High Income Child Benefit Charge

borgon_baxter

Hi,

I have recently received a letter from the tax office regarding whether I am liable to pay a 'High Income Child Benefit Charge'.

I'v had a salary increase in the last year which has taken me over the £50K threshold - to be honest I did not realise this was in place but as I understand it I need to calculate my Adjusted Net Income by taking my Gross income from P60 (£50'651), plus medical benefit from my P11d (£1629), less expenses (£0).....so the total ANI is £52'280, £2'280 over the threshold so I would be liable to pay a charge of approx 23% of my Child benefit?

The tax office informed me that I should not deduct anything relating to workplace pension contributions as tax relief has already been received at source? However personal pension payments could be deducted.

I make an additional voluntary contribution to my workplace pension scheme which it appears does not reduce my ANI so would I be better putting this is a private pension as it could then be deducted thus reducing my ANI to below £50K and therefore no charge?

My company also offer various salary sacrifice schemes for example buying additional holiday - as this would reduce my gross income I guess this would be another way to reduce my ANI going forward?

Thanks

Dazed_and_confused

You looks at the full Adjusted Net Income calculation on gov.uk.

You will also need to take into account any taxable interest (i.e. not ISA's) or dividend income. Even if these are due to be taxed at 0% courtesy of the savings nil rate or dividend nil rate they are still taxable income for ANI purposes.

Some workplace pensions can be deducted but most can't. That is because they have already been deducted when arriving at your P60 figure i.e. salary £60k less 10% pension contribution under a net pay arrangement gives £54k taxable income.

If you contribute to a relief at source scheme, which a few workplace ones are, the pension contributions don't reduce your taxable income but they do reduce your ANI.

I make an additional voluntary contribution to my workplace pension scheme which it appears does not reduce my ANI so would I be better putting this is a private pension as it could then be deducted thus reducing my ANI to below £50K and therefore no charge?

You have misunderstood. If it is a net pay contribution it has already reduced your ANI by virtue of the lower P60 pay figure. If it's relief at source then it won't be reflected in the P60 figure and can be deducted. The thing is you must avoid double counting the pension contributions.

First step would be to understand exactly what type of pension contribution you are paying, both the basic and additional ones. Until you know that you cannot calculate your ANI.

And don't forget Gift Aid, that is part of the deduction side of the ANI calculation.

borgon_baxter

Hi,

Thanks for the reply, I have had it confirmed that my workplace pension is a 'relief at source' arrangement.

So does that mean that it has already reduced my ANI and I do not need to take this into consideration?

Assuming this is the case, if I wanted to reduce my ANI further to come in under the £50K threshold I would either increase my pension AVC or use one of use one of the salary sacrifice schemes...is that correct?

Thanks

xylophone

In a relief at source scheme a 40% tax payer would need to claim any additional relief due on pension contributions.

See https://www.litrg.org.uk/latest-news/news/181214-do-you-understand-how-tax-relief-your-pension-contributions-works

See also

https://www.pruadviser.co.uk/knowledge-literature/knowledge-library/reduce-high-income-child-benefit-charge/

Try

https://www.gov.uk/child-benefit-tax-calculator

borgon_baxter

Now I'm more confused.....when I have previously queried my pension I had confirmation in writing from my workplace pension department that the scheme is 'relief at source' and when I asked them whether I needed to claim back any tax relief I was told...

'Under our pension scheme your pension contributions are deducted from your salary before you are assessed for tax. This will then give you tax relief at your marginal rate so if you do go into the 40% tax bracket you will receive the full tax relief i.e 40%. Therefore you do not have to do anything with your tax return with regard to the pension contributions you make to this pension scheme'

...so are they mistaken and it's not relief at source and I'm potentially missing out?

Appreciate the links including the gov calculator...I'm just trying to understand whether...

a) I should be deducting anything regarding my pension to get to my ANI or whether it's already been accounted for.
b) how I can reduce my ANI going forward ie will either / both additional pension avc and / or salary sacrifice achieve this.
c) is it possible that my pension scheme can be 'relief at source' but I wouldn't need to claim any additional tax relief as a 40% tax payer.

