Child Benefit / Self Employed Tax Allowance / Getting Stung
Discussion
It would only be in the financial year that you earned over £50k that they might claw it back.......if you didn't earn over £50k in previous years then those years are not an issue.
Also, it's a on a sliding scale up to £60k, where they claw 100% of it back.........so if you only just go over then it's clawed back pro-rata........
Also, it's a on a sliding scale up to £60k, where they claw 100% of it back.........so if you only just go over then it's clawed back pro-rata........
anonymous said:
[redacted]
I'm going to say some of your colleagues may not have been entirely altruistic when making those suggestions!You will only see a pro-rata loss of CB for the financial year in which your total income exceeds £50k right up to 100% loss at £60k
Even then you will only be paying a net effective tax rate of 57% on the income between those bands so still worth doing the OT. I'm aware only is a relative term there but that's the way it goes.
Don't forget that pension contributions and various other salary sacrifice scheme may reduce your income back below the thresholds
Butter Face said:
As sarnie says, it’s 10% to be paid back for every £1k over £50k you go each year. If you haven’t gone over before then you needn’t worry.
This isn't my territory but I'm interested in the concept as the subject comes up on here from time to time. So,- If you earn £51k they claw back 10%. How much is that likely to be in cash money?
- If you earn £60k they claw it all back. How much is that likely to be in cash money?
£1,076 p.a. for a first child, and
£712 p.a. for each and any subsequent child.
So the "cost" of earning an extra £1,000 looks to be £107 (plus £71 for each subsequent child).
However, with the 40% income tax threshold now set at £50k there's an additional 20% income tax at the same time the child benefit is withdrawing.
Slice of pay from £49k to £50k - taxed at 20% - net spendable £800
Slice of pay from £50k to £51k - taxed at 40% and lose £100 child benefit - net spendable £500
Is this the way that it works?
There is an online calculator https://www.gov.uk/child-benefit-tax-calculator
Note for OP: Depending on your disposable income it looks as though you could make some very tax efficient pension contributions. Again, it's not my specific territory but getting £1,000 of investments for a "cost" of £500 might be tempting...
If you know that you have to pay back some (if not all) of the Child Benefit at a later date through the Self Assessment system, the best option is to put the expected repayment amount to one side so that you have it available when the time comes to repay it.
One of the stings though is that, when an annual Self Assessment payment exceeds £1,000, HMRC expects the taxpayer to make Payments on Account for the following tax year. It doesn't matter if the amount exceeding £1,000 relates to a bona fide tax bill or a repayment of Child Benefit, Payments on Account will be payable. That has caught quite a few people out.
As has been mentioned above, it is possible to get a taxable income amount below the magic £50,000 - £60,000 band by making lump sum pension contribution or by increased regular pension contributions or by entering a salary sacrifice scheme.
One of the stings though is that, when an annual Self Assessment payment exceeds £1,000, HMRC expects the taxpayer to make Payments on Account for the following tax year. It doesn't matter if the amount exceeding £1,000 relates to a bona fide tax bill or a repayment of Child Benefit, Payments on Account will be payable. That has caught quite a few people out.
As has been mentioned above, it is possible to get a taxable income amount below the magic £50,000 - £60,000 band by making lump sum pension contribution or by increased regular pension contributions or by entering a salary sacrifice scheme.
You lose £187.88 for each £1,000 of earnings over £50,000 (based upon 2 children).
This gives you an effective tax rate of 57.888% (40% + £187.88 per £1,000) on earnings between £50,000 and £60,000 meaning you take home £421.12 after tax (this does not include any national insurance contributions) per £1,000 earned between these brackets.
So every £1,000 of gross income between £50,000 and £60,000 placed into your pension gets an immediate tax uplift of 137.46% (£578.88 profit) - a fantastic result.
Obviously someone earning £60,000 would be benifiting by £5,788.80 a year, so this is a very sweet spot for pension /SIPP contributions.
