Idiots guide to child benefit changes please!

[bangersmashandbeans]

My husband earns just over 50k but with bonuses etc it is over 60k. Can someone please explain what we do about child benefit when it changes in January? It is calculated on 'adjusted net income' - what does this mean?! Is it the figure after pension contributions but before income tax and other taxable deductions? Have looked on various websites but can't make sense of it. Thanks!

OP you could be me my DH also earns about 50k and then with bonuses around 60k, I am slightly concerned that we have not yet received a letter to say the child benefit is stopping..... All we need is a letter next year asking for it all back!

MoreBeta, \link{http://www.hmrc.gov.uk/childbenefit/start/claiming/protect-pension.htm\confirmation} for you

Ponders - thank you.

Do look at the link above in Ponders' post everyone. It is really important.

"How claiming Child Benefit can protect your State Pension"

Hello, our content page on child benefit changes hopefully answers some of your questions.

Bangers you could put the CB in savings as you receive it, then it will be there to pay the bill.

Bling if your DH doesn't get paid his bonus until Jan-Mar, it's possible HMRC haven't picked up on the need to send you a letter as on current earnings you wouldn't be over the threshold for 2012-13 tax year.

The pension contributions are pretty standard corporate pension ones where X amount is taken from DH and company contribute X amount.

Without seeing the payslip, P60 or pension statement it is impossible to tell whether your DH is entitled to claim back 25% of (the second) X.

Bling if your DH doesn't get paid his bonus until Jan-Mar, it's possible HMRC haven't picked up on the need to send you a letter as on current earnings you wouldn't be over the threshold for 2012-13 tax year.

HMRC have no idea what anybody's current earnings are so the letters are based on last year's earnings. But the obligation is on you to declare this even if you don't get a letter - HMRC will find out in May how much you earned through PAYE in 2012/13 and will catch up with you then.

"The most important message is keep claiming your family allowance even if you or spouse are over earning threshold."

It hasn't been called family allowance for decades.

"I read a thread a while ago on MN that if a non working SAHM doesnt keep claiming Child Benefit you will not be credited with your NI stamp."

It hasn't been called "NI stamp" for even longer.

"Many women will stop claiming in the mistaken belief they cant claim Child Benefit now because their DH earns 'too much' and not realise they are damaging their future state pension. What they should do is keep claiming and then sort it out later via DHs tax return."

I don't think they will: the letter, the CB claim form and the HMRC web site are all pretty clear that you can still claim eligibility for CB whilst disclaiming receiving it.

Nevertheless my advice, in line with most other advisors, is to keep claiming it not because it is the only way to protect your basic state pension, but because you get to keep the cash in the bank and if for any reason you start becoming entitled to all or part of it again you don't have to do anything or wait for it to be sorted out - and given that the circumstances leading to that situation are redundancy, separation or bereavement you really don't want uncertainty or delay.

Trust a bloody mumsnetter to get manage to get snipey over the simplest and least controversial of threads! Wrong side of bed MrAnchovy?!

Could have done with a few s I suppose, but I can be much grumpier than that!

Sorry if I have offended you.

MrAnchovy, do you work for HMRC by any chance?

Not offended just bemused at how vexed you seem!

MrAnchovy, do you work for HMRC by any chance?

now that would make me REALLY grumpy!

Sorry, hope I didn't offend you. You have always been very helpful to me on these threads. Just wondered as you seem to know so much about all this and how HMRC works

MrA I didn't think you seemed grumpy, just informative!

"And the sodding government are expecting us joe bloggs normal people to be able to work this out?! "

They expect people to start completing self-assessment returns. It's not as difficult as it sounds and there is very reasonably priced software available from places like TaxCalc to enable novices to complete and submit returns online. I seem to get a rebate most years.

So keep claming but, come next April/May when your DH gets his P60s,P11Ds and so on, submit the self-assessment

I though MrAnchovy was quite helpful actually.

To clarify one point - if an employee is getting mid £50k and paying a given percentage into a company pension, those contributions are going to be paid with 40% tax relief (as opposed to 25%, as deducted 'at source' means it would reduce the taxable amount of his or her salary).

