Higher Income Child Benefit Tax

Amy103

My husband has a new job and now earns over £50k so I understand we will have to pay the higher income tax. I am just trying to work out how much we pay it on, as I understand this goes on your net adjusted income. When calculating the net adjusted income, do you have to take into consideration any employer pension contributions? (E.g. if they contribute 10% on a 55k salary, would that make the net adjusted income £60,500?)And if I am deducting his pension contributions, how do I do this e.g. if he earnt 55,000 and contributes 5% would I just deduct £2500 from his salary to get his net adjusted income? 
So confused and we don't want a bill at the end of the year which we have accounted for! I tried ringing HMRC but they weren't much use. 

superbigal

Ignore Employer Pension contributions.   
Yes you deduct his pension contributions to get his total taxable salary.
If your aim is to avoid losing child Benefit then simply ensure His own pension contributions take his total taxable Salary below 50K.  Possibly via an extra salary exchange/sacrifice for more pension contributions.
The same applies if you do want to avoid 40% Income Tax as that threshold is just over 50K in England.

Amy103

Thank you for your response. So do I work it out how I explained above? His pension is taken off before tax and NI. So would I simply deduct the % he pays into his pension, from his gross salary? 

Dazed_and_C0nfused

You need to understand which method is used to contribute,

Net pay

Relief at source

Salary sacrifice

Post that and a better explanation will be forthcoming.

Amy103

I believe its net pay. Its a local government pension and payments are made before tax and ni are deducted. 
Thanks 

Dazed_and_C0nfused

Net pay is where the contributions are deducted before tax but not NI.

For example salary £50,000 with 10% net pay contributions =
Taxable pay £45,000
NIC'ble pay £50,000

You cannot deduct these pension contributions for High Income Child Benefit Charge purposes as they have already been deducted when arriving at the taxable pay amount shown on the P60.

If you deducted them they would be double counted.

Amy103

Ahh right, I think I understand it better now. So can you only deduct pensions that are paid relief at source? 

Amy103

The is from the government website. Does this not mean deduct the pension contributions if they are net pay? 
 -----‐-----------

Add up your taxable income. This includes things like:

• your salary before tax (with pension contributions under net pay arrangements deducted)

daveyjp

If he has the option look into AVCs and see if his employer offers them through salary sacrifice.

In the meantime if possible save your child benefit into a separate account so it is there to cover any tax due.  You have plenty of time to monitor the situation. 

If his pay on the P60 for 2022/23 is above the threshold you have until January 2024 to submit a tax return. HMRC may make a tax code adjustment for 2023/24 to cover small amounts due, rather than you paying a bill.

Amy103

daveyjp said:

If he has the option look into AVCs and see if his employer offers them through salary sacrifice.

In the meantime if possible save your child benefit into a separate account so it is there to cover any tax due.  You have plenty of time to monitor the situation. 

If his pay on the P60 for 2022/23 is above the threshold you have until January 2024 to submit a tax return. HMRC may make a tax code adjustment for 2023/24 to cover small amounts due, rather than you paying a bill.

Yeah we are going to put it in another account so we know its there if needed. Bit that's interesting to know you have until the following January to pay if there is some tax due. 

It would just be good to know for definite either way. So blooming confusing! 

Dazed_and_C0nfused

Amy103 said:

Ahh right, I think I understand it better now. So can you only deduct pensions that are paid relief at source? 

Yes.  Because other pension contributions are already deducted.

For example salary £60,000 less net pay contributions £6,000 = taxable pay £54,000.

ANI starting point is £54,000

Or salary £60,000 with no net pay (or salary sacrifice) pension contributions = taxable pay £60,000

ANI starting point is £60,000 but if you contribute £6,000 (gross) under a relief at source pension scheme your ANI reduces to £54,000.

Don't forget you need to include any taxable interest or dividends in the ANI calculation.  Even if that income is taxed at one of the 0% tax rates.