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Where Taxpayers and Advisers Meet

High Income Child Benefit Charge and Net Pension Contributions Deductions

Rob.27
Posts:1
Joined:Wed Oct 30, 2019 5:38 pm
High Income Child Benefit Charge and Net Pension Contributions Deductions

Postby Rob.27 » Wed Oct 30, 2019 5:48 pm

With regards to High Income Child Benefit Charge and how pension contributions can be deducted from gross income if they have been paid from net pay.

My workplace pension scheme employee contributions are deducted from my net pay and then tax relief is claimed at 20% and paid into the pension scheme.

My understanding is that if gross income was say £60k and net pension contributions paid were say £3k (grossed up figure £3,750) then the gross income figure used when calculating liability for High Income Child Benefit Charge would be £60k - £3,750 = £56,250.

I have tried to get some clarity from HMRC but have been getting conflicting answers.

HMRC are currently seeking to re-coup tax charges from previous years so I need to ensure I calculate my liability accurately.

robbob
Posts:3150
Joined:Wed Aug 06, 2008 4:01 pm

Re: High Income Child Benefit Charge and Net Pension Contributions Deductions

Postby robbob » Thu Oct 31, 2019 9:44 am

Hello Rob27

Your understanding is 100% correct , the general hmrc advisors and very unreliable when it comes to going through the nitty gritty, this isn't always helped if the individual calling hmrc isnt 100% sure themselves or may use confusing terminology.

You need to confirm with hmrc that your tax calculations for the years in question need to include include £3,750 adjustment for grossed up value of pension payments you have made on which basic rate relief has been claimed by the provider. Your p800/simple assessment calculation should show that your basic rate band has been extended by £3750 so that you earn more before 40% tax is charged - once this entry is in place the calculation of child benefit you need to repay will automatically be adjusted as appropriate.

The double check to confirm everything has worked is pretty simple
eg taxable pay 60000
grossed up value pension contributions made 3750
income for calculation child benefit tax charge adjusted income 56250

you pay % back based on how much you are between 50k and 60k - you are 5625 above 50k so will pay back 56.25% of child benefit received as a tax charge.

Note you need to ensure that under no circumstances in any adjustment made to your p60 total on the tax p800/simple assessment calc - with regard to the pension contributions - the only adjust here should be the increase in your basic rate band.

If you complete tax returns there is boxes where you need to enter your pension contributions.

Note if these contributions arent in your tax calculations already there should be the added bonus that you get 20% back on 3750 via reduction in tax bill

Anonymous Coward
Posts:2
Joined:Thu Jan 10, 2019 11:51 am

Re: High Income Child Benefit Charge and Net Pension Contributions Deductions

Postby Anonymous Coward » Tue Dec 29, 2020 12:50 pm

Like Rob27 I am a higher rate tax earner and we still claim Child Benefit (CB).
On top of this we own a 2nd property (still under mortgage) that we rent out.

Until a few years ago, we were able to put all rental income onto my wife's income, who earns considerably less (education).
These days, we have to split and declare (on self assessment) the rental income equally.

What "irks" me is that I have to declare all CB onto my tabable income.
Doesn't it sound fair (isn't tax meant to be fair?) that CB should also be split and declared equally between both parents?

While I am whining about fairness (forgetting the 2x £49K scenario for a moment):
Why was this threshold never increased (e.g. in-line with inflation)?

It so happens that I earn only a smidge above the 50k threshold.
So I feel utterly remorseless for bumping my pension payments up massively.

robbob
Posts:3150
Joined:Wed Aug 06, 2008 4:01 pm

Re: High Income Child Benefit Charge and Net Pension Contributions Deductions

Postby robbob » Tue Dec 29, 2020 1:49 pm

What "irks" me is that I have to declare all CB onto my tabable income.
Doesn't it sound fair (isn't tax meant to be fair?) that CB should also be split and declared equally between both parents?
Unfortunately the clue is in the name "benefit" - this isn't really much different to a situation where for couples most benefits are means tested so claims cant be made by one party duie to the other parties circumstances - hmrc are presuming that as a couple you will be able to sort out the mechanics of the situation between yourselves as appropriate - ie if you as a couple know you will have to pay the money claimed back and should be well able to deal with that - you have the right to independently check with hrmc if claim is being made so the resultant situation shouldnt come as a surprise. Practicably speaking the higher earning individual is better placed to be proactive ref repaying any overpayments as they have more cash at their dispsoal each pay period.

Note does anyone earning 50k+ really need to be be given freebie benefits anyway? - i know traditionally this "benefit" was not means tested but that benefit does need to be paid for by a taxpayer somewhere. So i think the correct attitude is to say thanks very much if you are entitled and not really complain if you don't get it :)

While I am whining about fairness (forgetting the 2x £49K scenario for a moment):
Why was this threshold never increased (e.g. in-line with inflation)?
Easy - its standard below the radar way of getting extra tax revenue - normally a means to pay for their supposed "Good news" on the tax front each year - hmrc do this all the time fund good news tax "reductions" by using below the radar tax increases elsewhere. Eg they say NI threhsold has been increased well above inflation - they don't say personal allowance has not increased by even inflation. It's a very silly game really but i can't ever see that it will change when "simple announced tax increases" are known to be vote losing strategy.

To be fair to hmrc they have until this year made decent strides increasing personal allowance which really helps the most needy "taxpayers" that earn low to moderate income - eg around minimum wage levels.

Anonymous Coward
Posts:2
Joined:Thu Jan 10, 2019 11:51 am

Re: High Income Child Benefit Charge and Net Pension Contributions Deductions

Postby Anonymous Coward » Wed Dec 30, 2020 11:14 am

... does anyone earning 50k+ really need to be be given freebie benefits anyway?
I think it is anyone's moral duty to apply for any and all benefits they are entitled to. And to claim tax relief where they can.
So in the case of CB, until one earns £60K or the children come of age or leave full-time education, most definitely.

Who would willingly leave money they are entitled to sitting in the HRMC's accounts?
Especially when the government is so eager to waste tax payer's money on "frivolous" projects like HS2.
And has done so on many other boondoggles in the past.


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