Just to add, as others have already said, you will not be hit with any retrospective penalties for previous years when you were earning under the threshold.
This gives you an effective tax rate of 57.888% (40% + £187.88 per £1,000) on earnings between £50,000 and £60,000 meaning you take home £421.12 after tax (this does not include any national insurance contributions) per £1,000 earned between these brackets.
So every £1,000 of gross income between £50,000 and £60,000 placed into your pension gets an immediate tax uplift of 137.46% (£578.88 profit) - a fantastic result.
Obviously someone earning £60,000 would be benifiting by £5,788.80 a year, so this is a very sweet spot for pension /SIPP contributions.
Just to add, as others have already said, you will not be hit with any retrospective penalties for previous years when you were earning under the threshold.
anonymous said:
[redacted]
As previously only one person can claim, no 'we' about it. You are getting the right amount thoughEdited to add, sorry that was a bit blunt. The claim can only be in an individual’s name, not joint. By the way you have described your circumstances this should be your partners so that they are still gaining NI credits whilst on low/nil income
Edited by mfmman on Monday 30th September 12:56
It's more to do with the number of hours worked not the amount of pay I think, IIRC less than 16 hours per week does not qualify her for NI credit to maintain a full state pension (might not have the wording criteria quite correct so do check) but claiming child benefit qualifies her that way instead.
anonymous said:
[redacted]
You can open a separate private pension and put the £1,000 into this (you pay in £800, the pension provider recalims the £200 basic rate tax and you reclaim the £200 higher rate tax bck yourself).This pension contribution means you income is reduced by this amount for Child Benefit purposes and so you remain entitled to it in full.
So you get a double hit with the 40% tax relief on your pension contribution and no reduction in Child Benefit.
The "payment on Account" system is an integral part of Self Assessment.
When you complete a Self Assessment tax return, you will (most likely) come up with a tax liability showing how much tax you need to pay. If you do calculate a tax liability, you will need to pay it on the following 31 January. For instance, if you complete your 2018/19 tax return and calculate that you have a liability of (say) £550, you pay that £550 on or near 31 January 2020. That is all you need to do regarding payment.
However, if you completed the 2018/19 tax return and find that you have liability to pay of £1,100, you will pay that £1,100 on 31 January 2020. However,because the liability exceeds £1,000, in most cases, HMRC will also ask you to make two Payments on Account in respect of tax year 2019/20. These would be set at £550 each - payable on 31 January 2020 and 31 July 2020. This means, of course, that the amount payable on 31 January is not just £1,100, but £1,650 £1,100 plus £550).
The Payments on Account can be reduced if appropriate or can be eliminated entirely if the actual 2018/19 self assessment liability makes up less than 80% of your overall tax liabilities.
When you complete a Self Assessment tax return, you will (most likely) come up with a tax liability showing how much tax you need to pay. If you do calculate a tax liability, you will need to pay it on the following 31 January. For instance, if you complete your 2018/19 tax return and calculate that you have a liability of (say) £550, you pay that £550 on or near 31 January 2020. That is all you need to do regarding payment.
However, if you completed the 2018/19 tax return and find that you have liability to pay of £1,100, you will pay that £1,100 on 31 January 2020. However,because the liability exceeds £1,000, in most cases, HMRC will also ask you to make two Payments on Account in respect of tax year 2019/20. These would be set at £550 each - payable on 31 January 2020 and 31 July 2020. This means, of course, that the amount payable on 31 January is not just £1,100, but £1,650 £1,100 plus £550).
The Payments on Account can be reduced if appropriate or can be eliminated entirely if the actual 2018/19 self assessment liability makes up less than 80% of your overall tax liabilities.
Eric Mc said:
However, if you completed the 2018/19 tax return and find that you have liability to pay of £1,100, you will pay that £1,100 on 31 January 2020. However,because the liability exceeds £1,000, in most cases, HMRC will also ask you to make two Payments on Account in respect of tax year 2019/20. These would be set at £550 each - payable on 31 January 2020 and 31 July 2020. This means, of course, that the amount payable on 31 January is not just £1,100, but £1,650 £1,100 plus £550).
