Higher Income Child Benefit Charge!

[GE90]

Hi

I knew before opening it that a letter from the HMRC wouldn’t be good news!

Seems like we’ve been receiving child benefit despite last financial year and this being over the respective thresholds. I had absolutely no idea about HICBC before receiving the letter.

Looking at the calculator for last year my income just reaches the point where the charge equals the payments received. This will need to be paid back it seems, with this year also an issue.

I am normal PAYE, so have absolutely no idea about the self assessment return that they say I have to now complete!

I don’t think I have any choice?! Is it a pain to do? Does this mean I pay no tax each month, but instead complete the return and pay the demand in arrears? Sorry, probably a silly question.

This all seems quite a faff ??.

Any observations/assistance appreciated.

Cheers

[CorradoTDI]

If you've just crept over then look at pension and any other salary sacrifice options you have to reduce your net adjusted income to under £60k...

This could all change in the budget too...

[Previous]

Welcome to the club. Unfortunately you don't have a choice.

Well, you do In that you can choose to stop receiving child benefit, or ignore it (and practice your best daily mail sad face for when HMRC catches up with you).

Self assessment looks daunting at first but is straightforward when you get used to it.

Probably the easiest way to pay if PAYE is to allow HMRC to adjust your tax code for next year. You'll get paid as usual and they'll simply take a bit more tax each month to cover last year's child benefit.

This is one of many of those areas where higher rate tax payers now pay a lot more than in years gone by I'm afraid.

Edited by Previous on Saturday 19th October 22:58

[CoolHands]

Welcome to the club indeed. It’s all bks. We had to pay some back too although I can’t remember if it was this or something to do with nursery tax credits or some toss. Tax credits WTF?? Never understood what the fk any of it was. Also my wife at one point definitely stopped getting child benefit as she didn’t want to do the self assessments torture!

I’m sure we lost out but it was better than all the agro

[VR99]

Yep, this is why stopped it too a few years back. The faff of it all wasn't worth the admin. If you are just above the threshold then definitely worth using sal sac/pension contributions to stay under.

[996Type]

It is worth claiming though even if to pay back as you get the continuous NI record that goes with it. Also if you drop back down under the threshold you get to keep it.

If you do the calculation, first port of call is to determine exactly what extra you need to pay into a pension to maintain the credit (ie - get your pre tax gross down to £60K).

Say you earn £70K, this means diverting £10K straight into a pension.

If this sounds like a lot, it’s because it is!

But you then get tax relief at source (40%) plus you get to keep the tax credit (about a thousand per child) so in return for what might have been £3K in your pocket by not claiming, you get the £10K to your pension and also to keep the child credits.

It’s also a sliding scale so even if you only get down to £65K via same process, you get to keep 50% of the credit also.

Worth bearing in mind also if it’s an employer pension you pay into, you’ll avoid the NI payments they take from that lump as well.

If self assessment phases you, a small accountancy firm can set you up for about £300 with a tax paying code and even fill out the return for you. They might be able to squeeze some mileage claims in there etc if your doing any travel for work etc.

It’s worth making the salary sacrifice into pension anyway for the tax relief you get, but if you are marginal with credits doubly so even despite the hassle!

Edited by 996Type on Sunday 20th October 11:34

[Sheepshanks]

996Type said:

Say you earn £70K, this means diverting £10K straight into a pension.

Just a small point - you need to allow for any pension you're already paying. So it's not what you earn, it's your pay after pension contribution - normally payslips have this as "taxable pay".

One of my "kids" is in this position - her husband's gross is about £70K, but he gets something like 10% taken out for his works pension, so this year he's only marginally over the threshold.

[mike9009]

I have been doing this for years now, so has benefitted my pension quite nicely.

Once you have found your P60 from your employer, it takes about 30 minutes per annum - unless your tax affairs are more complex (other incomes, charitable donations BTL, etc.) but again quite straight forward.....

[GE90]

Thanks everyone.

I’m learning fast. Very basic income streams.

So it looks like I’ve busted the limit for 23/24, so self assessment at a charge equal to the entire sum received! I’ve used the gross amounts.

24/25, I think the charge will be about 40% of that received, but I guess will be finalised in the return next year.

Still likely 2 1/2 years left of child benefit, so seems it’s not worth dropping it based on my rough calculations.

So it seems I could possibly make more pension contributions to bring my income down (local government scheme, so might not be possible?). Or perhaps use salary sacrifice? Man maths could work here for a new car - Tusker is the scheme we have.

So what happen when I’m forced into self assessment. Do I not pay any tax each month and instead put aside to pay after demand each year? I guess not, but slightly confused!

