Income just over the higher rate tax band and child benefit limit - gift aid the excess?

skipfeeney

Hi,

I received a one off bonus this year which means my adjusted net income is going to be £50,470 (I am PAYE)

I need to lower it to avoid being a higher rate taxpayer and to avoid the higher income child benefit charge. The reason I need to avoid being a higher rate taxpayer is to keep the full amount of Childcare vouchers.

My understanding is the most I can earn without impacting child benefit is 50,099, this is also under the higher tax rate threshold.

Can I just gift aid £371 to sort this issue out and put it down on a tax return? I am planning to donate to a few charities I support and maybe a national trust membership.  Will I get a rebate on the 40% tax I am paying on my PAYE income above the higher rate threshold (I know its only small), and will this make me a lower rate taxpayer by doing so?

Just to add, it is too late for me to add anymore to the workplace pension, I have checked already.

Thanks

Veteransaver

Yes you can, though not sure where you get 50,099 from. I think it is 50k?
You may need to do a self assessment tax return though.
You could also pay the excess into a private pension if it's too late to add to the employer scheme

Dazed_and_C0nfused

Veteransaver said:

Yes you can, though not sure where you get 50,099 from. I think it is 50k?
You may need to do a self assessment tax return though.
You could also pay the excess into a private pension if it's too late to add to the employer scheme

HICBC is charged in 1% increments between £50,000 co until your adjusted net income reaches £50,100 there is no charge to pay.

Gift Aid does reduce your adjusted net income (and increases your basic rate band which could give some higher rate relief).

Don't forget to include any taxable interest or dividend income when calculating your ANI.  Interest and dividends taxed at 0% are still part of your ANI.

[Deleted User]

JamesRobinson48 said:

Assuming there's no taxable interest or dividend income, might it even be sufficient to Gift Aid a cash amount of £297 (as opposed to £371)?   Don't HMRC's workings treat the cash paid as an amount net of 20% income tax to be reclaimed by the charity, such that the gross charitable contribution would be treated as (£297 / 0.8) = £371?  Frankly, might not even £296.01 suffice, given the pence rounding convention on self-assessment returns?  Just asking.

You are correct although, personally, I would give myself a little leeway - say £320 net, £400 grossed up. 

skipfeeney

Veteransaver said:

Yes you can, though not sure where you get 50,099 from. I think it is 50k?
You may need to do a self assessment tax return though.
You could also pay the excess into a private pension if it's too late to add to the employer scheme

Thanks - good point. I have an AVC pension as well. I have read the documents and it looks like you can pay additional payments by cheque.  I will call them up on Monday, I hope it can be processed this financial year. 

skipfeeney

Dazed_and_C0nfused said:

Veteransaver said:

Yes you can, though not sure where you get 50,099 from. I think it is 50k?
You may need to do a self assessment tax return though.
You could also pay the excess into a private pension if it's too late to add to the employer scheme

HICBC is charged in 1% increments between £50,000 co until your adjusted net income reaches £50,100 there is no charge to pay.

Gift Aid does reduce your adjusted net income (and increases your basic rate band which could give some higher rate relief).

Don't forget to include any taxable interest or dividend income when calculating your ANI.  Interest and dividends taxed at 0% are still part of your ANI.

Fair point on the interest I had forgotten about that.  Also just realised I will have to list all interest earned on my tax return won't I?  I have got a few bank accounts earning next to nothing.  Just seems unfair that if you have to submit a tax return purely for HIBC you have to list all taxable interest but if don't claim CB you don't have to submit one just for interest earned? I would be surprised if the interest earned was more than £100 to be honest.

Dazed_and_C0nfused

skipfeeney said:

Dazed_and_C0nfused said:

Veteransaver said:

Yes you can, though not sure where you get 50,099 from. I think it is 50k?
You may need to do a self assessment tax return though.
You could also pay the excess into a private pension if it's too late to add to the employer scheme

HICBC is charged in 1% increments between £50,000 co until your adjusted net income reaches £50,100 there is no charge to pay.

Gift Aid does reduce your adjusted net income (and increases your basic rate band which could give some higher rate relief).

Don't forget to include any taxable interest or dividend income when calculating your ANI.  Interest and dividends taxed at 0% are still part of your ANI.

Fair point on the interest I had forgotten about that.  Also just realised I will have to list all interest earned on my tax return won't I?  I have got a few bank accounts earning next to nothing.  Just seems unfair that if you have to submit a tax return purely for HIBC you have to list all taxable interest but if don't claim CB you don't have to submit one just for interest earned? I would be surprised if the interest earned was more than £100 to be honest.

If you didn't include the interest then how could HMRC calculate the correct HICBC 🤔

You don't list all the accounts, you simply add the total of all taxable interest.  If HMRC dispute the figure you have provided they will open an investigation into your return.

If you don't need to file a return then HMRC will use the data banks and building societies have to send them each year about all interest they have paid and they will include that in calculation of tax overpaid or underpaid.

Veteransaver

Dazed_and_C0nfused said:

Veteransaver said:

Yes you can, though not sure where you get 50,099 from. I think it is 50k?
You may need to do a self assessment tax return though.
You could also pay the excess into a private pension if it's too late to add to the employer scheme

HICBC is charged in 1% increments between £50,000 co until your adjusted net income reaches £50,100 there is no charge to pay.

Gift Aid does reduce your adjusted net income (and increases your basic rate band which could give some higher rate relief).

Don't forget to include any taxable interest or dividend income when calculating your ANI.  Interest and dividends taxed at 0% are still part of your ANI.

Didn't know that about the £100 increments! It's almost like the govt made the whole HICBC as difficult to understand as possible.

Dazed_and_C0nfused

Veteransaver said:

Dazed_and_C0nfused said:

Veteransaver said:

Yes you can, though not sure where you get 50,099 from. I think it is 50k?
You may need to do a self assessment tax return though.
You could also pay the excess into a private pension if it's too late to add to the employer scheme

HICBC is charged in 1% increments between £50,000 co until your adjusted net income reaches £50,100 there is no charge to pay.

Gift Aid does reduce your adjusted net income (and increases your basic rate band which could give some higher rate relief).

Don't forget to include any taxable interest or dividend income when calculating your ANI.  Interest and dividends taxed at 0% are still part of your ANI.

Didn't know that about the £100 increments! It's almost like the govt made the whole HICBC as difficult to understand as possible.

Yeah, it's 1% for each £100 above £50,000.

Once your ANI hits £60,000 that's a 100% charge.

Quite a steep liability overall for larger families once you factor in higher rate tax, 2% National Insurance, possibly Student Loan repayments and HICBC for a few kids 😭

skipfeeney

[Deleted User] said:

JamesRobinson48 said:

Assuming there's no taxable interest or dividend income, might it even be sufficient to Gift Aid a cash amount of £297 (as opposed to £371)?   Don't HMRC's workings treat the cash paid as an amount net of 20% income tax to be reclaimed by the charity, such that the gross charitable contribution would be treated as (£297 / 0.8) = £371?  Frankly, might not even £296.01 suffice, given the pence rounding convention on self-assessment returns?  Just asking.

You are correct although, personally, I would give myself a little leeway - say £320 net, £400 grossed up. 

 Can I just double check...so I give £320 away, do I then put £400 gift aid on the tax return or £320 still?

Jonboy1889

https://www.telegraph.co.uk/money/tax/perverse-child-benefit-tax-rule-families-rates-100-percent/

Hopefully they will be changing the rule!