Child benefit tax charge - Does your Co Car count as income?
Discussion
Yes.
You'd need to salary sacrifice the BIK value in addition to the £5k you are already doing, to get the overall taxable income down to £50k, or you're going to face a substantial effective marginal tax rate on the £50-60k income bracket.
Fag packet calc says if you have 2 kids you'd only benefit £3k net out of the £7k so effective tax rate approx 57%
You'd need to salary sacrifice the BIK value in addition to the £5k you are already doing, to get the overall taxable income down to £50k, or you're going to face a substantial effective marginal tax rate on the £50-60k income bracket.
Fag packet calc says if you have 2 kids you'd only benefit £3k net out of the £7k so effective tax rate approx 57%
2 kids equates to £35/week call it £1820 a year
£57k income gives rise to a tax charge equivalent to 70% of the child benefit as it is removed proportionally between £50k (0% repaid) and £60k (100% repaid), call it £1275
Income tax on the £7k is £2800
Therefore the OP is looking at ~ £4075 in tax / charges on the surplus £7k income
If the employer contributes the employers NICs when salary sacrificing then the advantage of doing so would be even greater.
£57k income gives rise to a tax charge equivalent to 70% of the child benefit as it is removed proportionally between £50k (0% repaid) and £60k (100% repaid), call it £1275
Income tax on the £7k is £2800
Therefore the OP is looking at ~ £4075 in tax / charges on the surplus £7k income
If the employer contributes the employers NICs when salary sacrificing then the advantage of doing so would be even greater.
FreeLitres said:
Regarding salary sacrifice, it appears that the employer does not add the tax relief to the pot like my previous employer did.
Can I somehow claim that relief back?
It sounds like;Can I somehow claim that relief back?
Your old pension was non-salary sacrifice, contributions taken net after tax and NI is deducted. The pension company add 20% tax relief to your pension pot. If you are a 40% tax payer you can claim the other 20% relief back on a self assessment or by contacting the HMRC.
If your new pension is salary sacrifice, contributions are deducted gross before tax and NI are calculated so you get all of the tax relief on your payslip. Advantage of this is you also save NI.
FreeLitres said:
It looks like I'm going to have to complete a tax return.
How much of a hassle is this? Is it just a case of entering a few numbers from your p60 or does it involve lots of digging around?
Also, will they start asking for information from 2, 3, 4 years ago?
It is pretty simple, assuming you just have PAYE P60 in place. If you have BTL or other income it can get more tricky. It is just a bit of a faff.How much of a hassle is this? Is it just a case of entering a few numbers from your p60 or does it involve lots of digging around?
Also, will they start asking for information from 2, 3, 4 years ago?
IME they did not ask about previous years either.
Interesting figures here on the amount of tax that would be paid, have I got this correct?
Say I where to take a promotion from £50k up to £60k and I have two children under the age of 18:
Child Benefit Loss £1820
Income Tax £4000
New NI contribution @ 3.25% £325
£6145 deducted = 61.5% tax
You could argue its not worth bothering with the extra responsibility.
Say I where to take a promotion from £50k up to £60k and I have two children under the age of 18:
Child Benefit Loss £1820
Income Tax £4000
New NI contribution @ 3.25% £325
£6145 deducted = 61.5% tax
You could argue its not worth bothering with the extra responsibility.
MElliottUK said:
Interesting figures here on the amount of tax that would be paid, have I got this correct?
Say I where to take a promotion from £50k up to £60k and I have two children under the age of 18:
Child Benefit Loss £1820
Income Tax £4000
New NI contribution @ 3.25% £325
£6145 deducted = 61.5% tax
You could argue its not worth bothering with the extra responsibility.
It is - but only if yoi pension the whole £10k instead of trousering the mere £3.8k now - deferred gratification! Take advantage of it whilst you still can.Say I where to take a promotion from £50k up to £60k and I have two children under the age of 18:
Child Benefit Loss £1820
Income Tax £4000
New NI contribution @ 3.25% £325
£6145 deducted = 61.5% tax
You could argue its not worth bothering with the extra responsibility.
Is this what most "high earners" do? Spam most of their earnings into pensions to avoid getting ravaged by the tax man?
I don't get it. When you see these big spenders with the multiple nice new cars and big new build houses and flash suits, are they taking home as much cash as they can from work and letting the tax man just help himself?
It's like the system is geared up for you having a maximum income of £50k before they make it uneconomical to take home any more.
I don't get it. When you see these big spenders with the multiple nice new cars and big new build houses and flash suits, are they taking home as much cash as they can from work and letting the tax man just help himself?
It's like the system is geared up for you having a maximum income of £50k before they make it uneconomical to take home any more.
