Does Child Benefit received count towards Adjusted Net Income for Tax-Free-Childcare?

CrackleNpop

Hello,

I earn marginally over the £100k threshold for Tax-Free Childcare and so plan to make an additional pension contribution to bring myself under the £100k.

I've started with https://www.gov.uk/guidance/adjusted-net-income but I am unsure how to treat Child Benefit.

I know that as I earn over £80,000 I'll end up paying all of it back, my question is if when calculating my Adjusted Net Income for Tax-Free-Childcare do I:

a) Not include the value of Child Benefit as 100% of what I receive is ultimately paid back i.e. nets to zero,
b) Not include the value of Child Benefit as its not in scope for Adjusted Net Income,
c) Include it, and then in effect I need to both pay it back AND increase my pension contribution

sheramber

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

CrackleNpop

What was the point of sharing that hyperlink, as it is the same hyperlink I included in my original question, thus demonstrating that I was aware of it - and that I could not find the answer to the question?
The webpage says "some state benefits" which gives me no clarity on whether  Child Benefit is one or not.

Also if I approach it as "taxable" state benefits, Child Benefit is not taxable per se, i.e not included in NI or PAYE calc. 

This is not a simple "just google it !!!!!!" which is how your post reads. 

Adjusted Net Income is used not only to calc eligibility for Tax Free Childcare, but also for Child Benefit. It would seem very wrong to me if the amount of Child Benefit received was used to calculate whether someone was over the threshold for Child Benefit.

TheSpectator

The answer to your question is no

CrackleNpop

Thank you for your answer. I am frustrated and confused by an ambiguity in the wording of the HMRC guidelines on Tax Free and Taxable State Benefits (Link: https://www.gov.uk/income-tax/taxfree-and-taxable-state-benefits)  that says says both that Child Benefit is not taxable, but in the same sentence that it is taxable based on income.

While I take some comfort in your answer, and value its succinctness, I want to be sure I understand why (as I will have a large bill if wrong).

I think the answer is:  

Section 677 of ITEPA 2003 (Table b) confirms that Child Benefit itself is exempt from income tax. This means it does not form part of taxable income.

The normal rates of income tax (i.e. 20%, 40% or 45%) are applied to Net Income in Section 23 step 4 of ITA 2023, and not applied to Child Benefit. 

Instead the "high income child benefit charge" is applied in Step 7. So while HICBC it is a "charge to income tax", the Child Benefit itself is not "income on which the taxpayer is charged to income tax".

sheramber

HIBC  calculation is based on your adjusted net income but it is not charged to Income Tax.  

You won’t find it taxed at 20% , 40 % etc.

It is Higher Income Benefit Charge . 

What happens is you repay any or all of the payments you received, depending on your  adjusted net income. 

Not all tax is Income Tax. 

ANIhelp2024

Hi I would be very interested in the conclusion you have come to regarding counting child benefit towards the adjusted net income. I am in a similar position to you and have found the advice conflicting. 

TheSpectator

ANIhelp2024 said:

Hi I would be very interested in the conclusion you have come to regarding counting child benefit towards the adjusted net income. I am in a similar position to you and have found the advice conflicting. 

There should be no conflicting advice, as per your other thread child benefit isn't included in calculating adjusted net income