Salary sacrifice and child benefit

(86 Posts)
mike1May Tue 05-Oct-10 18:48:54

Not sure if this is the right place to post this.

Anyway, with the salary sacrifice schemes that exist, is it possible to sacrifice enough of your salary to still be able to get the child benefit?
For example, if I earn £200 over the higher-rate tax threshold, could I sacrifice this as part of a cycle-to-work scheme, childcare voucher scheme or whatever and then be able to still get child benefit?

Sacrificing that £200 could be worth thousands.

sethstarkaddersmum Tue 05-Oct-10 18:50:55

I think so.
we may be reconsidering how much use we make of dh's workplace nursery....

WilfShelf Tue 05-Oct-10 18:52:42

What an interesting point. Dunno. But this is exactly why, when they say they won't need to means test, they will actually still have to in one way or another because it is STILL going to be very bloody complicated. And unfair.

And [SHOUTING NOW] the poor STILL won't get the bloody money, will they Gideon?

Madness.

minipie Tue 05-Oct-10 19:04:33

I had exactly the same thought mike - was thinking you could do pension contributions by way of salary sacrifice to get your earnings below the 40% barrier.

If you do that then you're not "sacrificing" the money, you're putting it into your pension.

(mentioned it on one of the CB threads, can't remember which now)

nobody knowledgable responded though so will be interested to see what response you get here.

TheCrackFox Tue 05-Oct-10 19:05:54

If you are just over the threshold invest the surplus into your pension. smile

WilfShelf Tue 05-Oct-10 19:08:42

See this is one of the problem - I have no problem with any individual taking this kind of approach here - you/we are ordinary middle income families... But we're so much richer than the majority of people, and yet we have the capacity to use our wealth (because we HAVE pensions, or we can AFFORD childcare) to make use of the benefits.

Legal tax avoidance, investments, housing equity, flexible credit... it's still true that the poor pay more, one way or another...

minipie Tue 05-Oct-10 19:12:20

Wilf I do agree with you.

The answer is that the rules should be (and maybe will be) changed so this loophole doesn't exist.

But while it exists, I don't see anything wrong with taking advantage of it.

ChasingSquirrels Tue 05-Oct-10 19:13:41

it is the same with tax credits, although you don't need to salary sacrifice - the pension contributions you made reduce the income which is considered for tax credit purposes.

When you consider that you get a 20% tax relief on the pension contributions you make, and don't have the 40% (or is it 60%) reduction in tax credits per £1 then it is a bloody good idea.

WilfShelf Tue 05-Oct-10 19:14:32

No, why would you not? You'd be mad not to do it. Especially when bloody bankers are still getting 7bn in bonuses and parking their money all over the shop to avoid taxes.

greenfly Tue 05-Oct-10 19:16:35

So basically you're looking to salt money away for your benefit so you can carry on claiming. Excellent. Bet you're the type who rants on about 'benefit cheats' too.

vespasian Tue 05-Oct-10 19:17:05

I wonder if people claiming other benefits were to start such a thread if it would be called benefit fraud.

ChasingSquirrels Tue 05-Oct-10 19:18:17

personally I intend to take full advantage of the tax regime in order to minimise my outgoings and maximise my income and savings.

BelleDameSansMerci Tue 05-Oct-10 19:18:17

I wouldn't have thought you could do this as the tax threshold is based on gross pay not net, isn't it?

TheCrackFox Tue 05-Oct-10 19:18:56

fraud is illegal but paying extra into a pension isn't.

(Don't know why I care as the CB change doesn't affect me and I don't claim benefits)

ChasingSquirrels Tue 05-Oct-10 19:20:34

tax credits is gross less pension contributions.

taxable income - the level at which you start paying 4-% tax is increased to give you the additional tax relief on your pension contributions.
So if HRT was £40k (ease of numbers), you earned £45k and made £5k gross pension contributions then HRT (for you) wouldn't kick in until £45k - ie you wouldn't come into the HRT regime.

greenfly Tue 05-Oct-10 19:20:38

It may not be illegal but morally it is cheating.