Thanks all, this is really helping.

[craig1912]

GE90 said:

So what happen when I’m forced into self assessment. Do I not pay any tax each month and instead put aside to pay after demand each year? I guess not, but slightly confused!

No you still pay tax each month. IR adjust your tax code.

[Cyder]

I put the CB monthly payment into my premium bonds and then withdraw enough to pay my tax bill each year.

[the-norseman]

I'm a 40% tax payer, my partner is self employed but barely makes enough to pay tax.

We have a 2 year old, I/we haven't claimed at all for him as I just presumed it would be a pain in the ass.

Is it worth claiming it, sticking it in an account and then just paying it back at the end of the year? or does it not work like that?

[covmutley]

I'm still claiming but been over the limit last few years. Did some research, and the easiest thing seemed to be just claim it, and then pay back at the end when they have a solid idea if what you actually earn and took in child benefit.

[Sheepshanks]

the-norseman said:

I'm a 40% tax payer,

Up to you, obviously, but now the threshold is £60K (after pension contributions) you've got to be some way into the 40% bracket for it not to be worth claiming.

As another poster mentioned, it your partner's income is uncertain then it gives them NI credits (but only for state pension).

[996Type]

the-norseman said:

I'm a 40% tax payer, my partner is self employed but barely makes enough to pay tax.

We have a 2 year old, I/we haven't claimed at all for him as I just presumed it would be a pain in the ass.

Is it worth claiming it, sticking it in an account and then just paying it back at the end of the year? or does it not work like that?

Worth checking if you can get your gross down to £60K certainly. It’s also a sliding scale so if you can only get down to say £65K, you’d still get to keep half the child allowance.

Also worth bearing in mind if you have a complex work pension set up, just open a simple SIPP and come February, work out how much over you are and pay a lump sum into that. The tax return can then also get you the higher rate refund on that transaction from April.

If it’s too complex, a local accountant can you help you and I believe you should be able to claim that fee as an allowable expense.

Noted on the point that people might already be paying into a work place pension (best scenario for me was to just boost that and make sure I didn’t go above the threshold to start paying back). Your tax would then be auto calculated.

All depends on how old you are and how much you want to tie up in a pension, but if you have a 2 year old and can make the calculations work, it’s going to be £15K you are entitled to have from the govt until they turn 16 if you can keep under the current £60K threshold.

So worth considering if you have salary sacrifice car and cycle to work schemes etc. The money you sacrifice is hard work but also gets you 40% relief (more if via work pension due to NI) but not everyone has that amount of money to do it tbf.

It’s a different topic how unfair the system is for dual earners versus households but if your working and pay a lot of tax, you are entitled to the allowance provided you reduce your gross earnings down by diverting to a pension.

[Eric Mc]

the-norseman said:

I'm a 40% tax payer, my partner is self employed but barely makes enough to pay tax.

We have a 2 year old, I/we haven't claimed at all for him as I just presumed it would be a pain in the ass.

Is it worth claiming it, sticking it in an account and then just paying it back at the end of the year? or does it not work like that?

Yes - it is generally worth claiming the Child Benefit and paying back any excess through Self Assessment if necessary.

In any given tax year, you can never be 100% sure that your income levels will remain the same throughout the year. If income falls for any reason (redundancy, for example) you might find that you WERE entitled to Child Benefit. Unfortunately, Child Benefit you have voluntarilly chosen not to receive remains forever lost.

[Sheepshanks]

996Type said:

Worth checking if you can get your gross down to £60K certainly. It’s also a sliding scale so if you can only get down to say £65K, you’d still get to keep half the child allowance.

You'd keep half at £70K. it's a linear scale from £60K to £80K.

[ukbabz]

We've never claimed it due to my income being around £60k and the faff of the paperwork. However with child #2 on the way it's tempting to do it as obviously it makes more financial sense.

Am I right in thinking you register for a self assessment by October 5th, fill in a form at the end of the tax year and then have until January the following year to pay the bill?

[Phateuk]

ukbabz said:

We've never claimed it due to my income being around £60k and the faff of the paperwork. However with child #2 on the way it's tempting to do it as obviously it makes more financial sense.

Am I right in thinking you register for a self assessment by October 5th, fill in a form at the end of the tax year and then have until January the following year to pay the bill?

As posted above - the limit is now £80k so well worth doing if you're on £60k still. It slides from full benefit <£60k down to £0 benefit on £80k (up from the previous £50k - £60k scale).

[jinkster]

Just wait until you don't qualify for anything despite being a sole earner.......