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SA/HICBC query



My wife has claimed child benefit since Dec21 when our child was born. For tax year 21-22 I had planned to sal sac using pension contributions such that my taxable pay was no higher than £50k come end of 21-22 tax year.
Due to a higher take home pay this month (was not aware it would be much higher) it will not be possible to stay below £50k so I will be hit with HICBC.
I'm not clear now what action I need to take and timings:
Do I contact HMRC and mention along the lines of.... my taxable pay will be higher than anticipated for 21-22
I can still adjust my pension contribution for March but no chance of coming down to £50k taxable pay now as I've already breached that threshold so I've accepted il pay some 40% income tax and be hit with HICBC
Dazed and Confused, I am not able to reply to you due to a glitch when trying to respond,.please see my responses below in bold. Thanks
Basic qu but how do I differentiate between the two?
This has got me a bit worried now....I've been using my monthly payslip 'taxable pay' figure on the bottom left, to track each month that I am on target to end the tax year with £50k taxable pay and no more but it seems my approach was incorrect?
You certainly don't wait for HMRC. Unless you want to pay interest and risk a penalty.
You should register for Self Assessment for 2021:22 and complete a tax return for that year.
Ok makes sense and agree but I probably need to work out with certainty that I will definately breach the £50k adjusted net income before I reach out to HMRC for SA
Do you want to pay the HICBC (and any other tax owed) direct to HMRC or would you prefer to delay paying it for as long as possible even if means a more complicated tax code?
Id rather do it the easy/less painful way...I've never done SA before and not too clued up on the income tax side aside from looking at payslips etc I do have a Gov Gateway account on HMRC. My only/sole income is via PAYE for my dayjob and bank account interest. Everything else in tax wrappers, no rentals, GIA's etc
Comments
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Taxable pay isn't the determining factor for HICBC, it's adjusted net income which counts.
You certainly don't wait for HMRC. Unless you want to pay interest and risk a penalty.
You should register for Self Assessment for 2021:22 and complete a tax return for that year.
Do you want to pay the HICBC (and any other tax owed) direct to HMRC or would you prefer to delay paying it for as long as possible even if means a more complicated tax code?0 -
Dazed and Confused, I am not able to reply to you due to a glitch when trying to respond,.please see my responses below in bold. ThanksDazed_and_C0nfused said:Taxable pay isn't the determining factor for HICBC, it's adjusted net income which counts.
Basic qu but how do I differentiate between the two?
This has got me a bit worried now....I've been using my monthly payslip 'taxable pay' figure on the bottom left, to track each month that I am on target to end the tax year with £50k taxable pay and no more but it seems my approach was incorrect?
You certainly don't wait for HMRC. Unless you want to pay interest and risk a penalty.
You should register for Self Assessment for 2021:22 and complete a tax return for that year.
Ok makes sense and agree but I probably need to work out with certainty that I will definately breach the £50k adjusted net income before I reach out to HMRC for SA
Do you want to pay the HICBC (and any other tax owed) direct to HMRC or would you prefer to delay paying it for as long as possible even if means a more complicated tax code?
Id rather do it the easy/less painful way...I've never done SA before and not too clued up on the income tax side aside from looking at payslips etc I do have a Gov Gateway account on HMRC. My only/sole income is via PAYE for my dayjob and bank account interest. Everything else in tax wrappers, no rentals, GIA's etcAdjusted net income can get complicated but for most people on PAYE who aren't self employed or have rental income it will involve adding up (and deducting) the following,
Taxable pay from earnings (and pensions if any are in payment)Taxable company benefits (if relevant)
Interest (ignore tax exempt ISA)
Dividends (again ignore ISA's)
The gross amount of relief at source pension contributions and gift aid payments can be deducted.
Net pay and salary sacrifice pension contributions cannot be deducted.
The most likely thing you will have overlooked is taxable interest. Although this may be taxed at 0% for income tax purposes it is still part of your adjusted net income.
There is a page on gov.uk about adjusted net income.
Agree, don't register unnecessarily.
The least painful way is to tick the box on the return to say you don't want anything owed included in your tax code. You must then pay it direct to HMRC by 31 January 2023 (if it's money owed for 2021:22).1 -
In your circumstances, adjusted net pay will be your salary, as reduced by any salary sacrifice, plus bank interest. See:
https://www.gov.uk/guidance/adjusted-net-income
You can reduce it by gift aid payments.
You should register for self assessment now (certainly no later than 5 October 2022) if you are sure you will exceed the threshold. See: https://www.gov.uk/register-for-self-assessment/not-self-employed
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Op here, I am considering making an additional one-off payment to my pension before the end of 21-22 tax year but just need some guidance / sanity-check on my approach pls and a couple of related questions.
As to the 'why', I want to bring my adjusted net pay down to £50k for 21-22 to avoid HICBC. I was trying to do this using salary sac but due to unexpectedly higher Feb pay and as we are now approaching end of 21-22 tax year it's too late to use sal sac.
