MSE News: Budget 2012: Child benefit cut partially reversed

sarahb

sly_dog_jonah wrote: »

No probs. I think it's the 'net' thats confusing.

'Adjusted net income' = Gross income - Grossed-up pension contributions (where tax relief at source) - Grossed-up charitable donations + relief on trade union/police org membership.

Whereas 'Net income' is what you're left over with after tax.

Therefore adjusted net income is actually a value of your effective gross income.

It's further confused if you have salary sacrifice for childcare vouchers or pensions, as this reduces the gross income as far as HMRC are concerned.

Do you happen to know if benefits in kind are included in 'gross income' for the purpose of this calculation, or are they ignored (which seems unlikely) ?

sly_dog_jonah

zagfles wrote: »

20% tax, 12% NI and 41% tax credits taper.

For those not earning enough to pay tax, they'll usually be entitled to other benefits like housing benefit/council tax benefit and have a MDR of about 96% !!

Thanks, our household income has always exceeded the maximum thresholds for those benefits so I'm not very familiar with how they taper off. 41% does seem remarkably high though, but I'll defer to your better knowledge of the subject.

sly_dog_jonah

sarahb wrote: »

Do you happen to know if benefits in kind are included in 'gross income' for the purpose of this calculation, or are they ignored (which seems unlikely) ?

I believe that such benefits (eg private health) are added to your salary to determine gross income. It's a sad reflection on the state of HMRC that this isn't clearly stated on their guidance about 'adjusted net income'.

JimmyTheWig

zagfles wrote: »

It's less complicated than it sounds. Basically it's gross (taxable) income less deductions like (gross) pension contributions and gift aid.

sly_dog_jonah wrote: »

'Adjusted net income' = Gross income - Grossed-up pension contributions (where tax relief at source) - Grossed-up charitable donations + relief on trade union/police org membership.

Therefore adjusted net income is actually a value of your effective gross income.

Ok, so that is your taxable income, isn't it?
I.e. the amount of tax you pay depends solely on your Adjusted Net Income.
I.e. two people with the same Adjusted Net Income will pay the same income tax.
Correct?

JimmyTheWig

sarahb wrote: »

Do you happen to know if benefits in kind are included in 'gross income' for the purpose of this calculation, or are they ignored (which seems unlikely) ?

I agree with Jonah (unless I've completely missed the point!) that the value of them will be included in the gross income. Quite fairly, if you ask me. It is no different to if you earn that money and then spend it.

sly_dog_jonah wrote: »

41% does seem remarkably high though, but I'll defer to your better knowledge of the subject.

I agree that it is high, but Zagfles is correct, I'm afraid.
With 4 children you can still get some tax credits at £45k, giving a marginal rate of 82%.

sarahb

JimmyTheWig wrote: »

I agree with Jonah (unless I've completely missed the point!) that the value of them will be included in the gross income. Quite fairly, if you ask me. It is no different to if you earn that money and then spend it.

I agree, but wanted to confirm as HMRC don't bother to fully define what they are talking about to avoid confusion (and false hope) all round !

I have eventually found an example from HMRC that confirms it as well (Alice - page 3):

http://www.hmrc.gov.uk/incometax/adjusted-net-income.pdf

JimmyTheWig

JimmyTheWig wrote: »

With 4 children you can still get some tax credits at £45k, giving a marginal rate of 82%.

Interesting sums if you had 5 children.
One parent earning £50k, the other parent earning nothing.
You'd still get tax credits (£800 a year, I think).
So by earning more you'd still lose 41% of additional income.
And you'd lose 1% of child benefit (£3843) per £100 you earned.

So you'd have a marginal rate of 40% tax + 2% NI + 41% Tax Credits + 38.4% Child Benefit = 121.4%.
Nice!

jamesmorgan

JimmyTheWig wrote: »

I agree that it is high, but Zagfles is correct, I'm afraid.
With 4 children you can still get some tax credits at £45k, giving a marginal rate of 82%.

Even more extreme is that a family with 7 children would get tax credits up to £55K. So not only are they getting tapering on their CTC, but also on their child benefit payments. I think the CB tapering for 7 children is about 52p in the £, so their overall marginal rate of taxation is 132%!

unkle

Oh how successive governments make me laugh. I've now got to pay tax on a allowance/credit I don't actually receive (but my wife does), how on earth are they going to police that when we are taxed as individuals?

I have a solution though, fairly drastic but a solution all the same.

I earn a bit over the £60k mark, my wife in her part time job about £8k. We have two children.

Due to my earnings the only 'benefit' we currently receive is child benefit, which of course will go in January...... or will it.

I went online last night and completed the benefit advisor details/calculation for my wife as if we had separated, i.e. I moved out (not divorced, not necessarily not a couple but that she lived alone with the children). The results were quite frankly astonishing. Most benefits don't take into account maintenance payments, I even went back and put in that she received £500 a week and it made no difference, so what was the outcome you may ask.......

Well, in working tax credits, child tax credits, council tax help etc and of course the keeping of the child allowance would mean my wife would receive just short of £15k per annum.

How mad is that, I'm still her husband and still father of the children with that financial responsibility but that seems to make no difference, no wonder the separation rate/divorce is so high in this country. With those numbers if I didn't live with my wife for 18 years (i.e. the life of a child before they become an adult) in todays money she'd get £270k we wouldn't otherwise if we live together!

If you want something even funnier, if my wife moved out of the family home (with the children) rather than me then as well as the £15k she'd get nearly £12k more in housing benefit, I kid you not! So now we are up to £477k in benefits by simply not living together for the 18 years.

So the discussion tonight can be who is going to move out, do we want another £270k or £477k?

I'll be starting a new thread on the mortgage free wannabe board, i'll have paid mine off in 3 years no problem!

I'd like to say this countries gone to the dogs, however that'd be a bit unfair on dogs......

shop-to-drop

Your children will likely be better off into adulthood if you split up too and they stay in the 'low income household' provided by the state and their mother. They would stand a better chance of being able to get into an elite University and when there they would get quite sizeable loans and grants and be saddled with a much lower tuition fee loan at the end of it about a third of what they would otherwise have to pay over the next 30 years. If we did what was best for our children which is probably why we are in the position we are now we would split up.