Child Benefit High Earn Tax Question

g0009348

Hello,
Ive received a letter from HMRC telling me I may need to pay tax on the child benefit my partner receives as I’m close to the £50k threshold.  I’ve checked my P60 and it shows gross pay to be £51.5k.  Is that my net adjustable income? I’ve read in certain circumstances I should knock of my pension contributions.  I currently pay 4% with my work adding an additional 8%, so 12% in total.  Should I deduct any of this of the gross figure?

Thanks

Dazed_and_C0nfused

It is unlikely to be your adjusted net income.
First thing is you need to understand what method is used for your pension contributions.

They will be either net pay or relief at source.

Net pay would mean you have a salary of £53,645 but the pension contributions are deducted before tax is calculated leaving you taxable pay of £51,500.

Relief at source is where the pension company adds basic rate tax relief to your contribution.  So for example you contribute £200/month and they add £50 tax relief giving you a pension fund of £250.

You have to understand that first and then consider other source of income such as company benefits such as s car and things like interest (not ISA interest) and dividends.

g0009348

Thank you.  I’ll check my pension documents and try and find out

Dazed_and_C0nfused

If they are net pay then you cannot deduct them as they have already been deducted to arrive at the £51.5k

If they are relief at source then you can deduct the gross amount (inclusive of the tax relief added by the pension company) from the £51.5k for the purpose of calculating your adjusted net income.

g0009348

Hello, I've found this in the FAQ's about my pension.  I believe this confirms its net pay rather than relief at source.  If this is the case is there little I can do to avoid paying the tax on the child care benefit?

This is an arrangement approved by Her Majesty’s Revenue & Customs (HMRC). It allows the Company to convert a contributory pension plan into a non-contributory plan thus enabling savings of National Insurance (NI) for employees and the Company. Participating in PSS means that you agree to give up part of your current ‘gross basic pay’ (i.e. your basic pay before deduction of tax and NI) by an amount equivalent to the amount paid in employee pension contributions. This reduction is known as a ‘salary sacrifice’, and your current gross basic pay will become your ‘notional basic pay’. The Company increases its pension contributions by an equivalent amount. Due to the reduction in your gross pay you will pay less NI and actually receive a higher net pay (i.e. your ‘take home’ pay after tax/NI and pension contributions), without affecting your pension fund when comparing your pay to contributing to the arrangement before and after PSS. 

Dazed_and_C0nfused

No.  Salary sacrifice means you aren't even contributing to a pension.

You had a salary of say £53,645 but agreed to give up part of it in return for your employer contributing to your pension. That is why there is pension tax relief for you with salary sacrifice, because you haven't made the contribution.  The tax saving for you comes from not having the £53,645 salary to be taxed on in the first place, just the £51.5k.

Essentially it is similar to net pay but you also avoid paying National Insurance on the salary you forgo.

So for HICBC purposes you cannot deduct it as you haven't made the contribution but it is taken into account as your P60 shows £51.5k

g0009348

Really, even though I make a top up contribution? I contribute 4% and my company tops up a further 8%.  But I guess what your saying is that all comes from the company, not me personally as I've given it up out my personal salary?  So its not me paying, but company contributing 12% on my behalf.  
Thank you, I'll stop being cheap and pay the charge lol

 

Dazed_and_C0nfused

If you made gift aid payments in 2019:20 they will reduce your adjusted net income and therefore also reduce the HICBC 

unholyangel

g0009348 said:

Really, even though I make a top up contribution? I contribute 4% and my company tops up a further 8%.  But I guess what your saying is that all comes from the company, not me personally as I've given it up out my personal salary?  So its not me paying, but company contributing 12% on my behalf.  
Thank you, I'll stop being cheap and pay the charge lol

 

If you've received a p60 with a taxable gross of 51.5k then it sounds like perhaps you don't have a choice in avoiding the charge - at least for that year. If you haven't already, you should notify them you are required to complete a self assessment tax return. If your p60 was from the 19/20 tax year then the deadline for filing the return online is 31st Jan. Technically you should have notified them by 5th October and this is probably why you've received a letter now. To bring it to your attention and give you the opportunity of correcting an honest mistake. 


For the current year (20/21), if you are going to go over the 50k again (furloughed @ 80% at any point?) you could either use gift aid as suggested by Dazed and C0nfused (for the 19/20 year) or perhaps discuss if you can increase your salary sacrifice to the pension. 

I also presume you don't have any benefits in kind and aren't claiming any other relief. If you do, that could impact the situation. 

xylophone

If you cannot increase the salary sacrifice, had you considered opening a personal pension and making a sufficient contribution to it to allow you avoid HICB charge?

g0009348

So assuming I could increase the salary sacrifice, I would aim to pay in an addItional x% equal to 1800 a year, to prevent the £300 additional tax charge. Effectively keeping the money for myself later in life?