Taxable pay for 21-22 as of Mar-22 payslip - £53,733.06
Total bank interest earned for 21-22 - £345
No other sources of income (no other jobs, no BTL's etc etc)
I am a higher rate tax payer and my usual pension contributions are via salary sac in my work pension.
Questions:
1. How much tax relief do I get for a one-off payment 20% or 40%? Noting this money was already taxed at 40% as it's after tax and NI etc2. Do I claim the tax relief from HMRC via self assessment and then once received, make a further payment of the relief portion to my pension plan or SIPP3. I have a workplace pension and a smaller SIPP that was used to transfer in a older pension. Workplace pension is roughly 4x larger in total value than SIPP. where should I add my one-off payment, to the main workplace pension or the SIPP4. Im confused on the bank interest element. Apparently bank interest needs to be included in adjusted net pay but as a higher rate income tax payer, do I not have a £500.00 interest personal allowance...unless I'm confusing two different allowances5. Finally, could someone help on the calculation for how much should I add to the pension/SIPP, this is subject to responses for #1 & #4 above
Thanks0 -
1. A mix of both. 20% from the pension company and 40% on some from HMRC.
2. Do you already complete Self Assessment returns? Also, you will only confuse yourself thinking about the personal tax saving, it benefits you does not get added to your pension fund. You may wish to use it make another contribution but that is unconnected to the one you are asking about now.
4. There is no allowance for interest. As s higher rate payer you would get £500 which can be taxed at 0%. The interest is still taxable income, even if taxed at 0%, and still forms part of your adjusted net income.
5. Have you already made any pension contributions in 2021:22?
NB. Salary sacrifice leads to employer contributions, that's why there is no pension tax relief added0 -
Dazed_and_C0nfused said:1. A mix of both. 20% from the pension company and 40% on some from HMRC.
2. Do you already complete Self Assessment returns? Also, you will only confuse yourself thinking about the personal tax saving, it benefits you does not get added to your pension fund. You may wish to use it make another contribution but that is unconnected to the one you are asking about now.
4. There is no allowance for interest. As s higher rate payer you would get £500 which can be taxed at 0%. The interest is still taxable income, even if taxed at 0%, and still forms part of your adjusted net income.
5. Have you already made any pension contributions in 2021:22?
NB. Salary sacrifice leads to employer contributions, that's why there is no pension tax relief added
responses below:
- I have never completed SA, but am considering registering for 21-22 tax year as wife received Child Benefit (Dec21, Jan-Mar22) and am trying to avoid HICBC or if it becomes too onerous to avoid it will just ask to pay it so it's out of the way and doesn't impact my tax code for 22-23
- re. Interest and adj net income, think that makes sense- I have not made any pension contributions in 2021-22, only Salary sacrificed via my employer pension so assume that means I haven't contributed anything. On the basis I usually salary sac only for pension (and don't actually contribute anything), do you think making a one-off pension payment makes things 'messy' and should be avoided?0 -
and am trying to avoid HICBC or if it becomes too onerous to avoid it will just ask to pay it so it's out of the way and doesn't impact my tax code for 22-23
Any HICBC due for 2021:22 wouldn't impact your 2022:23 tax code.
HICBC liability is determined from a Self Assessment return and for 2021:22 there would be two outcomes if you owed something. You either pay it direct to HMRC by 31 January 2023. Or it is collected via an adjustment to your 2023:24 tax code, not the 2022:23 tax code.
do you think making a one-off pension payment makes things 'messy' and should be avoided?No. It is extremely tax efficient and gives you a bit more pension in years to come.
If your taxable income is £54,078 you could make a pension contribution of £4,000 to bring your adjusted net income down to below £50,100 (the point where HICBC actually starts to be charged).
This involves you paying £3,200 and the pension company will add £800 in basic rate tax relief making a gross contribution of £4,000.
As a result you will avoid paying back 40% (based on ANI of £54,078) of the Child Benefit for 2021:22. Saving maybe £100-150.
And your basic rate band will be increased from £50,270 to £54,270 so you will avoid paying any higher rate tax. This could save you nearly £700 (if you have a tax code of 1257L you will have paid 40% tax on £3,463 of your earnings and that will now be taxed at 20% instead).
So the real net cost of you £4,000 pension fund is less than £2,500 (£3,200 actually paid less HICBC avoided and higher rate tax relief you will personally benefit from).
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DandC thanks again, really appreciate the breakdown....I struggle with understanding tax but your post above has helped to join the dots.
So I think my next steps are as follows:
1. I needed to decide which pension to make the payment into, am veering towards my SIPP (Fidelity) as it's the smaller pension rather than my work scheme (SL). SL have stated the following: please note payments will be paid gross and you will be responsible for claiming any tax relief via the HMRC
I need to check the same with Fidelity but do any SIPP providers reclaim the tax relief from HMRC directly or is it dependent on SA?
2. I will register for SA and then complete as applicable3. Is 'cashback' from my current account provider regarded as bank interest for purposes of ANI calculation? E.g: cashback received for paying utility bills by dd
My tax code was 1288L but this was just for WFH so assume it reverts to standard tax code for April22 onwards as govt is scrapping it I believe.0
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