Edited by FreeLitres on Wednesday 8th September 09:55
Mikee19 said:
FreeLitres said:
Regarding salary sacrifice, it appears that the employer does not add the tax relief to the pot like my previous employer did.
Can I somehow claim that relief back?
It sounds like;Can I somehow claim that relief back?
Your old pension was non-salary sacrifice, contributions taken net after tax and NI is deducted. The pension company add 20% tax relief to your pension pot. If you are a 40% tax payer you can claim the other 20% relief back on a self assessment or by contacting the HMRC.
If your new pension is salary sacrifice, contributions are deducted gross before tax and NI are calculated so you get all of the tax relief on your payslip. Advantage of this is you also save NI.
The old company was a true salary sacrifice pension.
My current company is just a regular pension paid into after tax. I'm told the pension company claims 20% and adds it to the pension. I can claim an additional 20% but have to do this through the tax self assessment. Does that sound right?
FreeLitres said:
Is this what most "high earners" do? Spam most of their earnings into pensions to avoid getting ravaged by the tax man?
I don't get it. When you see these big spenders with the multiple nice new cars and big new build houses and flash suits, are they taking home as much cash as they can from work and letting the tax man just help himself?
It's like the system is geared up for you having a maximum income of £50k before they make it uneconomical to take home any more.
I don't get it either, its probably credit or these people are nearer the £100K mark where is makes more sense to take a step forward.I don't get it. When you see these big spenders with the multiple nice new cars and big new build houses and flash suits, are they taking home as much cash as they can from work and letting the tax man just help himself?
It's like the system is geared up for you having a maximum income of £50k before they make it uneconomical to take home any more.
Edited by FreeLitres on Wednesday 8th September 09:55
For example accepting a pay raise which puts you between £50-£60k doesn't make much sense especially if you have kids.
FreeLitres said:
Mikee19 said:
FreeLitres said:
Regarding salary sacrifice, it appears that the employer does not add the tax relief to the pot like my previous employer did.
Can I somehow claim that relief back?
It sounds like;Can I somehow claim that relief back?
Your old pension was non-salary sacrifice, contributions taken net after tax and NI is deducted. The pension company add 20% tax relief to your pension pot. If you are a 40% tax payer you can claim the other 20% relief back on a self assessment or by contacting the HMRC.
If your new pension is salary sacrifice, contributions are deducted gross before tax and NI are calculated so you get all of the tax relief on your payslip. Advantage of this is you also save NI.
The old company was a true salary sacrifice pension.
My current company is just a regular pension paid into after tax. I'm told the pension company claims 20% and adds it to the pension. I can claim an additional 20% but have to do this through the tax self assessment. Does that sound right?
To claim the extra 20% you will need to complete a self assessment.
https://www.gov.uk/tax-on-your-private-pension/pen...
(When you have to claim tax relief paragraph)
I guess the HMRC do this in the hope people either don't know about it or can't be bothered to complete the form but its free money back!
FreeLitres said:
Is this what most "high earners" do? Spam most of their earnings into pensions to avoid getting ravaged by the tax man?
I don't get it. When you see these big spenders with the multiple nice new cars and big new build houses and flash suits, are they taking home as much cash as they can from work and letting the tax man just help himself?
It's like the system is geared up for you having a maximum income of £50k before they make it uneconomical to take home any more.
Entrepreneurs relief was recently capped to a lifetime allowance I think. As many people would just let the company reserves builf up and then close the company down.I don't get it. When you see these big spenders with the multiple nice new cars and big new build houses and flash suits, are they taking home as much cash as they can from work and letting the tax man just help himself?
It's like the system is geared up for you having a maximum income of £50k before they make it uneconomical to take home any more.
Edited by FreeLitres on Wednesday 8th September 09:55
Also a lot of people spend too much to take £50k, kids private school fees plus 2 seven seater suvs on lease, plus a posh gym membership and so on.
hepy said:
hyphen said:
Child maintenance, not child benefit.And yes, bik will count. So get an ev or something low bik.
Child maintenance is a joke- no controls over how the receiving parent chooses to spend it (or not spend it).
You want to control how the parent spend their money?Child maintenance is a joke- no controls over how the receiving parent chooses to spend it (or not spend it).
My ex put my kids in charity shop well worn school shoes, she earns a large salary in her own right and just sees the child maintenance as an addition to her income. Spending least possible on kids.
If a payment was broken down to actual kids needs, rather than an made up percentage of gross income, then it would be well designed. But it's not and there are no controls or checks.
Remove the financial incentives and then see how many females are less keen on being the primary parent.
Edited by hyphen on Wednesday 8th September 12:16
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