[M33DLO]

Guys.. Any Tax, HMRC, financial advice folk in da house this evening?

Asking for a friend.

HMRC letter recieved, asking him to check if he needs to pay the Child Benefit fee as he earns over the 60k bracket and his wife receives the child benefit.
Checked and yes, he does need to pay it.

He's asking:

Continue to receive the benefit and pay the Child Benefit back via increased Tax.
Or.
Stop the benefit so he pays nothing back.

The outcome is still the same as the household still loses the total Child Benefit amount either way.

Is there any benefit (pun intended) to either method?

Any advice would be helpful.

[un1eash]

I don't think that's how it works. The threshold is £50k, for every £100 over you owe them 1% back up to £60k where you get nothing.
What happens is they pay you the full amount then you have to do a self assessment tax return and pay them back what you owe.

[Bryans69]

Not an accountant, but our experience.

We've always claimed, then paid back in the next tax year, either via code or lump, depending on amount owed (other taxable income). However, decided to change this year as last year tax owed was over 20% of what I'd paid through the year, so I got put onto tax on account, which was a pain, and it was the child benefit element that pushed me over.

But each to their own.

[JustChris]

Option 1 for me. Kept it oncology and paid it back via tax.

[M33DLO]

Originally Posted by un1eash

I don't think that's how it works. The threshold is £50k, for every £100 over you owe them 1% back up to £60k where you get nothing.
What happens is they pay you the full amount then you have to do a self assessment tax return and pay them back what you owe.

Yes. But there's an option to opt out (if earning over 60k) and you get nothing, resulting in nothing to pay back.
I guess this option removes the need for a tax return each year.

Or keep receiving it, do a tax return and pay it back each year.

Is there any difference. For example does receiving it have any other hidden advantages/disadvantages..?

[un1eash]

Originally Posted by M33DLO

Yes. But there's an option to opt out and you get nothing, resulting in nothing to pay back.
I guess this option removes the need for a tax return each year.

Or keep receiving it, do a tax return and pay it back each year.

Is there any difference. For example does receiving it have any other hidden advantages/disadvantages..?

Depends what your earn, if your on £55k then yes it's worth it as you'll still get 50% of the allowance. £59k then you might not think claiming 10% is worth it.

[M33DLO]

Originally Posted by un1eash

Depends what your earn, if your on £55k then yes it's worth it as you'll still get 50% of the allowance. £59k then you might not think claiming 10% is worth it.

Yep, got ya.. over 60k it seems little point to receive it, waste the faff doing the self assessment each year, only to pay it back again.

[KRS_SN]

always claimed it knowing I'll need to pay it off and paid it off when paying the 31st January tax.
who wouldn't like a £1000 plus interest free amount on the tax man every year.

[NotGotABimmer23]

If his wife doesn't work I believe claiming it has benefits for her state pension, otherwise if you earn over 60k its pointless, and it's often the only reason you need to do a self assessment if you are PAYE, so you can save yourself that pain in the arse as well.

[planemad]

Originally Posted by kylemacca01

If his wife doesn't work I believe claiming it has benefits for her state pension, otherwise if you earn over 60k its pointless, and it's often the only reason you need to do a self assessment if you are PAYE, so you can save yourself that pain in the arse as well.

Opting out does not affect a ladies NI these days.

[goodbyalfa]

Other aspect to consider is salary sacrifice for pension and benefits. It is the post salary sacrifice number which determines the payback, so if earning over 60k after deductions it's not worth claiming. I hate the tax returns faff as I'm paid through PAYE so shouldn't have to.
Golden generation we are in... Middle earners pay the most tax proportional to their income.
Earning between £50-60k you are taxed at an effective marginal rate of 60%. Meanwhile, billionaires take no direct salary, take loans against assets and then write off the loan repayments againt tax. Cnuts.

