Adjusted net income
Discussion
Ok so - like a few, I have been sent a friendly letter about paying back some Child Benefit due to going over the £50k threshold - no issue.
What I am really struggling with is the contradictions I am reading, or frankly my poor comprehension, of what the figure is based on.
My total gross earnings, all in for 22 - 23 FY was £55,000.
I contributed directly from my gross salary £5000 of workplace pension contributions - this is my percentage only, and ignores anything the company contributed.
I THOUGHT this meant I would have no liability, as I earned £50,000 exactly.
However the wording on the HMRC return is "use the figure your P60 provides as income" - my P60 has two boxes, Pay This Employment and Tax This Employment. That's it. Pay is the gross £55,000 and Tax is the tax paid, but on the lower amount post-pension contribution.
Using Pay (which says £55,000) and putting the figures, show I owe £650 to be repaid!
What am I missing?
What I am really struggling with is the contradictions I am reading, or frankly my poor comprehension, of what the figure is based on.
My total gross earnings, all in for 22 - 23 FY was £55,000.
I contributed directly from my gross salary £5000 of workplace pension contributions - this is my percentage only, and ignores anything the company contributed.
I THOUGHT this meant I would have no liability, as I earned £50,000 exactly.
However the wording on the HMRC return is "use the figure your P60 provides as income" - my P60 has two boxes, Pay This Employment and Tax This Employment. That's it. Pay is the gross £55,000 and Tax is the tax paid, but on the lower amount post-pension contribution.
Using Pay (which says £55,000) and putting the figures, show I owe £650 to be repaid!
What am I missing?
Simbu said:
Are your contributions made via a salary sacrifice arrangement? If not, then your gross income hasn't actually decreased, you're just getting income tax relief on your pension contributions.
This is how it has been explained to me and how I have completed the form each year. You have had the benefit of the tax relief on the £5k, the downside is that you don’t get the take the £5k off your income for the higher rate charge, so the benefit to you is next to f
k all really 
There’s no win in this situation unfortunately.
boyse7en said:
Surely the pension payments are irrelevant to how much you earn (for benefit purposes)? Otherwise I am going to dump £20k per year in my pension and pay no tax as I will be below the threshold.
A salary sacrifice achieves that goal. With a car payment and pension contributions it’s very possible to keep getting child benefit with a 6 figure income.It’s not necessarily right but it is within the rules.
Ok mystery solved.
My pensions deductions ARE being deducted from my net payable income - so theoretically if I up my pension contributions, I could keep the full child benefit payment - as long as my pension contributions take me below £50k.
What I had forgotten about - which makes sense - is I won a special achievement bonus award just into the start of the 22/23 financial year and forgot all about it - which brings me back up into the "must repay" amount of adjusted net income. I can't really argue with that - it took going through 18 months of pay slips to understand it mind you!
Going to jump bump up the pension contributions to reduce the liability for the current year.
My pensions deductions ARE being deducted from my net payable income - so theoretically if I up my pension contributions, I could keep the full child benefit payment - as long as my pension contributions take me below £50k.
What I had forgotten about - which makes sense - is I won a special achievement bonus award just into the start of the 22/23 financial year and forgot all about it - which brings me back up into the "must repay" amount of adjusted net income. I can't really argue with that - it took going through 18 months of pay slips to understand it mind you!
Going to jump bump up the pension contributions to reduce the liability for the current year.
boyse7en said:
Surely the pension payments are irrelevant to how much you earn (for benefit purposes)? Otherwise I am going to dump £20k per year in my pension and pay no tax as I will be below the threshold.
this is literally how it works - so you get the benefit of the pension contributions, with the income tax benefit this provides and theoretically you COULD reduce your income to keep benefits - albeit within the limits of pension maximum contributions.In other jurisdictions (e.g. here in Switzerland), all parents receive child benefit, but is simply added to one’s taxable income.
As personal allowances are pretty high and tax rates are strongly progressive, the less well off get it tax-free and the affluent lose a big chunk of it in tax.
Why is the UK system so overly complicated?
As personal allowances are pretty high and tax rates are strongly progressive, the less well off get it tax-free and the affluent lose a big chunk of it in tax.
Why is the UK system so overly complicated?
Michael_B said:
In other jurisdictions (e.g. here in Switzerland), all parents receive child benefit, but is simply added to one’s taxable income.
As personal allowances are pretty high and tax rates are strongly progressive, the less well off get it tax-free and the affluent lose a big chunk of it in tax.
Why is the UK system so overly complicated?
Osborne being clever basically. Add in 10+ years of fiscal drag and you’ve got a handy new 20+% tax bump on a slice of a significant chunk of the population’s income that subsequent chancellors have done nothing to relieve.As personal allowances are pretty high and tax rates are strongly progressive, the less well off get it tax-free and the affluent lose a big chunk of it in tax.
Why is the UK system so overly complicated?
(20% figure based on 2 kids on the child benefit claim)
It's even worse for those of us in Scotland who pay 42% on everything over 43k while still paying the higher rate of National insurance up to the rest of UK threshold. Once the NI goes down to the lower rate, you are then hit with the child benefit charge instead.
I just salary sacrifice enough to stay below 43k and assuming others do the same, the increased rates must result in minimal additional tax take
I just salary sacrifice enough to stay below 43k and assuming others do the same, the increased rates must result in minimal additional tax take
Gassing Station | Finance | Top of Page | What's New | My Stuff