Anyone had a letter from HMRC yet about Child Benefit Tax?

MisterT

I got a letter but I'm not sure what to do. My basic salary is around 38k but with overtime, bonuses etc it can go over 50k e.g. in the last 4 years it has gone over twice.

Should I do nothing or register for SA?

chrismac1

Only a fool, in my view, registers for SA when they don't need to. If the system was run competently and efficiently my advice would be otherwise.

Employers have a nasty habit of paying bonuses in month 12 which gives their staff precious little time to sort out a tax liability and get rid of it by making pension payments etc. In your position, I'd be having a look right now at what my expected taxable income for 12-13 is.

If under 42,475 no problem no higher rate tax. If over 42,475 but under 50,000 then higher rate tax potentially applies and you can consider taking action to get that to zero. If above 60,000 then you probably have to take some kind of hit unless you're going to make a £15k or so contribution.

If above 50,000 but under 60,000 then you face a pretty hefty marginal rate of tax with the child benefit hit and probable need to register for SA. Action needed by 5 April to avoid all that, planning can begin right now.

dori2o

The thing that will matter most with regards to whether or not you have to do a self assessment form is the figure on your P60/P11d at the end of the tax year.

IMO if the taxable figure on the P60 is over £50k, or if your salary plus BIK combined is over 50k, and you are one of the taxpayers identified via the link between the PAYE and child benefit systems, then regardless of any further pension payments/gift aid/professional fees that you might pay for, you are going to have to do an SA form in order to show these other payments.

I doubt it will be enough to simply tell HMRC via the telephone or by letter that you have these extra deductions from your salary which take you below the £50k limit. By requesting that you fill in a return, HMRC will then be able to get a legal decleration of your Net taxable income.

Within the criteria for SA selection there are also limits on the amount of gift aid/pension payments/expenses/ professional fees etc that you can make without the need to complete a return. So again, if you are a taxpayer with a £60k income, but you tell HMRC that you make £20k worth of payments to pensions, you will have to do a self assessment form simply due to the size of the contribution you have made.

It's not often I agree with chrismac, but the time to start tax planning is now if you want to make sure you stay below the £50k limit in future years.

thenudeone

Michael_Nottingham wrote: »

And the marginal rates for some people in the £50-60k Band (not me by the way) could be extremely penal - more penal the more children they have

Absolutely.

This policy means that:

For every £1000 a person earning £50k is offered for extra work or extra responsibility, they might pay £700 in extra taxes and lost child benefit (if they have several children).

For every £1000 a person earning £140k is offered for extra work or extra responsibility, they only pay £400 in extra taxes.

For every £1000 a person earning £1m is offered for extra work or extra responsibility, they only pay £450 in extra taxes.

Nobody can claim that this is a fair distribution of the cuts which everyone in the country is supposed to be contributing to.

zagfles

thenudeone wrote: »

Absolutely.

This policy means that:

For every £1000 a person earning £50k is offered for extra work or extra responsibility, they might pay £700 in extra taxes and lost child benefit (if they have several children).

And it's quite possible to have a marginal rate over 100%! In this example, every £1000 earned over £50k results in £1210 in extra taxes and lost benefits!

https://forums.moneysavingexpert.com/discussion/3867541

ibexward

zagfles wrote: »

It was only half the story. It missed the higher rate relief part.

If you're on £60k, you can pay £8k into a personal pension. That gets grossed up to £10k by your pension provider claiming basic rate relief. Your "adjusted net income" is £50k, so no child benefit loss.

In addition, you get a £2k rebate off the taxman when you do your tax return, as they will extend your basic rate band by £10k giving you a £2k rebate on your tax.

If you intend to do this every year, they may adjust your tax code by adding £5000 to it (so 810L would become 1310L), which will give you that additional £2000 relief in the year rather than as a lump sum when you do the tax return. (£5000 added to you tax code get you 40% relief - resulting in £2000 less tax).

Alternatively - if your company offers a salary sacrifice type pension arrangement, or AVCs etc, you could contribute £10k direct from your gross pay and then you'll only get taxed on the £50k to start with. So you'll get all the 40% relief direct through payroll (plus 2% NI if it's salary sacrifice).

So if you are earning £60,000 and contribute £10000 to a pension via a salary sacrifice, does the tax get calculated correctly month-by-month or do you still have to claim it back via the tax return?
Thanks a lot for the explanation!

InsertWittyName

ibexward wrote: »

So if you are earning £60,000 and contribute £10000 to a pension via a salary sacrifice, does the tax get calculated correctly month-by-month or do you still have to claim it back via the tax return?
Thanks a lot for the explanation!

The key words in your question are 'salary sacrifice' which means the tax will be correctly calculated month-by-month.

Anon

Thank you for all the useful information.

A potentially daft question, but is it possible to pay additional money into a pension now and get tax relief for a previous tax year? It had never occurred to me to pay extra into my pension and having done the calculations there appears to be some benefit. However, it occurred to me that I could have been paying some more in previous years rather than to Mr Taxman and getting a pittance in interest. Self Assessment for 2011-12 isn't due until the end of January, though clearly previous years have been filed if that makes any difference?

Many thanks

Anon

zagfles

Anon wrote: »

Thank you for all the useful information.

A potentially daft question, but is it possible to pay additional money into a pension now and get tax relief for a previous tax year? It had never occurred to me to pay extra into my pension and having done the calculations there appears to be some benefit. However, it occurred to me that I could have been paying some more in previous years rather than to Mr Taxman and getting a pittance in interest. Self Assessment for 2011-12 isn't due until the end of January, though clearly previous years have been filed if that makes any difference?

Many thanks

Anon

Pretty sure you can't. You can do this for gift-aid, but not pensions AFAIK. You can carry fowards the £50k max limit for up to 3 tax years, but for tax purposes the contribution counts in the year it's made.

NEILCM

I Havent recieved the letter yet, Dont know if i will

I earn over £52000 taxable (after work pension contribution) however the wife claims the CB and only earns £20000 a year, So are they cleaver enough to send me a letter?? i havnt got one so guess not....

Also if she was to just keep on claiming the CB and i dont bother with a self assessment and therefore not pay anything back are the cleaver enough to find the link??

I think this will get hit on the head soon as its just so differcult for them to work out.... I mean technically they could cross reference my address from the PAYE system to the fact the house hold has a CB claimment but the HMRC doesnt have the system or man power to persue.

Then i dont have to pay the money back for a what a year?? ill think i take my chances and not contact them about it...... and stay off their radar...

they expect one person to pay tax on another persons benefit claim???