Eric, apologies for the slight diversion, but in the past I've had to make larger payments (£5,000 for the 2014/5 year if I remember correctly) but haven't come across Payments on Account. Is this only relevant for the self-employed (I'm on PAYE)?You may have been exempted from Payments on Account under the 80% rule.
If you had a self assessment tax bill to pay of (say) £5,000, then you would normally be expected to make two Payments on Account for the next tax year of £2,500 each.
However, if that £5,000 bill was less than 20% of your overall tax liability for the year and 80% or more of your tax liability had already been paid through deductions (such as PAYE or CIS tax), then you would not be required to make any Payments on Account.
There are a few occasions other than that when Payments on Account are not required. For example, if a large Self Assessment tax bill was mainly due to a one off Capital Gains Tax liability in the tax year, then no Payments on Account would be required in respect of the following tax year either.
You can also reduce Payments on Account if you know that the self assessment tax liability for the following year is going to be lower. You can reduce the Payments on Account all the way to Zero if it is appropriate.
However, if you reduce Payments on Account to too low a level, HMRC will charge interest on the difference between what had been paid as the Payments on Account and what SHOULD have been paid.
If you had a self assessment tax bill to pay of (say) £5,000, then you would normally be expected to make two Payments on Account for the next tax year of £2,500 each.
However, if that £5,000 bill was less than 20% of your overall tax liability for the year and 80% or more of your tax liability had already been paid through deductions (such as PAYE or CIS tax), then you would not be required to make any Payments on Account.
There are a few occasions other than that when Payments on Account are not required. For example, if a large Self Assessment tax bill was mainly due to a one off Capital Gains Tax liability in the tax year, then no Payments on Account would be required in respect of the following tax year either.
You can also reduce Payments on Account if you know that the self assessment tax liability for the following year is going to be lower. You can reduce the Payments on Account all the way to Zero if it is appropriate.
However, if you reduce Payments on Account to too low a level, HMRC will charge interest on the difference between what had been paid as the Payments on Account and what SHOULD have been paid.
rockin said:
There is an online calculator https://www.gov.uk/child-benefit-tax-calculator
My understanding is that the £50k limit is based on your salary less any deductions before tax. Is this correct?I.e. if your annual salary is above 50k but you have a salary sacrifice pension deduction that comes out before tax each month (that drops the pre-tax pay to below 50k annual) then you don't have to worry about paying extra tax or paying more into a pension (or similar) to drop below the threshold again?
KTF said:
My understanding is that the £50k limit is based on your salary less any deductions before tax. Is this correct?
I.e. if your annual salary is above 50k but you have a salary sacrifice pension deduction that comes out before tax each month (that drops the pre-tax pay to below 50k annual) then you don't have to worry about paying extra tax or paying more into a pension (or similar) to drop below the threshold again?
Hi mate, that is true, but any pension contribution made from taxed income (and the tax relief generated by this contribution) also count towards this reduction in your taxable income.I.e. if your annual salary is above 50k but you have a salary sacrifice pension deduction that comes out before tax each month (that drops the pre-tax pay to below 50k annual) then you don't have to worry about paying extra tax or paying more into a pension (or similar) to drop below the threshold again?
JulianPH said:
Hi mate, that is true, but any pension contribution made from taxed income (and the tax relief generated by this contribution) also count towards this reduction in your taxable income.
That was also my understanding based on playing with the calculator. If the pension contribution is taken out after tax then it counts towards the total where a pension contribution taken out before tax does not count.In my situation the pension contribution is taken out before tax, which doesn't count, so drops me below the threshold.
Aside from not realising about this 'issue', it wouldn't take much of a change in circumstance (a bonus or similar) to push me over the threshold even after the pension deduction so will have to keep an eye on this.
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