Child Benefit Tax Charge

[Hondashark]

Eric Mc said:

It's called "Inflation Creep" and is used by Governments as a tool to increase their tax take without actually having to raise any tax rates. You see it all across the tax system - not just regarding this Child Benefit issue.

I think fiscal drag would be a better term.
The fact that the 40% tax bracket and child benefit level start at the same point makes it twice as bad.

[Hondashark]

LastPoster said:

Hondashark said:

Out of the £10k between £50 and £60k you would be giving £6300 back to the gov or £10k in your pension. I just couldn't facing giving all that up.

Exactly this. The usual posts above of 'just put it into your pension'. The whole point is that the worst affected are the edge cases who are just over the threshold in a single income household. It's an unfair loss of income now, losing more income now to increase it years down the line won't help

I meant I couldn't face giving the £6300 back too the gov just to keep £3700. So it all went into the pension.
We had a 7.5% payrise last year and are still negotiating this year's which should be 8-10% backdated to April so I keep increasing contributions to keep taxable pay under £50k. I've not noticed too much yet thankfully (mainly becasue ive taken a year or 2 out of racing) but it must be having an effect on my family spending power.

[Pit Pony]

LastPoster said:

Hondashark said:

Out of the £10k between £50 and £60k you would be giving £6300 back to the gov or £10k in your pension. I just couldn't facing giving all that up.

Exactly this. The usual posts above of 'just put it into your pension'. The whole point is that the worst affected are the edge cases who are just over the threshold in a single income household. It's an unfair loss of income now, losing more income now to increase it years down the line won't help

Yes, that's true, but you can only play the rules that exist.
You can't change them, unless you are the Chancellor.
So there's a range where if you don't salary sacrifice you end up paying 40% tax, paying NI of what ?,(9%?) And loosing the child benefit.

ABOVE THAT range the effective tax rate is massive. These things should be on a sliding scale based on total household income.

[Eric Mc]

Pit Pony said:

Yes, that's true, but you can only play the rules that exist.
You can't change them, unless you are the Chancellor.
So there's a range where if you don't salary sacrifice you end up paying 40% tax, paying NI of what ?,(9%?) And loosing the child benefit.

ABOVE THAT range the effective tax rate is massive. These things should be on a sliding scale based on total household income.

One major issue about all this is that since 1988, the law in the UK states that individuals should pay tax based on their individual circumstances and income levels, not on their spouse's or partner's.

The Child Benefit clawback contradicts this to some extent as it is based on HOUSEHOLD income rather than the circumstances of the person making the claim.

Be very wary of suggesting any changes to UK Income Tax that try to assess liability based on combining incomes and the circumstances of individuals living in relationships.

[RicksAlfas]

Student grants are based on household income. Despite the fact that when the student was a child, their benefit calculation was based on the above system!

[Jakg]

RicksAlfas said:

Student grants are based on household income. Despite the fact that when the student was a child, their benefit calculation was based on the above system!

And while there's an expectation that a parent would contribute to to the upkeep of an <16 year old, it's not so clear for a university student child - but the student finance calculations expect it just the same.

[RicksAlfas]

Jakg said:

nd while there's an expectation that a parent would contribute to to the upkeep of an <16 year old, it's not so clear for a university student child - but the student finance calculations expect it just the same.

Indeed! They are treated as adults up until filling in the form which says "how much do your parents earn?".

[Eric Mc]

Assessing household income for benefits is one thing, assessing household income for tax purposes is something different. The Child Benefit clawback system blurs that distinction.

[DaveH23]

I've had a letter from HMRC asking me to check if I need to pay.

In the letter HMRC said:

We understand tax can be complex and you may not be aware of this charge, To help you work out if you need to pay it, please see the flowchart on the back of this letter. We hope this makes it easier for you.

I got to step 2 and.....

Seems they run a tight ship over at HMRC.

[duckson]

DaveH23 said:

I got to step 2 and.....

Seems they run a tight ship over at HMRC.

The down arrow from number 2 should say yes and not no.

[The Rotrex Kid]

That's ace

Doesn't make the charge any less palatable though. Just done my SA for mine, my wife gets the money for the children, only works 3 days a week, sometimes I really do despair. It really should be based on joint income.

[Puzzles]

Student loan repayments, child benefit charge, personal allowance and pension tapers. All this plus fiscal drag, tax and NI.

[KTF]

Can I just check how the calculation is worked out as I thought it was based on income after tax?

For example on the P60 my gross is around 63k, tax paid is 13k leaving 50600 net.

I put the P60 figures on the self assessment and the verdict was that I had to pay back the whole years child benefit.

This is fine if it is correct but I thought it would only be a small amount based on the net figure?

Or do they use the gross figure to work it out? If they do then I might as well opt out of getting it.

[Eric Mc]

It's based on GROSS (before tax) income.

[KTF]

I thought as much, thanks. Might as well opt out of getting it then to avoid the tax return each year.

[The Rotrex Kid]

KTF said:

I thought as much, thanks. Might as well opt out of getting it then to avoid the tax return each year.

Probably makes sense unless you have any risk of it dropping below the £60k mark for any reason

[DaveH23]

Eric Mc said:

It's based on GROSS (before tax) income.

Isn't it net adjusted so salary sacrifice lowers the amount?

That was my understanding.

[Defcon5]

Yes it’s taxable income

[WhiskyDisco]

KTF said:

Can I just check how the calculation is worked out as I thought it was based on income after tax?

For example on the P60 my gross is around 63k, tax paid is 13k leaving 50600 net.

I put the P60 figures on the self assessment and the verdict was that I had to pay back the whole years child benefit.

This is fine if it is correct but I thought it would only be a small amount based on the net figure?

Or do they use the gross figure to work it out? If they do then I might as well opt out of getting it.

You should contribute £13,000 into your pension such that your Gross salary before tax and NI is £49,999

[pacenotes]

I expect the threshold to go up on Wednesday.

They need the middle voters next year.