WilfShelf Tue 05-Oct-10 19:21:36

Actually I'm about as lefty and anti Daily Mail as you can get, and I don't think the OP or anyone who says they might consider it would necessarily be 'the type who goes on about benefit cheats'. Perhaps. Certainly not me.

But it's a pretty defining feature of being middle class to use your resources to get more resources. Legally. It's actually Osborne and co's stupidity that will create the loophole and middle-income earners will inevitably exploit that.

And they will feel justified, however uncomfortable it might make us feel, because the Tories will not address real inequalities of poverty and wealth.

Don't attack the loopholers on 44k, please (would you think a single mother, for example, on 44k, was wrong to exploit such a loophole?); instead, I would encourage you to attack the big tax avoiders and fraudulent amongst the really rich; and the govt that is using this measure as an ideological tool to make women barefoot, pregnant and dependent again.

ChasingSquirrels Tue 05-Oct-10 19:21:39

paying into a pension is morally cheating?????????

minipie Tue 05-Oct-10 19:22:32

greenfly and vespasian I am sure that HMRC are well aware of this side effect of salary sacrifice. At present it is still legal and people are still allowed to take advantage of it. Not remotely the same as benefit fraud which is illegal and involves lying.

Only those who are just above the 40% level will want to take advantage of this idea (someone who earns £80k would have to sacrifice £35k to get below the 40% level so it wouldn't be worth it). So it only benefits a very small % of people at the bottom end of the group who have had CB removed.

TheCrackFox Tue 05-Oct-10 19:23:29

I would regard it as cheating when HRMC ask Vodafone to pay the billions it owes and when Sir Phillip Green pays his fair share too. smile

WilfShelf Tue 05-Oct-10 19:23:52

Crikey, I care about rather a lot that affects others. It won't affect me either, directly, but it will make our society and the lives of some children, a much shitter place... That affects me.

minipie Tue 05-Oct-10 19:24:03

cross posted and agreed Wilf

ColdComfortFarm Tue 05-Oct-10 19:25:14

maximise income is one thing, pretend to earn less in order to claim state benefits paid for out of taxation is quite another, surely?
I am very tired of people whose earning put them in the top 15per cent whining and whining about not being allowed to claim state benefits. I even saw some ghasty woman on the news with a baby in a ££££ pram whining about not wanting to lose her benefits because she had a baybeee. She was at the TORY CONFERENCE so presumably a tory, and therefore completely happy to see cuts for everyone else, like those pesky poor people who fall into the 85per cent of people earning less than £43K, but seemed to shocked to her core about losing out herself. Cuts, it seems, are always alright as long as they are for other people.

ChasingSquirrels Tue 05-Oct-10 19:26:09

I AM doing this, with tax credits.
I am a single mother, on £26k.

I was paying pension contributions anyway, but not as much as we were putting lots into my ex's (when he wasn't an ex) pension as he got 40% tax relief, and matched employer contributions. Paying into his instead of mine made much more sense.
He left me.
I needed to increase my pension contributions to provide for my own future.
I would have done so anyway.
An additional benefit is that my "tax credits income" is reduced and therefore I receive more tax credits.

This is the system.

Why should I feel bad about doing that?

I also paid childcare costs, and got tax credits in relation to those.
Should I feel bad about that?

greenfly Tue 05-Oct-10 19:26:22

Nonsense Wilf. Why do people always shrug the blame elsewhere? What happened to all the big talk about how we were in the mess together and had to sort it out together? As soon as a cut is announced that actually impacts on some section they instantly start bleating about how it should impact somewhere else.

Why do 'single mothers' always have to get dragged into it? A single mother on 44k is a very well-off single mother.