[KRS_SN]

Mrs went to some professional courses and did some exams etc in tax year 2020-21. Total was over 2.5 k so hmrc said I have to register her for self assessment to claim blah.
Last Monday I spent 1.5 hours faffing around on her behalf on the hmrc website and nearly choked on my coffee this Monday morning when I saw a £1421 credit into our account.
In summary you may come below the 60k threshold, your Mrs may become employed. it's nice to have a 1k plus tax free amount every year that you do payback unless circumstances change. If I'm ignorant of the finer aspects I'm sorry just describing my experiences.

[Cilonen]

Not an issue if it's already been claimed, BUT if you haven't claimed child benefit at all for a child then you should claim it regardless, at least for a year.
If you do not claim child benefit at all, there are issues when it comes time for the child to get their NI number as they won't be "in the system". They will have to apply for it, & this can delay provision of the number by months, which prevents them working or being eligible for other benefits at that age.

[Scoobyd]

Pension contributions are a great way to avoid the child benefit tax charge for a lot of people yet not a lot of people do it or understand it. Hopefully the below example helps to explain it:

Mr has a taxable income of £58,000 and his wife has no income. They have two children which results in Mrs receiving Child Benefit of £1,827.80 a year [(£21.15 + £14.00) x 52].

As Mr's income is £8,000 over the £50,000 limit, he'll face a tax charge of 80% of £1,827.80 which is £1,462.24.

As a couple, the overall value of the Child Benefit has therefore been reduced to £365.56 (£1,827.80 - £1,462.24).

Now, if Mr makes net contributions totalling £6,400 in the tax year to a personal pension plan, this will be grossed up to £8,000. This means that his adjusted net income falls to £50,000 and no tax charge on the child benefit is payable.

So by contributing £6,400, he's saved £1,462.24 in tax. Assuming all of the pension contribution lies in the higher rate tax band, he'll also be able to claim an additional £1,600 in tax relief (20% of £8,000) through his tax return.

So his £8,000 pension contribution has in fact cost him just £3,337.76 (£6,400 - £1,462.24 - £1,600).

Not bad huh! This is where good financial planning pays for itself

[2CRO4TV]

Couldn't be bothered with the tax returns so opted out. Not worth the stress in my opinion.

[aquazi]

We used to have it so the wife “pocketed” the child benefit and i pay it back… as we have rental income i need to do a tax return anyway… so saw it as a £1800 interest free loan!

However since they moved me onto payment on account - where i have to pay my forecasted tax 6 months upfront i got her to cancel it…. As that pushed my 6 monthly tax payment too high.

[M33DLO]

Originally Posted by Scoobyd

Pension contributions are a great way to avoid the child benefit tax charge for a lot of people yet not a lot of people do it or understand it. Hopefully the below example helps to explain it:

Mr has a taxable income of £58,000 and his wife has no income. They have two children which results in Mrs receiving Child Benefit of £1,827.80 a year [(£21.15 + £14.00) x 52].

As Mr's income is £8,000 over the £50,000 limit, he'll face a tax charge of 80% of £1,827.80 which is £1,462.24.

As a couple, the overall value of the Child Benefit has therefore been reduced to £365.56 (£1,827.80 - £1,462.24).

Now, if Mr makes net contributions totalling £6,400 in the tax year to a personal pension plan, this will be grossed up to £8,000. This means that his adjusted net income falls to £50,000 and no tax charge on the child benefit is payable.

So by contributing £6,400, he's saved £1,462.24 in tax. Assuming all of the pension contribution lies in the higher rate tax band, he'll also be able to claim an additional £1,600 in tax relief (20% of £8,000) through his tax return.

So his £8,000 pension contribution has in fact cost him just £3,337.76 (£6,400 - £1,462.24 - £1,600).

Not bad huh! This is where good financial planning pays for itself

Yes. This is a good option.
It's wether he can (or wants) contribute a chunk of salary (earns over £60k) into a pension, to get below £50k gross.