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Tax Return Issues with Child benefit Tax charge

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Hi everyone,

 

Just looking for some advice as this is the first year I have had to deal with this. My income was above £50k for 2020/2021 and we receive the child benefit payment for one child. I have completed my return but the calculation is incorrect. Firstly the tax code is standard £12,500 but mine is S1425L - I would have at least expected the tax code to be correct with RTI.

Secondly, there is no box to enter pension payments deducted from net salary (just the standard tax return box for private pension contributions). The guidance on the child benefit tax charge says income should be stated after pension deductions from net salary. If I enter these deductions in the standard box for private pension would that be ok or not?

 

Any advice would be most welcome.

 

Thanks

Euan

Replies (10)

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By armstrongbell
03rd Nov 2021 12:03

You may be as well to engage an accountant to help you through the process for this first year at least. The tax calculation is correct - it will show the standard personal allowance. Your tax code takes into account other items eg gift aid donations or employment benefits so that your salary collects a more accurate amount of tax. When you put those things on your tax return (if relevant) they will adjust the amount of tax due.

If you are saying that your employer deducts an amount from your salary after it has been taxed and pays it into a pension for you then that is a private pension contribution. However it is quite normal for the pension deduction to be taken before your salary is taxed so you get tax relief via your salary. In the latter case, you wouldn't put it on your tax return. You need to review your payslip and make sure you know how it is treated. An accountant can look at it for you and check the tax taken out and the pension treatment.

Thanks (2)
By Paul D Utherone
03rd Nov 2021 12:21

The S at the beginning of your tax code indicates that you are subject to Scottish tax rates.

The L at the end indicates the standard personal allowance, but that the code is 1425 not 1257 suggests that there are additions for other allowances or expenses (maybe an estimate to give you higher rate relief for pension contributions?).

If your pension contributions are personal from net of tax income (and not by salary sacrifice) then gross up the payment and show that in the standard personal pension box

Thanks (1)
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By rmillaree
03rd Nov 2021 12:40

" My income was above £50k for 2020/2021 and we receive the child benefit payment for one child. I have completed my return but the calculation is incorrect. Firstly the tax code is standard £12,500 but mine is S1425L - I would have at least expected the tax code to be correct with RTI."

Thats not how it works - the process of completing a self assessment return automatically corrects any flaws in your tax code in year . Note in limited circumstances employers canbe held liable for not actioning tax code changes but thats very rare and wont be relevant for you as you are within sa.

In summary if £50.00 too much tax was deducted in year due to "code being out of alignment" andyou end up with no other sources of taxable income your tax return when completed should generate a £50.00 refund to get you back on even stevens.

Note as there is only one combo computation done it can be quite complex working out whay your yearr end bill is what it is - thats where accountants come in. Bit like if your engine on the car won't start - hopefully we can expalin why - that will take our time though. Tax office may be able to help if you are lucky but it is"self assessment unfortunately" so onus is pretty much 100% on you to file correctly.

"I would have at least expected the tax code to be correct with RTI."

Chase your employer if they are using wrong tax codes - you shoudl periodically check and ensure employer is using correct.SA return should as mentioned above do necessary corrections.

"Secondly, there is no box to enter pension payments deducted from net salary (just the standard tax return box for private pension contributions). "
Yes there is its TR4 box 1

" The guidance on the child benefit tax charge says income should be stated after pension deductions from net salary."
You are in big danger of confusing two separte things - hmrc will try and help you be confused unfortunately - published guidance here is woeful.

Can you copy guidance you think says this - i think you will find spefically with regard to completing the tax return the guidance says nothing of the sort. That guidance probably simply says that when you caclulate your income to see if you have breached 50k you do that calcuation. That is noithing to do with completing an sa return box where you need to check those specific notes - fo sa purposes it will be p60 total you enter.

"If I enter these deductions in the standard box for private pension would that be ok or not?"
as advised TR box 1 for pension payments deducted from net salary - ensure you enter corerct total as specified - ie dont presume you enter gross or net - check guidance !

Thanks (1)
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By Paul Crowley
03rd Nov 2021 12:50

Pension
There are 2 types of pensions

https://www.google.com/search?q=net+salary+pension&rlz=1C1GCEA_enGB871GB...