TheCrackFox Tue 05-Oct-10 19:28:22

Why don't you write to Gideon and ask him to get rid of this anomaly too?

greenfly Tue 05-Oct-10 19:32:22

minipie the mentality is the same as for benefit cheats 'this shouldn't apply to ME' - legal loophole or not.

ChasingSquirrels Tue 05-Oct-10 19:34:26

it isn't a legal loophole though - it is a tax benefit put in place to encourage people to save money into their pension. To provide for themselves - so that, in later years, the state doesn't have to.

It isn't something that the government/HMRC don't know about.

DinahRod Tue 05-Oct-10 19:35:05

It is possible to use salary sacrifice childcare vouchers and possibly also increase pension contributions to bring you under the cut off point and regain CB. But you would probably only do this if you were on the 44k threshold or a bit above. Public sector workers might also want to wait for the govt pension review which may well achieve this automatically for dh's salary.

lilac21 Tue 05-Oct-10 19:35:20

So a single mother on 44k is a very well off single mother? Well, right now my mortgage is £850 a month, but likely to be over £1000 quite rapidly once the base rate starts to increase. Add on the fuel, petrol, council tax etc and that £140 a month child benefit makes a big difference to me.

With the 40% tax threshold being pushed downwards, I am certain to be affected by this. I will accept that, as I know I am considerably better off than millions of people (I actually earn £42k but have had a public sector pay freeze), but I cannot accept that two parents earning £40k each can get the benefit when I cannot. It's daft and unfair.

LeninGrad Tue 05-Oct-10 19:35:44

This is the problem with flat rate tax and the lack of a progressive approach. There is always someone on the threshold.

greenfly Tue 05-Oct-10 19:36:48

Chasingsquirrels - they would be using a benefit, intended to help those in greatest need, to boost their pension. Is that morally right?

greenfly Tue 05-Oct-10 19:39:27

Lilac - yes of course you are well off for goodness sake and you presumably chose to have such an enormous mortgage. I agree with your point that it is unfair to allow two earning parents to claim, they will have to scrap that.

DinahRod Tue 05-Oct-10 19:40:23

The govt is very likely going to get 1000s of public service workers to boost their own pensions in the govt review.

TheCrackFox Tue 05-Oct-10 19:40:26

£850 a big mortgage? You couldn't buy a one bedroom flat in Edinburgh for that.

greenfly Tue 05-Oct-10 19:41:34

If you think that is a normal mortgage then you really are completely out of touch.

sanfairyann Tue 05-Oct-10 19:41:38

you can also reduce your income for tax credits purposes by taking into account donations to charity. we didn't know that and no doubt got less money than we could have done. also had no idea we could claim housing benefit when working. ah well. am definitely not missing any chance to reduce income this time round

choufleur Tue 05-Oct-10 19:41:40

If you're just over the threshold you might be able to "buy" some extra holiday from your employer?

It's not fraud if you don't actually earn enough to not qualify for the benefit. It would fraud to claim for two children if you only had one for example, or claim single person council tax benefit if someone else lives in the house with you.

It's the same difference as tax avoidance and tax invasion imo. One is taking advantage of the system the other is defrauding it.

TheCrackFox Tue 05-Oct-10 19:44:28

You could take unpaid parental leave.

retiredgoth2 Tue 05-Oct-10 19:47:25

We have six children between us, so about 5k of child benefit.

I've just gone back full time, so from the 2011-2012 tax year (including unsocial hours) I anticipate earning about 45k.

My partner is self employed and makes only a very small (sub 5k) profit, but loves the work and is fantastic at it.

So, if this proposal goes ahead, I will reduce from 37.5 hours a week to 30, thus keeping in the standard tax threshold. I figure that I will then be even financially, and have an extra day off a week...

I'm not sure that this was the intended effect..

ChasingSquirrels Tue 05-Oct-10 19:48:58

yes, I think it is morally right.
The benefits we are talking about are not "designed to help those in greatest need", they go to a much larger population than that.
I am using part of that benefit to provide for my own future.
Others are using it to pay the mortgage or the rent.
Others are using it to eat.
Everyone had made different choices to get to where they are, and some have not had the opportunity to make those choices.

