More confusion around Child benefit/High rate tax 9 September 2022 at 11:55AM in Cutting tax 7 replies 233 views

Fu_Man_Chu

Hi, firstly can I say I have read through several threads before posting this question but I'm still confused...

Last year I earned £58k. £45k was my basic, the balance was made up from overtime.

As I approached the £50k mark last year I was made aware that my earnings would start to effect my child benefit (I have three young sons)
After reading up on several articles I understood that it would be my NET income that would decide how much I needed to pay back.
It appears I mistakenly thought that by paying in more to my pension this would raise my allowance.

I then proceeded to work the rest of the years overtime (my company were desperate for me to continue working) but instead of being paid I fed all the overtime in to my personal pension.

I now understand that as this is not a personal pension but a company one I would already receive tax relieve and as such this will not count towards reducing my tax bill.

I'm now left with a £2k tax bill having worked 6 months of overtime for what amounts to no pay.

I'm feeling vey bitter, very stupid and need to check if this is correct? I am still reading conflicting information so if someone could clarify, that would be greatly appreciated

Thanks in advance

 

danthemoneysavingman

If the money went straight into a pension then it would not count toward earnings. (Salary sacrifice I assume?)
Therefore your earnings were not increased by the overtime.

The post (to me) doesn't compute, so more detail/clarity would help you get a useful answer I think!

DtMsM

Troxy

It’s your adjusted net income which is used for HICBC purposes. This link explains how it works and how to calculate it. From what you say, you are probably fine depending on exact figures and will likely need to complete a self assessment 

https://www.gov.uk/guidance/adjusted-net-income

Fu_Man_Chu

I've filled in the self assessment on line and it's telling me I owe £2k.
I'm annoyed. If I'd have taken the "Cash" after tax and then fed it in to a personal pension I'd have got tax relief back and it would have reduced my tax bill from what I understand 

Dazed_and_C0nfused

What method was used to contribute to the pension?

Net pay

Salary sacrifice
Relief at source

Fu_Man_Chu

Dazed_and_C0nfused said:

What method was used to contribute to the pension?

Net pay

Salary sacrifice
Relief at source

I believe its salary sacrifice but have popped HR a message to confirm

Dazed_and_C0nfused

Fu_Man_Chu said:

Dazed_and_C0nfused said:

What method was used to contribute to the pension?

Net pay

Salary sacrifice
Relief at source

I believe its salary sacrifice but have popped HR a message to confirm

You cannot deduct salary sacrifice pension contributions when calculating the amount of High Income Child Benefit Charge.

You didn't pay them, they are employer pension contributions.

The beauty of salary sacrifice is you never have the income in the first place so you avoid paying tax and National Insurance on it.  But that means you cannot deduct them when working out the High Income Child Benefit Charge otherwise you would be double counting them.

For example salary £70,000 with 20% sacrificed = taxable pay of £56,000 and £14,000 employer contribution to your pension scheme.

Your P60 would show £56,000.

I suspect you have got confused somewhere and maybe haven't understood the tax/HICBC implications or earned more than you thought.

Or have made some errors completing your tax return?

danthemoneysavingman

This is the guy. Thanks for your efforts Dazed