So, unless your pension provider went bust, even if it only performs mediocrely (if that is an adverb), it's a far more effective way of long-term saving as you're effectively getting £140 for every £100 you save even before the money's invested.

So is that generally seen as the best way of reducing the 'adjusted net income' (assuming you can afford to)? With 2 kids, given that every thousand pounds you reduce your 'adjusted net income' over £50k saves you £175 (i.e. 10% of your CB), the annual return on an extra £1000 pension contribution is immediately £175, or 17.5% of that £1000, which is far better than anything you'd get in a savings account/bond. Plus your pension pot would increase.

Is that thinking right?

We opted to tick the box to stop receiving the CB payment, but still "claim" CB. This means DH still gets the credits towards his pension if he is out of work in the future, but we don't have to worry about being paid the money then handing it all back again via self-assessment

The good news is that the online form is really simple to complete if you have your NI and CB number - it literally took three minutes. (No acknowledgement email or any other audit trail to say that it has been accepted / processed, mind....)

"And the sodding government are expecting us joe bloggs normal people to be able to work this out?! Are they fecking serious??!! "

The 'sodding government' are expecting you to submit a tax return. I'd recommend he does that because I think he's missing out. For example, he's only getting 20% tax relief on his pension contributions at the moment when he could actually get 40%... so he's missing out. If he makes any charitable contributions he could get the tax back on those. Lots of people are paying too much tax and never realise until they go self-assessment.

Can highly recommend spending £25 or so on a personal taxation package called 'TaxCalc'. Makes calculating tax and submitting returns very simple. You may gain rather than lose.

Maybe I'm missing something somewhere but how much money do the government really think they are going to save?? The amount of extra work this has created is unbelievable. Surely much money money would be generated by changing rules and ensuring that companies pay the tax that they should

I can see why £60k is seen as a good marker, but because they're getting away with this, how long before they bring to amount down?

I would like to thank mumsnet though for their explanation in English!!

Marking place

it's a far more effective way of long-term saving as you're effectively getting £140 for every £100 you save even before the money's invested.

There are various ways of paying pension contributions. The most advantageous is salary sacrifice, which means you get relief from NI (as does your employer) as well as Income Tax. If you sacrifice £1,000 of salary your net pay will decrease by £580 which is a little over £172 into your pension for every £100 reduction in net pay.

If your pension contributions are simply deducted from gross pay then for £1,000 pension contributions your net pay will decrease by £600 which is over £166 into your pension for every £100 reduction in net pay.

And if your pension contributions are deducted from net pay with the pension provided claiming 25% (THIS IS A COMMON ARRANGEMENT AND IF IT APPLIES TO YOU YOU MUST COMPLETE A TAX RETURN OTHERWISE YOU ARE THROWING AWAY £THOUSANDS), if you make a net contribution of £800 your pension provider will claim back £200 and you can claim back £200 through your tax return so again you get over £166 into your pension for every £100 reduction in net income.

The savings for upper rate taxpayers are proportionately higher.

So, unless your pension provider went bust

Pension funds are ring-fenced so they are not materially affected by the provider going bust. Note however that there will be charges which apply on funds entering and/or exiting the scheme as well as annual charges, and if there is a collapse in the value of the underlying investments you may lose money.

So is that generally seen as the best way of reducing the 'adjusted net income' (assuming you can afford to)? With 2 kids, given that every thousand pounds you reduce your 'adjusted net income' over £50k saves you £175 (i.e. 10% of your CB), the annual return on an extra £1000 pension contribution is immediately £175, or 17.5% of that £1000, which is far better than anything you'd get in a savings account/bond. Plus your pension pot would increase.

Yes. So the reduction in your net income for the £1,000 pension contribution becomes £600 - £175 = £425 - an initial return of 135%! And that's with only 2 children, if you have 4 that becomes 250%.

Looking at it another way your marginal tax rate is 57.5%. For someone with 4 children it becomes 71.5% (and yes, if you are a claiming CB for 9 children it actually goes over 100% so the more money you earn, the less you take home).

Thank you MrAnchovy for confirming my thoughts. As a non-financial sort of person, it's good to get some feedback from someone who sounds like they know the system (although this being t'internet, you could be George Osborne and the head of the HMRC's love child, and we'd be none-the-wiser ).