Self employment is where the child maintenance system creaks most audibly. For an employee, the CMS pulls a single figure from HMRC and the calculation is largely mechanical. For someone running a business, the question of what counts as income has several plausible answers, and the answer chosen can change the assessment substantially.
The single biggest factor is your business structure. A sole trader and a limited company director on identical economic footing can end up with very different CMS assessments, and understanding why is the key to either getting a fair assessment or challenging an unfair one.
How the CMS gets its figure at all
For most cases the CMS uses your historic income: gross annual income for the latest tax year for which HMRC holds information. For an employee that comes through the payroll reporting system. For anyone self employed it comes from the Self Assessment return.
That produces an immediate practical problem. Self Assessment returns are filed months in arrears. A return for the tax year ending April 2026 need not be filed until January 2027. So the CMS may be assessing you on business performance from up to two years ago.
If your current income differs from the historic figure by 25 per cent or more, either parent can ask the CMS to use current income instead. This cuts both ways and is worth knowing whichever side you are on. Our income change checker works out whether you cross the threshold.
Sole traders
What counts as income
For a sole trader the CMS uses your taxable profit: turnover minus allowable business expenses, as declared on the self employment pages of your Self Assessment return. It is the profit figure, not turnover, and not what you happened to draw from the business account.
Drawings are irrelevant. A sole trader is not separate from their business in law, so money moving from the business account to a personal account is not a taxable event and the CMS does not treat it as the measure of income. If you made £60,000 profit and drew £20,000, you are assessed on £60,000.
Expenses: what actually reduces the figure
Because the CMS starts from taxable profit, anything HMRC accepts as an allowable expense also reduces your maintenance. That includes stock, materials, business premises, business insurance, professional fees, business mileage, the trading allowance where used, and legitimate use of home as office.
Capital allowances are the area that most often surprises people. Buying a van and claiming the Annual Investment Allowance can wipe out a large chunk of a single year's taxable profit, and therefore a large chunk of one year's maintenance liability.
This is not automatically improper. It is how the tax system is designed to work, and a genuine business genuinely needs the van. But it does create a visible pattern that receiving parents notice, particularly when a substantial capital purchase happens to land in the tax year that will be used for an assessment.
VAT
VAT is neutral for CMS purposes. Turnover is recorded net of VAT because VAT is not your money. Being VAT registered neither increases nor decreases your assessment. It does, however, mean HMRC holds more data about your business, which matters if a variation is ever investigated.
If you have not filed a return
The CMS cannot pull a figure that does not exist. Where there is no Self Assessment return they will ask you directly for information, and if you do not provide it they can make a default maintenance decision. Default rates are deliberately blunt and are usually higher than a properly evidenced assessment. Not filing is not a defensive strategy.
Limited company directors
What the standard calculation sees
A limited company is a separate legal entity. Its profits belong to the company, not to you. The CMS's historic income figure for a director therefore captures only:
- Salary paid through PAYE
- Benefits in kind reported on a P11D
It does not automatically capture:
- Dividends
- Retained profits sitting in the company
- Employer pension contributions made by the company
- Money left in a director's loan account
The common arrangement of a small salary set around the National Insurance threshold, with the balance taken as dividends, is standard tax planning used by hundreds of thousands of contractors and small business owners. It also happens to produce a very low CMS assessment if nothing further is done.
Bringing dividends into the calculation
The route is a variation on the ground of unearned income, under Regulation 69 of the Child Support Maintenance Calculation Regulations 2012. Unearned income includes dividends, property income, savings and investment income.
The threshold is £2,500 a year. If the paying parent has unearned income of £2,500 or more that is not in the standard calculation, a variation can add it in. The CMS obtains the figures from HMRC, so this does not depend on the paying parent volunteering anything.
There is also a variation ground for diversion of income under Regulation 71, which is the right route where profits are being deliberately retained in the company, routed to a new partner as salary, or converted into employer pension contributions specifically to depress the assessment. We cover the pension angle in detail in our guide to pension contributions and child maintenance.
Retained profits and the salary of a new partner
Two patterns come up repeatedly.
The first is profit sitting in the company rather than being distributed. Because it has never been paid out, it is neither earned income nor unearned income. The receiving parent's argument here is diversion: the director controls the distribution decision and has chosen not to distribute. Whether the CMS accepts that depends heavily on whether there is a legitimate commercial reason for retaining cash, such as working capital, a planned investment, or an uncertain pipeline.
