Child Benifit - Based on Salary or Take home?

TractorFactor

I think it's child benefit...
The one that's about £90 a month.

How is the threshold of £50k a year worked out?

I may be moving to a job that is over the £50k a year but it's close to it, so in order to save being taxed at 40% and hopefully allow us to continue receiving the tax credit, I plan to put more into my pension.

But if the calculation is done on my salary, it would be pointless in doing that.

Pension deductions come out before tax.

Thank you and sorry if my terminology is wrong.

EDIT: If explaining, please do so as if I'm a 5 year old as I don't know anything abiut this stuff. 

Dazed_and_C0nfused

Do you mean Child Benefit and the High Income Child Benefit Charge.

If so neither salary or take home pay has any relevance.

It is based on adjusted net income.  Which for a lot of people is all taxable income (including income like interest at dividends which might be taxed at 0%) less any Gift Aid contributions.

You can sometimes deduct pension contributions but you need to know which method is used to get money into the pension,

Relief at source (can be deducted)
Net pay (cannot be deducted)
Salary sacrifice (cannot be deducted)

TractorFactor

Dazed_and_C0nfused said:

If so neither salary or take home pay has any relevance.

It is based on adjusted net income.  Which for a lot of people is all taxable income (including income like interest at dividends which might be taxed at 0%) less any Gift Aid contributions.

You can sometimes deduct pension contributions but you need to know which method is used to get money into the pension,

Relief at source (can be deducted)
Net pay (cannot be deducted)
Salary sacrifice (cannot be deducted)

Sorry, you've lost me here... I don't know what that means.

But yes, it's child benefit, I've edited my post to reflect this now.

I thought if one person in the couple earned over £50k, then you'd lose it?

sheramber

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

What counts as income

To work out if your income is over the threshold, you’ll need to work out your ‘adjusted net income’.

Your adjusted net income is your total taxable income before any allowances and not including things like Gift Aid. Your total taxable income includes interest from savings and dividends.

Use the Child Benefit tax calculator to get an estimate of your adjusted net income.

Dazed_and_C0nfused

TractorFactor said:

Dazed_and_C0nfused said:

If so neither salary or take home pay has any relevance.

It is based on adjusted net income.  Which for a lot of people is all taxable income (including income like interest at dividends which might be taxed at 0%) less any Gift Aid contributions.

You can sometimes deduct pension contributions but you need to know which method is used to get money into the pension,

Relief at source (can be deducted)
Net pay (cannot be deducted)
Salary sacrifice (cannot be deducted)

Sorry, you've lost me here... I don't know what that means.

But yes, it's child benefit, I've edited my post to reflect this now.

I thought if one person in the couple earned over £50k, then you'd lose it?

No, don't know where you've heard that but it's wrong.

You can always get Child Benefit, your income doesn't prevent that.

But if your adjusted net income is £50,100 or more you have to pay some of all of it back.

Once your adjusted net income hits £60k you have to pay it all back.

But it's still cashflow advantage in your (households) favour.

TractorFactor

Well, the calculator says this:

The child benefit received is £2,901.60.

Use this figure in your 2023 to 2024 Self Assessment tax return (if you fill one in).

Tax charge to pay

The estimated tax charge to pay is £870.00.

This is an estimate based on your adjusted net income of £53,000.00 - your circumstances may change before the end of the tax year.

Does that mean I have to pay £870 to get £2900 in benefit?
And how do I pay this back?

I have used estimated figures so not entirely sure yet.

A third question is if the role I am in pays £20k a year but I regularly step up to another role that is salaried at £60k a year (and get paid the difference between the two salaries), does this count as a "bonus"?

Dazed_and_C0nfused

TractorFactor said:

Well, the calculator says this:

The child benefit received is £2,901.60.

Use this figure in your 2023 to 2024 Self Assessment tax return (if you fill one in).

Tax charge to pay

The estimated tax charge to pay is £870.00.

This is an estimate based on your adjusted net income of £53,000.00 - your circumstances may change before the end of the tax year.

Does that mean I have to pay £870 to get £2900 in benefit?
And how do I pay this back?

I have used estimated figures so not entirely sure yet.

A third question is if the role I am in pays £20k a year but I regularly step up to another role that is salaried at £60k a year (and get paid the difference between the two salaries), does this count as a "bonus"?

At the moment there is only one way you can finalise any High Income Child Benefit Charge and that is registering for Self Assessment and completing a tax return.

You don't have to pay anything upfront to get the Child Benefit in the first place.

But if your adjusted net income is £50,100 or more you will eventually have a HICBC charge for that year.

Whether it's a "bonus" or not is irrelevant.  It's your taxable income, which forms the basis of adjusted net income, that counts.  If you are paid extra that will increase taxable income and also your adjusted net income.

TractorFactor

Wait a minute!

This is based on net - so take home pay, right?
That means if I was on £50,100 then I wouldn't need to worry as I'd be taxed on that ~£50k so my net pay wouldn't reach that anyway.

Is that right? 

Dazed_and_C0nfused

TractorFactor said:

Wait a minute!

This is based on net - so take home pay, right?
That means if I was on £50,100 then I wouldn't need to worry as I'd be taxed on that ~£50k so my net pay wouldn't reach that anyway.

Is that right? 

No, totally wrong.

The High Income Child Benefit Charge is based on adjusted net income.

Which for a lot of people will be taxable pay (the amount shown on your P60) plus any interest or dividend income.  And sometimes* pension contributions can be deducted.

*they are often deducted when arriving at your taxable pay so cannot be deducted again if that's the case.  For example salary £55k less net pay pension contributions of £4k = taxable pay of £51k

Alice_Holt

TractorFactor said:

Wait a minute!

This is based on net - so take home pay, right?
That means if I was on £50,100 then I wouldn't need to worry as I'd be taxed on that ~£50k so my net pay wouldn't reach that anyway.

Is that right? 

   No - have another careful read of the information you have been given, and the link below.  

   It's based on your ‘adjusted net income’.

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

Here is an example:

  " Clara - High Income Child Benefit charge

Clara’s total taxable income is £60,000, made up of:

• income from employment £55,000
• bank interest £5,000

Clara makes private pension contributions without tax relief of £4,750.

Her net income is £55,250 (£60,000 less £4,750).

Clara makes Gift Aid donations of £1,000. She can take £1,250 off her net income, £1,000 plus £250, the value of the basic rate tax.

Clara’s adjusted net income is £54,000 (£55,250 less £1,250).

Clara’s adjusted net income is used to work out her High Income Child Benefit Charge. "



Adjusted net income is not equal to take home pay, as D & C clearly explained in their first post of your thread.

 

TractorFactor

Hmm.

Well, dividends don't affect me as I don't get any.

Gift Aid doesn't really affect me as I don't gift any money (regularly) at the moment.

Interest income?  So I have to calculate the interest I get from my Chase account (for example?).
I am putting some money into the 7% First Direct savings account, does that count?  I don't know what the interest is on that as it'll be paid at the 12 month mark of account opening, so at the moment, it's zero.

The limit of my knowledge about this is that I get paid and on my payslip shows an ever growing amount I get taxed.  I understand I can earn about £12,000 before being taxed.

So if my pension (and a special pension I make extra payments to) comes out on the left hand side of my payslip (IE, before tax), then I can't discount this again when it comes to looking at adjusted net income?

If not, then I guess my adjusted net income is just my salary as is?