Statement of Practice 6/81 if the parties both agreed. If you receive a claim that this Statement of Practice should apply submit the case to PAYE & NIC Group for advice in accordance with Re1100.