MSE News: Budget 2012: Child benefit cut partially reversed

sly_dog_jonah

The adjusted net income calculation sounds quite interesting. I thought the threshold would be based on Taxable Income (after Salary Sacrifice, eg Childcare vouchers), but not non-salary sacrifice pension contributions (my employer's pension scheme isn't salary sacrifice, despite my repeated protestations).

However the above quote seems to suggest that the net part of your pension contributions (60%) will reduce your adjust net income for the purposes of the CB calculation?

For example, if your salary was £52,000 but you contributed £3400 gross per year (ie ~6.5% of salary) into your employer's pension scheme, your adjusted net income would be:

52000 - 3400 + (3400 * 40%) = 52000 - 3400*60% = £49940

....which would be below the threshold for tapering of the CB.

sly_dog_jonah

jsg2 wrote: »

How does salary sacrifice apply to this?

I make payments to my company pension via salary sacrifice, and also have a salary sacrifice for receiving childcare vouchers.

In total this is worth over £5000 and would make quite a difference in how much I would be charged.

HMRC only consider your gross income after salary sacrifice. If your childcare vouchers and pension salary sacrifice reduce your gross income below £50k then you shouldn't have any worries. It might get complicated if you get a bonus though which takes you over £50k, because you'd then be liable for a charge on your self-assessment tax return.

For a typical 2 child family, the marginal rate on their income between 50-60k is an eye-watering 59.5%, calculated as follows:

For every extra £100 of gross salary, you lose/pay:

• 1% of CB (Total £1,752.40 for 2 children), so £17.52,
• £40 income tax,
• £2 NI.
• That's a total marginal rate of 59.5%. Or £40.50 leftover net income.
• For those still paying back student loans, which is another 9% on top, that makes a total marginal rate of 68.5%, leaving you with £31.50 of net income.

shedboy94

At the end of the day there was never gonna be a plan that would please everyone - using the income of a single person is the easiest and cheapest option as it will only be 1 tax code that needs to be checked and adjusted. Personally if I was earning £50-60k a year I wouldn't expect to receive benefits anyway.

zagfles

sly_dog_jonah wrote: »

The adjusted net income calculation sounds quite interesting. I thought the threshold would be based on Taxable Income (after Salary Sacrifice, eg Childcare vouchers), but not non-salary sacrifice pension contributions (my employer's pension scheme isn't salary sacrifice, despite my repeated protestations).

However the above quote seems to suggest that the net part of your pension contributions (60%) will reduce your adjust net income for the purposes of the CB calculation?

For example, if your salary was £52,000 but you contributed £3400 gross per year (ie ~6.5% of salary) into your employer's pension scheme, your adjusted net income would be:

52000 - 3400 + (3400 * 40%) = 52000 - 3400*60% = £49940

....which would be below the threshold for tapering of the CB.

No, it's reduced by the grossed-up pension contributions, so if you contribute £3400 gross it'll knock £3400 off your income.

squirrelz

Am I right in thinking that as I earn over £50k I will pay extra tax because my partner gets Child Benefit for her daughter (from previous marriage)?

Beck__

The £50k is based on taxable earnings, so if your basic salary is £50k, you can take off your personal allowance (£7.5k), so your taxable earnings would be £42.5k, which is less then £50k so nothing to worry about.

Thats a simple look at it, of course there are many more things that you dont get taxed on. If you look at your March payslip, it should show your total taxable earnings for 2011/2012, which you can then see if its anywhere near £50k.

zagfles

squirrelz wrote: »

Am I right in thinking that as I earn over £50k I will pay extra tax because my partner gets Child Benefit for her daughter (from previous marriage)?

Yes, unfortunately.

zagfles

Beck__ wrote: »

The £50k is based on taxable earnings, so if your basic salary is £50k, you can take off your personal allowance (£7.5k), so your taxable earnings would be £42.5k, which is less then £50k so nothing to worry about.

Thats a simple look at it, of course there are many more things that you dont get taxed on. If you look at your March payslip, it should show your total taxable earnings for 2011/2012, which you can then see if its anywhere near £50k.

It's not minus the personal allowance. It's £50k total. But you can deduct pension contributions and gift aid. I think a lot of people earning about £60k are going to increase their pension contributions...

Icequeen99

Beck__ wrote: »

The £50k is based on taxable earnings, so if your basic salary is £50k, you can take off your personal allowance (£7.5k), so your taxable earnings would be £42.5k, which is less then £50k so nothing to worry about.

Thats a simple look at it, of course there are many more things that you dont get taxed on. If you look at your March payslip, it should show your total taxable earnings for 2011/2012, which you can then see if its anywhere near £50k.

That isn't correct. It is based on Adjusted Net Income which is calculated before the personal allowance is deducted. It is a completely different calculation than anything on your payslip.

IQ

miamoo

I am pleased with this decision, mainly because it means we will get to keep our CB. I think the gradual reduction at 50k is a much better idea.

I think the government have probably realised that if they made the cut off lower people would find ways to keep there income lower, and it would of been counter-productive.
I think most people agree that 60k is quite a good income and CB wont be missed very much, if at all.