Personally I think the system is crap and that tax credits (not what this thread started about) go to far far too many people.

But, that is the system that the Labour government put in place, to continue to bolster the consumer society and to enable people to live beyond their, and the country's, needs.
Until the system is changed - which I think it should be - I am as entitled to the tax credits I get based on my income of £26k less my pension contributions of £3k as someone earning £23k in the same family dynamic would be.
I have no moral dilemma in that at all.

vespasian Tue 05-Oct-10 19:49:26

So lower earners should support your decision to have six children and your partner playing at running a business.

TheCrackFox Tue 05-Oct-10 19:58:35

Vespasian, maybe you would like to click on to Retiredgoth's profile? And then you could think about apologising afterwards? smile

greenfly Tue 05-Oct-10 19:58:55

They 'go to a much larger population than that' but they were intended to help those in greatest need, like all benefits. You are using part of it to provide for your future. A child benefit? I certainly find that immoral.

retiredgoth2 Tue 05-Oct-10 20:00:24

I'm a widower who now has a new partner.

The total is six kids. I could have continued as a lone parent receiving widowed parent allowance, and my partner could have continued receiving full housing benefit. However we elected not to.

Oh. Two of the kids are autistic, too. And we both work full time and care for them.

So plainly we are scroungers, Vespasian. Yes.

I don't mind a benefit cut, as such. It's the lack of forethought and patent unfairness that troubles me. Tax it, instead. I'd willingly pay.

I just don't see the logic, given our family situation, of working an extra day a week effectively for nothing, whilst also paying for child care on that...

ChasingSquirrels Tue 05-Oct-10 20:12:18

I honestly don't believe they were intended to help those in greatest need.
If that were the case why do families on £50k get tax credits.

You clearly do find it wrong.
I clearly don't.

ChasingSquirrels Tue 05-Oct-10 20:12:55

to help ONLY those in greatest need.

I believe they were the Labour government buying another term in office.

BelleDameSansMerci Tue 05-Oct-10 20:15:14

Squirrels thanks for clarifying the point earlier about when the tax threshold is set. I hadn't realised really how it works.

mike1May Tue 05-Oct-10 20:17:34

I am amazed at some of the responses on this thread; the assumptions made; and the lack of generosity of spirit displayed by some people.

To everyone else - thanks for the replies.

sincitylover Tue 05-Oct-10 20:28:24

greenfly - another not a well off single parent on a similar income to Lilac - in my case rent on a very small 3 bed house is #1380 pcm.

I struggle, no spare money left over and scrape around for food towards the end of the month.

I will also consider like Retired Goth working four days or paying more pension or similar.

I live in London and my work is only about four miles away - would be loathe to move too much further away and anyway any reduction in rent would be offset by travel.

sincitylover Tue 05-Oct-10 20:30:02

think that the people who are really lining their pockets and safeguarding their at the taxpayers expenses are those bankers who will be receiving the enormous bonuses.

sincitylover Tue 05-Oct-10 20:30:23

their future

blijemuts Tue 05-Oct-10 20:34:38

My husband will also reduce his hours or employ me for a very small annual wage to dip his income by a few hundred pounds to avoid losing CB. We are SO close to the limit and already on an extremely tight budget that we think that would be justifiable. Am at peace with losing Family Working Tax Credit or whatever it's precise name is but really need to keep hold of child benefit.

Tootlesmummy Tue 05-Oct-10 20:34:53

Vespasian, do you feel the same about low paid people who have lots of children and expect the higher paid to pay for their upkeep?

vespasian Tue 05-Oct-10 20:45:51

Yes I do Tootles. If people are on benefits because of a disability they are like anyone else entitled to have children, within in reason I would say up to two.

