Notes for Guidance - Common Financial Tool

3.1 Money advisers/trustees should obtain documentary evidence to support the debtor’s whole household income. In keeping with current practice, verification of income from 3rd party sources, for example, proof of housing benefit confirmed by local authority housing office or, benefit entitlement confirmed via systems, is sufficient.

3.2 Where the debtor’s current income is derived from a salary, wage slips over a period of three months should be obtained. In circumstances where the debtor’s income may vary (e.g. seasonal work, limited period of overtime etc.), it may be in the debtor’s interest to obtain an average over a longer period of time up to a maximum of 12 months.

3.3 Any change in income after the Debtor Contribution Order (DCO) is fixed should be reviewed and, if the overall impact on the debtor’s income and expenditure is that the DCO amount is no longer appropriate, reported to the trustee and a payment variation sought.

3.4 Any non-mandatory deductions should be questioned – these could include, for example, an employer voluntary savings scheme or additional private pension contributions.

3.5 Money 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.

3.6 The CFT does not include budgeting categories for business-related expenditure. As business and trading cases are generally complex in nature, clients should be signposted accordingly to an adviser with relevant knowledge and experience. In self- employed cases, a business budget sheet will need to be compiled to account for the costs of running their business.

3.7 The debtor 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 debtor 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 www.businessdebtline.org to obtain support.

3.8 Pension contributions that have been increased recently, that could be considered excessive, should be questioned and the money advisers/trustees should establish if the debtor obtained regulated pension advice prior to increasing the pension contributions. If the pension contributions are considered to be excessive, the debtor may be required to pay a higher contribution amount.

3.9 It is important to 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 money advisers/trustees. If the debtor has any queries regarding their pension contribution, they should be referred to an appropriate adviser.

3.10 Where income is derived from tax credits, Universal Credit or other Social Security benefits, which includes allowances and payments specified in the Social Security (Scotland) Act 2018 and the Scottish Child Payment Regulations, evidence should be obtained in the form of recent award letters or other written confirmation from the relevant department.

3.11 It is also possible to verify income from bank statements where this provides clarity over the specific award and the amount and frequency of payment.

3.12 Where income is derived solely from state benefits, including allowances and payments specified in the Social Security (Scotland) Act 2018 and the Scottish Child Payment Regulations, no contribution will be taken during a bankruptcy or Protected Trust Deed.

3.13 However, a voluntary contribution can be made by the client from benefits if repayment of debts through the Debt Arrangement Scheme (DAS) is the preferred option.

3.14 Where the debtor has income derived from a bursary, it may be possible to take a contribution from the bursary if there is a calculated surplus income. However, this will be dependent on the circumstances of each case.

3.15 Money advisers/trustees should take into consideration any rules and conditions governing the bursary award and it will be 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 will determine that the bursary will be reduced as a direct result of taking a contribution from it. The money adviser/trustee must explain how they have treated a bursary and why they have adopted that approach.

3.16 Entitlement to Disability Living Allowance (or Personal Independence Payments) is not based on a debtor’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.

3.17 However, money advisers/trustees should take account of any related increase in expenditure that may arise to meet these transport or care needs. If it is the wish of the debtor, this income can be off-set against any additional expenditure in these categories.

3.18 Similarly, Carer’s Allowance should be taken into account for income purposes, although it is expected that the actual expenditure for the person’s caring responsibilities will match or exceed this Allowance.

3.19 Household income may include housing benefit which provides assistance with rental or council tax liability. Discretionary housing benefit should be shown separately. In assessing the household position, the simplest and most transparent way to record information is to show the housing benefit in full as an income, with associated housing costs shown in full as expenditure. This will help reach a true assessment of the actual amount paid towards housing costs.

3.20 If a debtor has received a redundancy severance payment prior to, or post, bankruptcy/granting a trust deed, or proposing a DAS DPP, it is important that the money advisor/trustee identifies if any aspect of the payment is income in lieu of wages. Detailed Guidance on redundancy severance payments can be found in Notes for Guidance for Trustees. 

3.21 Pay in lieu of notice (PILON) should be considered income of the debtor over the period it has been paid for.

3.22 Statutory redundancy pay should be assessed in the period in which it is received.

3.23 Other income should also be verified from bank statements or other documentary evidence.

3.24 If a debtor declares they receive income payments from a third party e.g., from a relative for the purpose of helping to pay debts, the money adviser/trustee must verify the amount being paid and if this income will continue to be paid if the debtor enters a statutory debt solution. This must be done before deciding if this income is to be included when determining if the debtor can pay a contribution.

3.25 The money adviser/trustee should obtain written confirmation from the third party about the source and amount of income payments or provide an explanation if written confirmation cannot be obtained.

3.26 If it is proposed that a contribution can be paid in full, or part, from income from a third party, the written confirmation/explanation must be included with the documents sent to the debtor’s creditors if they are notified about a proposed DAS DPP or protected trust deed (PTD). No contribution in a bankruptcy or PTD can be paid from any person’s tax credits, Universal Credit or other Social Security benefits, which includes allowances and payments specified in the Social Security (Scotland) Act 2018 and the Scottish Child Payment Regulations.

3.27 Child maintenance payments should be included as an income from which a contribution may be deducted if the child maintenance is being paid to the debtor. 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.

3.28 Evidence of maintenance contributions can be provided in the form of a court award, notice from the Child Support Agency, from bank statements, or by a note provided by the debtor/contributor, confirming the amount and frequency of the payments received. This evidence should be retained.

3.29 The contribution assessed from the debtor’s surplus income must not exceed the total earned income as this would result in a contribution being deducted from the debtor’s benefits. It should also be noted that the introduction of Universal Credit will bring together elements of the debtor’s income-based benefits.

3.30 A list of incomes from which a contribution can, and cannot, be deducted is available in Appendix A to this document. This is not an exhaustive list and may be subject to change.