If most of your income is taxed under PAYE (Pay As You Earn) you may soon receive a reconciliation of the income tax you have paid compared to the amount that was due to be paid for 2013/14. This calculation arrives on a form P800, which should be checked very carefully for errors and omissions. If mistakes are missed they can be carried forward for several years, resulting in escalating amounts of tax over or under-paid.
For example the High Income Child Benefit Charge (HICBC) may be due where you earn over £50,000 and your family receives child benefit. But the HICBC will not be reflected in the P800 calculation, as HMRC can't accurately match child benefit claimants with the high earners in those families. If you believe you are due to pay the HICBC to claw-back the child benefit received, you need to register for a self-assessment and complete a tax return. We can help you with that.
Other common errors on the P800 arise from the changing value of taxable benefits, varying pension contributions, and estimated amounts of other income included in your PAYE code such as rents or interest.
If you have paid the right amount of tax under PAYE for 2013/14 you won't receive a communication from HMRC. If you have overpaid tax you should receive a cheque from HMRC within two weeks of the issue of the P800. Don't respond to emails promising a tax repayment - those are scams.
If the P800 shows you owe tax, that amount will normally be collected through your PAYE code for 2015/16. We can help you challenge the calculation if you think it's wrong, but we will need to see the P800 you have received, as HMRC don't send us a copy.
Showing posts with label Child Benefit. Show all posts
Showing posts with label Child Benefit. Show all posts
Monday, 7 July 2014
Monday, 2 June 2014
Marginal Tax Rates
What rate of tax would you pay on an additional £1 of earnings? If your annual income is between £41,865 and £150,000 you may think the tax rate would be 40%, but the peculiarities of the UK tax system mean you could pay much more.
To start with earned income above the 40% threshold carries a national insurance charge (NICs) of 2% so for every £1 you earn above £41,865 (for 2014/15) you will pay 42% in tax and NICs.
Child benefit is withdrawn from the highest earner in the family at the rate of 1% of the benefit for each £100 of income exceeding £50,000 per year. This translates into an effective marginal tax rate of 60% on income between £50,000 and £60,000.
When your income exceeds £100,000 your personal allowance is withdrawn at the rate of £1 for every £2 of income above £100,000. This is an effective tax rate of 62% including NICs.
From 6 April 2015 married couples will be able to transfer up to 10% of their personal allowance between them. This will allow up to £1,050 of the allowance to be transferred from the person who earns less than £10,500, to their spouse who earns up to the 40% threshold. Thus £1 of additional income that takes you over the 40% threshold will mean you lose the whole of that transferable allowance - an infinite marginal tax rate.
If you are able to control the level of your taxable income, perhaps because you run your own business, it makes sense to adjust your income to avoid those high marginal tax rates. Perhaps you could employ other members of your family, or take them into business with you as partners, to spread the business income.
Payments of pension contributions and Gift Aid donations can stretch your 40% threshold, so the higher earner in the family should making those charitable donations and pay pension contributions. We can help you plan to avoid the highest tax rates and make the best use of all allowances available.
To start with earned income above the 40% threshold carries a national insurance charge (NICs) of 2% so for every £1 you earn above £41,865 (for 2014/15) you will pay 42% in tax and NICs.
Child benefit is withdrawn from the highest earner in the family at the rate of 1% of the benefit for each £100 of income exceeding £50,000 per year. This translates into an effective marginal tax rate of 60% on income between £50,000 and £60,000.
When your income exceeds £100,000 your personal allowance is withdrawn at the rate of £1 for every £2 of income above £100,000. This is an effective tax rate of 62% including NICs.
From 6 April 2015 married couples will be able to transfer up to 10% of their personal allowance between them. This will allow up to £1,050 of the allowance to be transferred from the person who earns less than £10,500, to their spouse who earns up to the 40% threshold. Thus £1 of additional income that takes you over the 40% threshold will mean you lose the whole of that transferable allowance - an infinite marginal tax rate.
If you are able to control the level of your taxable income, perhaps because you run your own business, it makes sense to adjust your income to avoid those high marginal tax rates. Perhaps you could employ other members of your family, or take them into business with you as partners, to spread the business income.
Payments of pension contributions and Gift Aid donations can stretch your 40% threshold, so the higher earner in the family should making those charitable donations and pay pension contributions. We can help you plan to avoid the highest tax rates and make the best use of all allowances available.
Tuesday, 1 October 2013
Child Benefits When Turn 16
If you have a child aged 16, check whether you are still receiving all the child benefit and child tax credits you expect to.
Child benefit and child tax credit both stop automatically on 31st August on or after the child's 16th birthday, but where the child is in approved education or training, the parent who claims the child benefit is entitled to extend that claim until the child reaches their 20th birthday. 'Approved education' means at least 12 hours of supervised study per week, and the training can include an apprenticeship.