If don't think anyone should have more han 2 children that they can't pay for themselves, ( usual disclaimer about someone who used to be a millionaire but then lost it all - they should not have to give their kids up or send them up chimneys to pay for food)

I am a HRT, I can at present only afford one child. I have one. I am working damned hard to get myself into a position to have two.

Tootlesmummy Tue 05-Oct-10 20:51:15

That's ok, I've read numerous posts this last couples of days where people are saying that HRT payers should only have as many children as they can afford but forget to say those on benefits (usual disclaimer as you say!) should also adhere to the same rules!
I too am a HRT and I only have one child as that's all I can afford.

I agree the government need to do something re the debt the country has and I would accept this but the fact they're going to introduce it in a half arsed way I am not at all surprised that people are looking to see if they can continue to get it.

if they sorted out the discrepancies then I think (or maybe hope!) that others would be less likely to look at ways to get around it.

vespasian Tue 05-Oct-10 20:51:16

I didn't know retired goths background, I am not someone who looks at profiles. I don't have one myself.

I apologise for offendeding you. I posted based on what you have typed. I don;t understand if he works full time and only earns 5K, could he not do something else? I honestly don't mean to offend at all, I just don't understand and am clearly missing something.

catinthehat2 Tue 05-Oct-10 20:54:38

Or see if you can buy a day's holiday for £200 to get you under the HRT threshold.

It's going to happen.

retiredgoth2 Tue 05-Oct-10 21:07:16

I see in retrospect how what I wrote could be misconstrued..

So apology accepted and offered in return.

Ye, ultimately my partner could do a range of well paid professional jobs if she chose. She has done it unhappily in the past. She chooses to be a happy psychotherapist instead. It is, I accept, a choice.

And I am not pleading poverty. I just don't see the logic in the bluntness of this change. The imperative created is a counter productive one..

...because, as it stands, it presents me with a choice. I can work 30 hours a week and receive a (very good I accept) total of 45k. Or I could work 37.5 hours and receive the same.

I had thought the benefit changes were intended to encourage work..

vespasian Tue 05-Oct-10 21:16:23

Thankyou retiredgoth for being gracious in accepting my apology.

I can see how the plan to encourage people to work may backfire. Ironically it may encourage "Britain's hardworkers" as we love to call them to start working a little less.

I am overworked, tired and frustrated with broodiness, it can make me a bitch sometimes.

crox Sun 17-Oct-10 16:33:49

The key here should be fairness or equlity.

It is patently unfair for a family where the only income is earned by someone who earns just over the threshold losing out where as
a two income family can earn almost double the threshold and still claimconfused.

I will certainly be looking into salary sacrifice as my hope is for my children to go into further education and this money would have helped them, as by the time they get there lord knows how expensive it will behmm

sarah293 Sun 17-Oct-10 17:19:03

Message withdrawn

i wonder if the people on this thread who think the op is ok, are the same one who slag of benefit cheats

sarah293 Sun 17-Oct-10 17:19:58

Message withdrawn

sarah293 Sun 17-Oct-10 17:20:13

Message withdrawn

lucky1979 Sun 17-Oct-10 18:24:31

Retiredgoth2 - If you don't work those extra 7.5 hours, would your company have to hire someone else to do it? If so you can feel virtuous about getting someone else into part time work.

bethanbach Sun 17-Oct-10 20:29:24

Aren't they lowering the Higher tax threshold to 38K anyway so unfortunately OP, you will still lose CB

legostuckinmyhoover Mon 18-Oct-10 18:55:43

does anyone know about pension contributions and teachers or NHS staff in relation to tax credits? ie: do tax credits ignore what they contribute to their pensions? or is just if you pay into private pensions? just wondered as i have never heard of any of the things on this thread ever before! thanks

fsmail Tue 19-Oct-10 12:34:43

Salary sacrifice means that you are giving up your salary and reducing it for tax purposes so if it brings your DH below the higher rate tax bracket this will work. However, higher rate tax payers will be restricted on childcare vouchers from April so need to do it before 2013. They can be stored up to pay for holiday clubs though. I intend to increase my pension contributions as I am just over the threshold.