Thanks

ndf9876

borgon_baxter wrote: »

a) I should be deducting anything regarding my pension to get to my ANI or whether it's already been accounted for.
b) how I can reduce my ANI going forward ie will either / both additional pension avc and / or salary sacrifice achieve this.
c) is it possible that my pension scheme can be 'relief at source' but I wouldn't need to claim any additional tax relief as a 40% tax payer.

Thanks

In my own experience of having to complete tax returns in respect of the HICBC...

Your P60 and P11D figures should be used. You don't need to remove pension contributions etc as the figures (particularly on your P60 where it says "Use these figures if you need to file a tax return") are correct.

Things like Gift Aid also count in your favour as mentioned by another poster. Your pensions sounds like a normal workplace scheme where contributions are made and deducted from your gross salary (so you do not need to manually claim the 40% relief; you already had it because your net pay reduction already took that into account).

I ended up participating in as many salary sacrifice schemes as I could (e.g. SIP) to get my salary under that threshold, but paid overtime took me well over.

If you don't want to salary sacrifice, whack the child benefit in an account that pays the most interest you can get your hands on. When SA time comes, you just withdraw the dosh and pay it straight to HMRC just before the deadline.

Dazed_and_confused

Now I'm more confused.....when I have previously queried my pension I had confirmation in writing from my workplace pension department that the scheme is 'relief at source' and when I asked them whether I needed to claim back any tax relief I was told...

'Under our pension scheme your pension contributions are deducted from your salary before you are assessed for tax. This will then give you tax relief at your marginal rate so if you do go into the 40% tax bracket you will receive the full tax relief i.e 40%. Therefore you do not have to do anything with your tax return with regard to the pension contributions you make to this pension scheme'

...so are they mistaken and it's not relief at source and I'm potentially missing out?

What they have described is a "net pay" arrangement. Although confusingly this means you do receive the maximum possible tax relief at source i.e. your taxable salary is net of the pension contribution and would never need to mention this on a tax return.

What most people think of as a "relief at source" scheme is one where you pay a contribution to a third party pension company and they add the basic rate relief i.e. you pay £80 and they £20 so there is £100 in your pension fund.

a) I should be deducting anything regarding my pension to get to my ANI or whether it's already been accounted for.

Your main contribution has been accounted for by you having a lower P60 figure. Just compare your "salary" with your P60 and you will see the reduction. We don't know on what basis you are making the additional payments. If it's the same "net pay" then you can safely ignore them.

b) how I can reduce my ANI going forward ie will either / both additional pension avc and / or salary sacrifice achieve this.

If you are able to make further pension contributions of any sort they will reduce your ANI. Some wont even make it to the ANI calculation because they reduce your P60 value. Others might be part of the ANI calculation. End result is the same though.

c) is it possible that my pension scheme can be 'relief at source' but I wouldn't need to claim any additional tax relief as a 40% tax payer.

No. Using your employer's terminology you may have received relief at source courtesy of it being "net pay" but in that case you have received the maximum possible tax relief. There is nothing further you could ever claim from HMRC.

xylophone

Now I'm more confused.

Did you read the litrg link in my post above?

You could also see

http://www.retirementplanner-sw.com/digital_assets/15896/Relief_at_source_and_net_pay_-_avoiding_confusion.pdf

unholyangel

Buying annual leave would not benefit from the exemption rules like pension contributions do. AKA it won't reduce your adjusted net income.

Tax and National Insurance contributions exemptions on non-cash benefits
Exemptions on benefits in kind do not apply to salary sacrifice schemes. The only benefits you do not need to value and do not have to report to HMRC for a salary sacrifice arrangement are:

payments into pension schemes
employer provided pensions advice
workplace nurseries
childcare vouchers and directly contracted employer provided childcare that started on or before 4 October 2018
bicycles and cycling safety equipment (including cycle to work)

rawhammered

Just increase pension contributions to get below £50 taxable income...

borgon_baxter

So lets say...

Gross income from P60 (from regular annual salary) £48K
Gross income from P60 (one off bonus) £5K
Medical benfits from p11d £2K
Total net adjusted income £55K

...in this instance I could just pay the one off bonus of £5K into my pension (net pay arrangement) which would reduce my net adjusted income to £50K....so no child benefit charge.

Is it as simple as that?