From September 2013 children who live in England (the rules are different in Wales, Northern Ireland and Scotland) are required by law to remain in education or training until the end of the academic year in which they turn 17. So there are a lot of families out there with 16 years olds who are in approved education, but who have lost their child benefit.
If you are one of those parents, and you want to continue to receive the child benefit, you need to contact the Child Benefit office at HMRC, to inform them that your child is still in approved education or training.
Similar rules apply for child tax credit. In that case the claimant must contact the Tax Credit office.
Although child benefit and child tax credit are both administered by HMRC, you need to inform them twice, as one section of HMRC cannot pass the relevant information to another part!
You may prefer not to receive the child benefit if you or your partner/spouse earns £50,000 or more. In that case all or part of the child benefit paid to your family is clawed-back through the operation of the high income child benefit charge (HICBC). HMRC has written to some of the parents who may be due to pay the HICBC, but not all, as they cannot correctly identify every person who may be liable to pay the charge.
If you are the highest earner in a family that has claimed child benefit since 7 January 2013, and your total income is £50,000 or more, you need to declare that child benefit on your tax return form. If you don't normally complete a self-assessment tax return form, you need to ask HMRC to set you up on the self-assessment tax return system. We can help you with that, but don't delay, as if you fail to complete the tax return form on time there will be automatic penalties to pay.
Child benefit and child tax credit both stop automatically on 31st August on or after the child's 16th birthday, but where the child is in approved education or training, the parent who claims the child benefit is entitled to extend that claim until the child reaches their 20th birthday. 'Approved education' means at least 12 hours of supervised study per week, and the training can include an apprenticeship.
From September 2013 children who live in England (the rules are different in Wales, Northern Ireland and Scotland) are required by law to remain in education or training until the end of the academic year in which they turn 17. So there are a lot of families out there with 16 years olds who are in approved education, but who have lost their child benefit.
If you are one of those parents, and you want to continue to receive the child benefit, you need to contact the Child Benefit office at HMRC, to inform them that your child is still in approved education or training.
Similar rules apply for child tax credit. In that case the claimant must contact the Tax Credit office.
Although child benefit and child tax credit are both administered by HMRC, you need to inform them twice, as one section of HMRC cannot pass the relevant information to another part!
You may prefer not to receive the child benefit if you or your partner/spouse earns £50,000 or more. In that case all or part of the child benefit paid to your family is clawed-back through the operation of the high income child benefit charge (HICBC). HMRC has written to some of the parents who may be due to pay the HICBC, but not all, as they cannot correctly identify every person who may be liable to pay the charge.
If you are the highest earner in a family that has claimed child benefit since 7 January 2013, and your total income is £50,000 or more, you need to declare that child benefit on your tax return form. If you don't normally complete a self-assessment tax return form, you need to ask HMRC to set you up on the self-assessment tax return system. We can help you with that, but don't delay, as if you fail to complete the tax return form on time there will be automatic penalties to pay.
Monday, 16 September 2013
High Income Child Benefit Charge (HICBC)
You may recall we told you about the new HICBC in November 2012 tax tips. It came into effect on 7th January 2013 and as we prepare the 2012/13 income tax returns, many of you are beginning to see this new rule take effect.
If you and your partner’s joint income for the tax year is £50,000 or more and one of you receives child benefit then the HICBC could affect you: The charge is 1% of child benefit for every £100 above £50,000 and if household income exceeds £60,000 then the HICBC will be 100% of the child benefit for that period.
In 2012/13 the charge is based on the amount of child benefit you were entitled to receive for the period 7th January 13 to 5th April 2013 (i.e. 13 weeks worth). From April 13 the charge will be based on the full year’s entitlement to child benefit.
It is included within the self assessment income tax calculation and will be payable to HMRC along with any income tax due – so the HICBC for 2012/13 is payable by 31st January 2014.
You will be asked about child benefit on your Defacto self assessment income tax checklist – if you or your partner receives child benefit then you must answer yes to this section. We will then contact you regarding additional information needed. As HICBC is paid by the higher earner we may need to ask for details of your partner’s income so that we can establish who should incur the charge.
If you and your partner’s joint income for the tax year is £50,000 or more and one of you receives child benefit then the HICBC could affect you: The charge is 1% of child benefit for every £100 above £50,000 and if household income exceeds £60,000 then the HICBC will be 100% of the child benefit for that period.
In 2012/13 the charge is based on the amount of child benefit you were entitled to receive for the period 7th January 13 to 5th April 2013 (i.e. 13 weeks worth). From April 13 the charge will be based on the full year’s entitlement to child benefit.
It is included within the self assessment income tax calculation and will be payable to HMRC along with any income tax due – so the HICBC for 2012/13 is payable by 31st January 2014.
