Teachers- Child Benefit tax charge

[Icantaffordahugetaxbill]

I am beyond confused and would really appreciate some help. I have phoned child benefit who gave me conflicting information to when my friend called.

My salary from Sept is just over 50k. Previous to this I was on maternity so my taxable income for the year is around 30k.

When I phoned, the lady said I would have to pay the higher income tax charge.

My friend was told when she called she could deduct her pension contributions, which would leave her well under 50k. I was told it went on my “headline salary”. I asked if that meant “gross” and the lady told me it did.

I’ve no idea what “adjusted net income” means and everything I read is conflicting- some sites saying to deduct pension contributions, some not, some saying you can deduct union subscriptions, some not. The only consistent advice is to deduct gift aid donations. But deduct them from what, my 50k salary or my lower taxable income?!

I feel very dim trying to work this out!

If you are a teacher earning over 50k as in this is your gross salary, do you pay the tax charge?

My understanding is it is after pensionamd childcare vouchers but no other deductions.

The rules aren't specific to teachers, it's the same for everyone. There's information on line but if you've been searching for teacher specific answers that might be why you havent found it.

It’s after pension. For some people it’s worth upping pension contributions so they can keep claiming CB.

I asked about teachers because I can’t find clarity around whether pension contributions are paid before or after tax, and that seems to make a difference to what your “adjusted net income” is.

www.gov.uk/child-benefit-tax-charge

This gives a link to the calculator. Depending how much over £50k you are you will only pay a proportion back.

This is what’s confusing me!

www.gov.uk/guidance/adjusted-net-income

This would suggest your pension contribution is deducted before before tax is calculated www.tes.com/jobs/careers-advice/pay-and-conditions/understanding-teachers-pensions

As such, you won't be able to deduct these contributions from your salary when calculating child benefit tax.

To show the other side, my pension contributions (not a teacher) are taken after tax, so I pay income tax on the whole pay packet. I do get to deduct my pension contributions when calculating my income for the child benefit tax.

@Icantaffordahugetaxbill

I asked about teachers because I can’t find clarity around whether pension contributions are paid before or after tax, and that seems to make a difference to what your “adjusted net income” is.

That's not teacher specific either though, everyone is taxed in the same way and pension contributions through the payroll are taken off before tax is calculated.

@isitjustlockdown

Thank you, that’s what I’ve been trying to work out. When my friend phoned HMRC she was told she could deduct her pension, which would seem to be wrong and is what I’m worried about, that suddenly I will be caught out with a bill and a fine for several years thinking I don’t have to pay the charge.

I think I’m ok for this year as my gift aid donations should cancel out the little bit over. My mat leave confuses things further as I didn’t earn over 50k, I’ve had that salary since Sept.

Starting point is to look at "taxable pay to date" on your payslip. Depending on the pension scheme type, your pension contributions may already have been deducted from your taxable pay on payslips. In fact if you compare two consecutive payslips, you can usually work out whether the taxable pay to date increases by gross monthly or by gross monthly pay less your pension deductions. If the former, you deduct pensions contributions from you taxable pay to date for child benefit purposes, if the latter, it's already been deducted, so you use the taxable pay to date figure for your child benefit (you'd also need to tell HMRC separately to get it adjusted in your tax code for income tax relief).

The phrase 'adjusted net income' might be leading to confusion because net here doesn't mean the same as net when talking about salary before or after tax.

It's to do with pension contributions and the effect of benefits such as a company car, which would work the other way.

But if you're on just over £50k and make pension contributions, you'll still get all your CB as your salary on your P60 will be under £50k.

Gov.uk is pretty clear and has a calculator. It's always worth looking on the official site for this sort of thing, because unofficial sites can get it wrong or explain things in a confusing way.

When we were in this situation I just cancelled the child benefit ahead of time. Why don't you do that and then ask an accountant to check over the 2020-1 financial year for you. Likely you'll be within the limits. Child benefit isn't enough to make it worth the hassle of being dragged into the tax return system.

It's net of pension contributions but to be on the safe side, if you register to continue to receive child benefit but any money you aren't due is clawed back through tax, if your income does exceed the limit you won't be fined. Remember the amount us either you or your partner so if he/she is on over £50k you will get none/a reduction

@Icantaffordahugetaxbill

I asked about teachers because I can’t find clarity around whether pension contributions are paid before or after tax, and that seems to make a difference to what your “adjusted net income” is.

Your pension will be X% of your gross salary. You'll be able to check this by finding the information about your pension scheme, presumably available online if you're in the official teachers pension scheme and looking at your payslip and calculating the amount deducted as a percentage.

@Phineyj

When we were in this situation I just cancelled the child benefit ahead of time. Why don't you do that and then ask an accountant to check over the 2020-1 financial year for you. Likely you'll be within the limits. Child benefit isn't enough to make it worth the hassle of being dragged into the tax return system.

But you only pay a proportion back between £50 and £60k. We only opted out of payment when dhs salary went over £60k

@Phineyj

When we were in this situation I just cancelled the child benefit ahead of time. Why don't you do that and then ask an accountant to check over the 2020-1 financial year for you. Likely you'll be within the limits. Child benefit isn't enough to make it worth the hassle of being dragged into the tax return system.

Really?

If the OP did that, she'd be throwing away at least £1k pa plus the cost of an accountant completely unnecessarily for the sake of a simple calculation and, if the time comes that she earns more and needs to do a tax return, a few minutes of simple admin.

@FlyingBurrito if there’s another teacher on here earning similar and paying/not paying then I have an answer.

I don’t know if teacher/public sector pensions are different to private ones in whether they are paid before or after tax, I’ve only had a pension paid by a high street bank previously 15 years ago.

@isitjustlockdown has clarified that theirs is different. I didn’t know all pensions paid through payroll are paid before tax, now you’ve told me I know.

Perhaps I should have said teacher/public sector.

It depends on the kind of pension scheme. I would be very surprised if teacher pensions weren't taken before tax (and NI) were deducted. You should be able to tell from your payslip as there should be a section showing something like 'pensionable pay' and a section showing 'taxable pay' which will probably be the difference between your gross pay and the pension deductions.

Some people pay tax on their pension contributions and the tax is then added back into their pension - these people need to adjust their pay to take this into account for the child benefit charge. You almost certainly don't. You could consider making additional voluntary contributions to your pension, or if this isn't possible with the teacher scheme, open up a separate personal pension and pay in enough to take you below the limit for child benefit.

The child benefit charge is not on headline salary. It is on net 'income'. So if you have a side job, but to let or investments, that income also counts.

From the link above it appears that teacher pensions are paid before tax (like most workplace pensions). So your 'income' for child benefit purposes is salary-pension contribution.

Therefore if your salary is £55k, and you contribute 10% of your salary to pension via a pre tax workplace pension, then your 'income' for child benefit purposes is £50k and you would be eligible for full child benefit.

@Kazzyhoward now when I said that to the lady on the phone, that my taxable pay to date was £30k she said it didn’t matter and it went of my “headline salary” at the top of my payslip

You would complete a self assessment tax return as a high rate tax payer but should find you are not liable to repay cb after deductions for pension etc when you complete it. It would not be due until January 31st after the end of the relevant tax year.

They look at exactly how much you got paid in a particular financial year so if you had part of the year at 30k and part at 50k then you wouldn't be liable for the charge in that financial year

@dementedpixie thank you, that’s what I thought until I phoned but it looks like that lady was just wrong.

HMRC advisors are only human, they do get things wrong - would have cost me £12K on one occasion, if I'd listened to their advisors.