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Where Taxpayers and Advisers Meet

adjusted net income - high income child benefit charge?

Riceraider
Posts: 3
Joined: Tue Sep 17, 2013 1:29 pm

adjusted net income - high income child benefit charge?

Postby Riceraider » Sat Dec 01, 2018 9:54 pm

Hi,

We currently receive child benefit for a single child (from jan 2013); applied via my partner.
In terms of the high income child benefit charges, I wasn't really aware of the details back then and I guess they never really applied due to our financial circumstances at that stage.
However, during this year my gross salary has exceeded the 50k mark, and only recently came to realise that the HICBC might actually apply?

I've always been PAYE and never had to do any SA; and HMRC has never requested for a SA. I only have one main source of income through my employer and paid 4 weekly. I am also in the company pension scheme, where I pay about 7-8% of gross salary and the Employer contributes about 19%. I also participate in getting child care vouchers (£112 per 4 weeks). In terms of P11D benefits, I get £400 of free child voucher per year.

Having read into HICBC, it mentions that one should calculate their "adjusted net income".
For my situation, would this simply be calculated as:
YearlyGrossSalary PLUS
YearlyTotalP11DBenefits(i.e. £400 of free child vouchers) MINUS
YearlyTotalChildVoucherAmounts (i.e. 13 * £112 ) MINUS
YearlyTotalPensionContributions (i.e. 7-8% yearly gross salary contributions)

Which I presume can be derived from both P60 and P11D for this calculated adjusted net income amount i.e.
Within P60 - The Pay "Total for year" amount under section 'Pay and Income Tax details' PLUS the benefit amount detailed in the corresponding P11D, which would be the adjusted net income amount.

I understand if the "adjusted net income" amount exceeds 50k then the HICBC applies; at 1% of child benefit amount per £100 from 50k-60k.
I must admit that I'm not very clear on the adjusted net income calculation, and wanted to check if this is correct?

cheers,
Rice

robbob
Posts: 2766
Joined: Wed Aug 06, 2008 4:01 pm

Re: adjusted net income - high income child benefit charge?

Postby robbob » Mon Dec 03, 2018 9:39 am

Which I presume can be derived from both P60 and P11D for this calculated adjusted net income amount i.e.
Within P60 - The Pay "Total for year" amount under section 'Pay and Income Tax details' PLUS the benefit amount detailed in the corresponding P11D, which would be the adjusted net income amount.

I understand if the "adjusted net income" amount exceeds 50k then the HICBC applies; at 1% of child benefit amount per £100 from 50k-60k.
I must admit that I'm not very clear on the adjusted net income calculation, and wanted to check if this is correct?
That's all pretty much spot on - the only circumstances i would guess where things would be different is if the pension contributions made by you via your employment were deducted from "net salary" rather than gross salary (gross salary deductions reduce p60 total - net salary deductions don't). If that is the case you would add on the grossed up value of the pension contributions deducted from your net salary - deductions * 100 / 80.

Note there is also the the option to reduce your income for gift aid payments / allowable union & professional fees and other work related expenses not refunded tax free.

Riceraider
Posts: 3
Joined: Tue Sep 17, 2013 1:29 pm

Re: adjusted net income - high income child benefit charge?

Postby Riceraider » Mon Dec 03, 2018 10:38 am

Which I presume can be derived from both P60 and P11D for this calculated adjusted net income amount i.e.
Within P60 - The Pay "Total for year" amount under section 'Pay and Income Tax details' PLUS the benefit amount detailed in the corresponding P11D, which would be the adjusted net income amount.

I understand if the "adjusted net income" amount exceeds 50k then the HICBC applies; at 1% of child benefit amount per £100 from 50k-60k.
I must admit that I'm not very clear on the adjusted net income calculation, and wanted to check if this is correct?
That's all pretty much spot on - the only circumstances i would guess where things would be different is if the pension contributions made by you via your employment were deducted from "net salary" rather than gross salary (gross salary deductions reduce p60 total - net salary deductions don't). If that is the case you would add on the grossed up value of the pension contributions deducted from your net salary - deductions * 100 / 80.

Note there is also the the option to reduce your income for gift aid payments / allowable union & professional fees and other work related expenses not refunded tax free.
Thanks robbob!
I'm pretty sure that the my pension contributions are deducted from the gross salary. Similarly the child care vouchers are also deducted from gross salary.
So presume no need to gross up any values as my calculations are still alrite?

Just to be sure with regards to pension contributions, as I've mentioned I contribute 7-8% per pay period (4weekly) and the employer contributes ~19%.
I assume for the adjusted net income, I only need to consider the pension contributions that I pay in (7-8%), and the employer contributions do not have to be factored in? Is that correct?

robbob
Posts: 2766
Joined: Wed Aug 06, 2008 4:01 pm

Re: adjusted net income - high income child benefit charge?

Postby robbob » Mon Dec 03, 2018 11:12 am

I only need to consider the pension contributions that I pay in (7-8%), and the employer contributions do not have to be factored in? Is that correct?
Yes ignore employer contributions.


It should be relatively easy to check pension contributions to see if they are deducted from gross salary - if your taxable pay is lower than your gross pay in the pay period by the pension deduction amount (ignoring any other adjustments to taxable pay) then its a deduction from gross salary what you put into the pension. Normally most employers show both gross pay and taxable pay totals on the payslip.

Riceraider
Posts: 3
Joined: Tue Sep 17, 2013 1:29 pm

Re: adjusted net income - high income child benefit charge?

Postby Riceraider » Mon Dec 03, 2018 12:14 pm

Cheers Robbob

Btw, having now calculated my net adjusted income....fortunately I'm below the threshold and therefore HICBC don't apply just yet!
Going forward, I assume this is just something couples need to keep a close eye on year on year. I'm not doing any SA as I'm PAYE.
Is it simply the case, once we know that we've breached the threshold we'll need to notify HMRC ourselves and complete a SA to confirm the damage? Or consider increasing relevant deductions (i.e. pay more into pensions contributions etc) or simply stop taking child benefits.

robbob
Posts: 2766
Joined: Wed Aug 06, 2008 4:01 pm

Re: adjusted net income - high income child benefit charge?

Postby robbob » Mon Dec 03, 2018 2:06 pm

Is it simply the case, once we know that we've breached the threshold we'll need to notify HMRC ourselves and complete a SA to confirm the damage? Or consider increasing relevant deductions (i.e. pay more into pensions contributions etc) or simply stop taking child benefits.

Yes - you don't ever need to do anything until after the end of the year and the totals are known at which point you need to contact hmrc to start the tax return ball rolling, as you say an extra amount into you pension making the problem go away is always tax efficient where possible - effectively speaking your margin tax rate between 50 and 60k is probably something over 50% - on the brighter side you don't have 16 kids living with you in which case the marginal rate would have been pretty horrendous.


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