You will be asked about child benefit on your Defacto self assessment income tax checklist – if you or your partner receives child benefit then you must answer yes to this section. We will then contact you regarding additional information needed. As HICBC is paid by the higher earner we may need to ask for details of your partner’s income so that we can establish who should incur the charge.
Thursday, 1 November 2012
Reducing the Child Benefit Tax Charge
You may have received a letter from the Taxman about the high income child benefit charge (HICBC), which is designed to claw-back child benefit from high earners. We explained the principles of this charge in our September 2012 newsletter.
If you or your spouse/partner claim child benefit, and either one of you have income of over £50,000 per year, your family will be subject to the HICBC to claw-back part or all of the child benefit paid from 7 January 2013. The charge must be paid by the highest earner in the family irrespective of who actually receives the child benefit.
If you are the highest earner in the family, you will need to report the amount of child benefit the family receives on your self-assessment tax return. For 2012/13 this is only the child benefit received after 7 January 2013, but in future years it will be the full amount of child benefit received in the tax year. This will lead to a charge added to your tax bill due by 31 January 2014, or the charge may be collected through your PAYE tax code in 2013/14.
If you want to avoid paying the HICBC you and your partner/ spouse can:
a. elect not to receive child benefit from 7 January 2013; or
b. reduce the higher earner's adjusted net income.
You will be able to reverse the election in a) if your income drops, but you may miss out on some child benefit due to timing issues. Thus if your income is likely to be variable making an election not to receive child benefit is unlikely to be the best solution.
Your 'adjusted net income' could be reduced by using any or all of the following methods:
- Pay more personal pension contributions in the tax year. Make sure these contributions are paid by you and not by your employer.
- Increase the Gift Aid donations you make. Channel all the Gift Aid donations made by the family though the highest earner's bank account. Remember Gift Aid donations can be carried back to give relief in the previous tax year, if the donations are made before the tax return for that earlier tax year is submitted.
- Reduce the amount of income you extract from your own company and instead employ your spouse or partner in your business. This will spread the income generated by the business more evenly between you both.
- If you trade as a sole-trader you could take your spouse /partner into partnership, and again look to spread the income between you.
- Where you and your spouse/partner already trade as a business partnership, consider changing the profit sharing ratios so you each receive a more even amount of profit.
- If you are not domiciled in the UK you can adjust the amount of income you remit to the UK.
- If you are married and living with your spouse, you can transfer assets to your spouse that generate income such as shares, savings or let property. Transferring assets between individuals who are not married may well create a tax charge.
Please talk to us about how to undertake any of these planning ideas before trying to implement them to ensure they are appropriate in your own circumstances.
If you or your spouse/partner claim child benefit, and either one of you have income of over £50,000 per year, your family will be subject to the HICBC to claw-back part or all of the child benefit paid from 7 January 2013. The charge must be paid by the highest earner in the family irrespective of who actually receives the child benefit.
If you are the highest earner in the family, you will need to report the amount of child benefit the family receives on your self-assessment tax return. For 2012/13 this is only the child benefit received after 7 January 2013, but in future years it will be the full amount of child benefit received in the tax year. This will lead to a charge added to your tax bill due by 31 January 2014, or the charge may be collected through your PAYE tax code in 2013/14.
If you want to avoid paying the HICBC you and your partner/ spouse can:
a. elect not to receive child benefit from 7 January 2013; or
b. reduce the higher earner's adjusted net income.
You will be able to reverse the election in a) if your income drops, but you may miss out on some child benefit due to timing issues. Thus if your income is likely to be variable making an election not to receive child benefit is unlikely to be the best solution.
Your 'adjusted net income' could be reduced by using any or all of the following methods:
- Pay more personal pension contributions in the tax year. Make sure these contributions are paid by you and not by your employer.
- Increase the Gift Aid donations you make. Channel all the Gift Aid donations made by the family though the highest earner's bank account. Remember Gift Aid donations can be carried back to give relief in the previous tax year, if the donations are made before the tax return for that earlier tax year is submitted.
- Reduce the amount of income you extract from your own company and instead employ your spouse or partner in your business. This will spread the income generated by the business more evenly between you both.
- If you trade as a sole-trader you could take your spouse /partner into partnership, and again look to spread the income between you.
- Where you and your spouse/partner already trade as a business partnership, consider changing the profit sharing ratios so you each receive a more even amount of profit.
- If you are not domiciled in the UK you can adjust the amount of income you remit to the UK.
- If you are married and living with your spouse, you can transfer assets to your spouse that generate income such as shares, savings or let property. Transferring assets between individuals who are not married may well create a tax charge.
Please talk to us about how to undertake any of these planning ideas before trying to implement them to ensure they are appropriate in your own circumstances.
Wednesday, 5 September 2012
Child Benefit Clawback
If your net taxable income last year was £50,000 or more you will shortly receive a letter from the Tax Office about child benefit. You can safely bin this missive if your children are no longer eligible for child benefit, but where you or your partner/spouse claim child benefit you need to pay attention.