The second is a new spouse or partner appearing on the payroll at a salary that is hard to justify by reference to the work they do. This is a classic diversion fact pattern and the CMS is familiar with it.
Director's loan accounts
Money taken from the company as a director's loan is not income and is not taxed as such at the point it is taken. If it is repaid within nine months of the year end there may be no tax charge at all. As a way of extracting value without creating assessable income it is well known, and it is well known to the CMS too. Persistent large loan balances that are never really repaid are a legitimate subject for a diversion argument.
Side by side
| Sole trader | Limited company director | |
|---|---|---|
| What the standard calculation uses | Taxable profit | PAYE salary plus benefits in kind |
| Are dividends counted? | Not applicable | Only via an unearned income variation |
| Are retained profits counted? | Not applicable, all profit counts | No, unless a diversion variation succeeds |
| Effect of capital allowances | Reduces assessable profit | Reduces company profit, indirect effect only |
| Effect of pension contributions | Personal contributions, must be declared | Company contributions sit outside personal income |
| How visible is income to the CMS? | High, one return covers everything | Lower, requires variation to see the full picture |
| Typical assessment outcome | Closer to true economic income | Often understated without a variation |
A worked comparison
Two parents, each generating £70,000 of business profit, each with one child and no shared care.
Parent A, sole trader. Taxable profit £70,000. That is the CMS figure. Weekly gross is about £1,346, so 12 per cent applies to the first £800 and 9 per cent to the remaining £546. Roughly £145 a week.
Parent B, limited company director. Takes £12,570 salary and £45,000 in dividends, leaving the rest in the company. The standard calculation sees £12,570. Weekly gross about £242, so 12 per cent of that is roughly £29 a week.
Same economics. Five times the difference. Now apply an unearned income variation to Parent B, adding the £45,000 of dividends. Assessable income becomes £57,570, weekly gross about £1,107, and the liability rises to roughly £124 a week.
The variation closes most of the gap but not all of it, because the retained profit is still outside the calculation unless a diversion argument also succeeds.
What the CMS can and cannot see
The CMS has a direct data feed from HMRC. That gives it Self Assessment returns, PAYE records, and dividend information declared on tax returns. It also has statutory information gathering powers under section 14 of the Child Support Act 1991, which extend to requiring information from employers, accountants and banks.
What it does not have is an automatic view of company accounts, or any mechanism that proactively flags a director taking a low salary. Companies House filings are public, but somebody has to look. In practice that somebody is usually the receiving parent, and small companies file abridged accounts that reveal relatively little.
This asymmetry is the root of most complaints about the treatment of self employed parents. It is not that the rules let business owners off. It is that the rules require the receiving parent to know enough to ask the right question, and most people have no idea the variation route exists.
What to do
If you are self employed and paying
- Keep your Self Assessment filings current. Late or missing returns invite a default maintenance decision that will usually cost you more.
- If your income has dropped by 25 per cent or more from the historic figure, tell the CMS and ask them to use current income. They will not do it on their own initiative.
- Declare personal pension contributions, because relief at source contributions are invisible in your HMRC figure.
- Be aware that structuring decisions made purely to reduce an assessment are reviewable. Legitimate tax planning and diversion of income are different tests, and passing one does not mean passing the other.
If the other parent is self employed and you are receiving
- Ask the CMS what income figure they used and where it came from. You are entitled to that, even though you cannot see the underlying documents.
- If the figure looks implausible for someone running a limited company, apply for an unearned income variation to capture dividends. The threshold is £2,500 a year.
- If income appears to be routed away deliberately, through retained profits, a partner's salary, or large employer pension contributions, apply for a diversion of income variation.
- Check Companies House. Accounts and confirmation statements are free to view and can support a variation application.
- Use our variation checker if you are not sure which ground applies. Applying is free and there is no penalty for an unsuccessful application.
A note on the word loophole
Searches for self employed child maintenance loopholes are extremely common, and it is worth being direct about it. Most of what gets called a loophole is either ordinary tax planning that happens to have a maintenance side effect, or something the CMS already has a specific power to unwind.
The genuinely structural gap is narrower than the internet suggests: the standard calculation does not automatically capture dividends or retained profits, and it depends on the receiving parent knowing to ask. That gap is closed by a variation application, which is free.
Deliberately manufacturing a lower assessment is a different matter. Providing false information to the CMS is an offence under section 14A of the Child Support Act 1991. We explain how we approach this subject in our editorial policy.