Net pay ot not net pay
Treatment is different

Net pay means your P60 income is after deducting the pension, so pension MUST not be entered
Not net pay (term used by HMRC basic tools) means the P60 ignores the pension and you treat the pension paid as Basic rate tax deducted pension, and the basic rate band is increased to give the other 20% relief

Find out which type of pension it is

Thanks (2)
RLI
By lionofludesch
03rd Nov 2021 13:19

If you would care to say why your tax code is higher than what one would expect as standard, the replies may be less opaque.

Marriage Allowance, perhaps ? Would you still be entitled to that ?

I'd prefer not to stab in the dark but there are many unknowns here. Plus the complication that some issues are still decided by UK income rules despite you being a Scottish taxpayer.

Thanks (2)
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By euanc
03rd Nov 2021 13:57

Thanks to everyone for taking the time to reply.

I understand everything mentioned - I was forgetting I needed to enter the allowances reflected in my tax code in to the return hence why I expected to see the adjusted tax code used. The allowances received are for professional subscription, working from home allowance and higher rate pension.

I didn't realise I could enter the pension contributions I make, which are deducted form my salary after tax, in to the private pension contributions box.

Having corrected everything, all is now working out as I expected.

Again, thanks to all for taking the time to reply.

Thanks (2)
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By euanc
03rd Nov 2021 13:57

Thanks to everyone for taking the time to reply.

I understand everything mentioned - I was forgetting I needed to enter the allowances reflected in my tax code in to the return hence why I expected to see the adjusted tax code used. The allowances received are for professional subscription, working from home allowance and higher rate pension.

I didn't realise I could enter the pension contributions I make, which are deducted form my salary after tax, in to the private pension contributions box.

Having corrected everything, all is now working out as I expected.

Again, thanks to all for taking the time to reply.

Thanks (0)
Replying to euanc:
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By rmillaree
04th Nov 2021 11:43

" I was forgetting I needed to enter the allowances reflected in my tax code in to the return hence why I expected to see the adjusted tax code used."

Note you don't enter the allowances included on your tax code - this is a fundamnetal point - it is important to understand as not understanding this means its likely every tax returnyou submit will be wrong.

This is one of the issues with people tryingto do what isa highly technical submission themselves - unles you read the notes to every box diligently and do plenty of research its so easy to go off track andend up submiotting nonsensical infoto hmrc without meaning to do so ! Ie on your head be it.

What you do enter on the tax return is the specific deductions you can claim for this tax year. Whats on your tax code are billy basic estimates that hmrc are presuming you will pay no attention to when completing the tax return as you will be entering what youare allowed to claim for this tax year

"I didn't realise I could enter the pension contributions I make, which are deducted form my salary after tax, in to the private pension contributions box."

As helpfully pointed out by Paul Crowley ensure this is deffo a "relief at source type" payment into your pension - the proof of the pudding being 25% of amounts deducted from net pay being added into your pension pot by hmrc. The reason i point this out is that "deductions from net pay" and "net pay arrangements" are not the samething- one you do enter on tax return and the other you do not !

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Replying to rmillaree:
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By Hugo Fair
04th Nov 2021 13:21

"deductions from net pay" and "net pay arrangements" are not the same thing ... indeed the ludicrous labelling by HMRC of the two types has caused more confusion (and sometimes misery) than anything else for which they're directly responsible!

I, along with many others, have been trying to get the wording/labels changed for over a decade ... but, even with endorsement from DWP and from TPR, HMRC's heels are firmly dug in with no sign of change in recalcitrance.

Why is a change necessary? Because:
* In a Net Pay scheme, contributions are deducted from the employee’s gross salary (i.e. before tax has been deducted) ... which most people expect to be called a Gross Pay scheme!
whereas
* In a relief at source scheme, contributions are deducted from the employee’s net salary (i.e. after tax has been deducted) ... which most people expect to be called a Net Pay scheme!

Clear as the proverbial skip full of mud - and all because HMRC have applied labels from their perspective, not that of the poor benighted taxpayer.

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By Not Anonymous
03rd Nov 2021 19:19

Just for future reference, you don't simply copy everything from your tax code onto the return - you include everything that is relevant to the return you are completing, it's always possible that the tax code included things which weren't necessarily due for that year.

Likewise personal (relief at source) pension contributions may be provisionally included in your tax code but the amount you have actually contributed for the year could be more or less than the amount in your tax code.

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