This is because from 7 January 2013 the higher earner in the family (where that person has £50,000 or more of income) will be landed with a tax charge to clawback the child benefit claimed in respect of the children. The tax charge will equal 1% of the child benefit received by the family for every £100 of income over £50,000, so 100% of the child benefit will be clawed-back when the higher earner has net taxable income of £60,000 per year.
The tax charge only applies to child benefit paid from 7 January 2013 onwards, and will be calculated on your net taxable income for the current tax year: 2012/13. Net taxable income is income after deduction of losses, pension contributions and gift aid payments but before personal allowances. So there is some scope for reducing your net income below £50,000 by paying pension contributions, gift aid donations, or by taking a smaller dividend from your own company in the current tax year. But those strategies, and other ways to manage your income, need to continue until the children are no longer eligible for child benefit.
You will be given the option of declining to receive child benefit to avoid the tax charge, and this will be explained in the Taxman's letter. However, this is not the same as not making a claim for child benefit. It is important to make a claim for child benefit (even if you decline to receive it) as the claim can help entitlements to the state pension for a non-working parent, and ensures the child receives an NI number at age 15.
This is because from 7 January 2013 the higher earner in the family (where that person has £50,000 or more of income) will be landed with a tax charge to clawback the child benefit claimed in respect of the children. The tax charge will equal 1% of the child benefit received by the family for every £100 of income over £50,000, so 100% of the child benefit will be clawed-back when the higher earner has net taxable income of £60,000 per year.
The tax charge only applies to child benefit paid from 7 January 2013 onwards, and will be calculated on your net taxable income for the current tax year: 2012/13. Net taxable income is income after deduction of losses, pension contributions and gift aid payments but before personal allowances. So there is some scope for reducing your net income below £50,000 by paying pension contributions, gift aid donations, or by taking a smaller dividend from your own company in the current tax year. But those strategies, and other ways to manage your income, need to continue until the children are no longer eligible for child benefit.
You will be given the option of declining to receive child benefit to avoid the tax charge, and this will be explained in the Taxman's letter. However, this is not the same as not making a claim for child benefit. It is important to make a claim for child benefit (even if you decline to receive it) as the claim can help entitlements to the state pension for a non-working parent, and ensures the child receives an NI number at age 15.
Tuesday, 13 July 2010
Young People and Taxes
The summer is here and the exams are over, so many young people will be leaving school or college this month to take their chances in the jobs market. It is a daunting prospect; trying to cope with the tax and benefits systems for the first time.
If your child is in this position you could point them towards the HMRC website designed for 16 to 19 year olds: http://www.taxmatters.hmrc.gov.uk
It covers topics such as NI and how the NI number is important, what is PAYE and self-assessment. There are also quizzes and a teacher's area including materials teachers can use to explain tax to different age groups of students.
As a parent you may need to tell HMRC that your child is no longer in full-time education.
- Child benefit is paid until 31 August following the child's 16th birthday, but after that date the benefit if only paid while the child is under 20 and in relevant education or training, or is aged under 18 and is registered for work, education or training with an approved body. You can provide the relevant details to HMRC using an online form on their website, or by phoning the child benefit helpline on: 0845 302 1444.
- If you are claiming Child Tax Credits for that child you also need to inform the Tax Credits Office that your child is no longer in full-time education. You can only do this by telephone on 0845 300 3900 as the online forms for Tax Credits were taken down some years ago due to fraud.
Although Working and Child Tax Credits are administered by HMRC who also administer Child Benefit, you will need to make to make a separate call to the Tax Credits office as their computers are not linked into the Child Benefit system.
If your child is in this position you could point them towards the HMRC website designed for 16 to 19 year olds: http://www.taxmatters.hmrc.gov.uk
It covers topics such as NI and how the NI number is important, what is PAYE and self-assessment. There are also quizzes and a teacher's area including materials teachers can use to explain tax to different age groups of students.
As a parent you may need to tell HMRC that your child is no longer in full-time education.
- Child benefit is paid until 31 August following the child's 16th birthday, but after that date the benefit if only paid while the child is under 20 and in relevant education or training, or is aged under 18 and is registered for work, education or training with an approved body. You can provide the relevant details to HMRC using an online form on their website, or by phoning the child benefit helpline on: 0845 302 1444.
- If you are claiming Child Tax Credits for that child you also need to inform the Tax Credits Office that your child is no longer in full-time education. You can only do this by telephone on 0845 300 3900 as the online forms for Tax Credits were taken down some years ago due to fraud.
Although Working and Child Tax Credits are administered by HMRC who also administer Child Benefit, you will need to make to make a separate call to the Tax Credits office as their computers are not linked into the Child Benefit system.
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