fsmail Tue 19-Oct-10 12:35:43

You can also buy extra holidays if your Company will allow it. Pension contributions do not have to be reduced by salary sacrifice to reduce your taxable income.

zombishambles Tue 19-Oct-10 12:58:10

Whats the restriction on the vouchers from April fsmail?

fsmail Tue 19-Oct-10 13:03:32

Higher rate tax payers will not get 40% tax relief unless they take them out before April 2011.

http://www.moneysavingexpert.com/news/health/2009/ 12/government-shelves-plans-to-scrap-childcare-vou cher-tax-relief

zombishambles Tue 19-Oct-10 13:05:53

So I need to swap them from me to dh- you can only do that at the end of the year anyway though cant you which presumably will be after the cutoff? childcare vouchers confuse me...though am hiding it well I know blush

fsmail Tue 19-Oct-10 13:36:35

You can do it anytime if your company allows.

zombishambles Tue 19-Oct-10 13:37:29

Mine locks you in for a year. Though dh can take some out as well cant he or can you only use one lot per child <still confused>

fsmail Tue 19-Oct-10 13:48:09

You can both take up to £243 per annum no matter how many children you have.

zombishambles Tue 19-Oct-10 15:52:53

so we can both claim for dd - upto the mount of the nursery fees iyswim - shes only there parttime. I should get on with that then...I thought only one set could be used per dc.

Rollmops Tue 19-Oct-10 16:19:28

"And [SHOUTING NOW] the poor STILL won't get the bloody money, will they Gideon?"
Well, the poor get enough (how many people starve to death in this country?[hmm), they do get their benefits, some much, much more than they deserve.
The 'money' is needed to pay off the black hole of deficit that Labour, ever so generously, gifted this country with.

ISNT Tue 19-Oct-10 17:40:26

People who are in poverty in this country don't tend to die of starvation. There are different risk factors, which result in people in the most deprived areas having a life expectancy a full 10yr+ lower than those in the wealthiest areas. To pretend that no-one is in poverty because we don't have people starving on the street is just silly.

Rollmops Tue 19-Oct-10 19:18:58

Oh please. Please don't flounce about with your 'relative' powerty.
You either are desperately poor or you are not.
Basic needs such as food, water, shelter, cothing and education are given to all in this country.
What some choose to do with their benefit money - spend it on booze/drugs/etc and concequently lower their life expectancy - is not taxpayers fault.

ISNT Tue 19-Oct-10 19:47:38

I'm not flouncing.

If you think that it is acceptable that some areas of deprivation have a life expectancy 10 years+ lower than other areas, then that is fine. You are clear where you stand, I am clear where I stand.

ISNT Tue 19-Oct-10 19:51:54

I find it incredible that anyone can be blase about so many people dying young, about the higher mortality in pregnancy, about the higher infant mortality, about the shocking life outcomes of children raised in poverty.

But then tories don't care about minor things like that, do they.

Well happily after tomorrow we might see families on the streets and struggling to feed their children, that will be a resounding result for people like you across the country. Let's get the bunting out early eh.

ISNT Tue 19-Oct-10 19:59:20

Fuck this I'm going to bed. Tomorrow is going to be awful. Well for me anyway, others will be strewing roses from their hats as the govt metaphorically stamps on the heads of the poorest children in society. Do have fun.

limonejelly Tue 19-Oct-10 20:00:02

<goes to stand with ISNT but doesnt have any bunting>

Rollmops Tue 19-Oct-10 21:04:58

The poorest of poor, as you put it, will still get the support they need. The middle classes will bear the most of the cuts.
Please, do try to comprehend, just a little.

zombishambles Tue 19-Oct-10 21:17:39

no they wont rollmops, they really wont. Studies have already shown that the poor will suffer disproportionately, as will women.

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