Childcare & 100%+ tax rate over £100k

[Childcare47]

I currently have one child in nursery. It’s expensive - £100 a day.

I earn over £100k. Between £100-125k I pay 60% tax (ie £10k take home), but I also lose tax-free childcare (ie £8k take home).

This is a 68% tax rate.

When my child turns two, under the proposed new ‘free hours’ system, I will be eligible for only 15 hours. The cost of losing the other 15 hours is £100 a week - £5,200 a year.

This will make my take home pay between £100-125k go down to £2,800.

This is an 89% tax rate.

I had hoped to have a second child. I suppose then I will be losing this £7,200 per child per year in childcare support - for two children at a time.

This will then leave me with a 117% tax rate between £100-125k. It will cost me £4,400 more in tax than I earn.

What behaviour is the government trying to incentivise among higher earners with this cliff edge?

I’d presumably be better off going down to four days a week, and reducing my salary by 20%?

So I assume the other parent doesn't earn £100k? In that case perhaps they should take more parental leave and bridge the gap between second child's birth and first starting nursery.

You’ve missed my point here - due to not being eligible for the scheme it’s costing me £29,400 to earn £25,000.

Therefore there is no point in earning the money.
I haven't missed your point at all. You seem to think that as someone earning £100k+ you should have your childcare expenses funded when your earnings places you in a the top tiny percentage of earners.

Tax free childcare is not a universal benefit.
Having children is a choice and they cost money.

You're presenting it like your income is being taxed at whatever rate you claim when it isn't. Your income is taxed at income tax thresholds.

Paying childcare for children you choose to have is not you being taxed more. The default is childcare is taxed.

I'm more bothered that parents earning less than the earning threshold on insecure contracts have to pay tax on their childcare than I am top earners moaning about not having their nurseries part funded.

@yoga4meinthemorning @PuttingDownRoots

Looked at the nanny option and it was >£4k a month once pension, employers NI etc was factored in.

Might make sense if I have two - no saving, but no more expensive.

This will turn into a typical MN debate where high earners are expected to just accept it.

Whether £100k puts you in the top 2% doesn’t factor in cost of living and accommodation for the location of where most of those jobs are, so salary alone is not a helpful factor to determine ‘richness’ as has been debated at length on MN.

The point here is I know many people at that salary (myself included) who determined it was no longer worth it. The government is now generating hardly any tax from us. There is a skills shortage and a gaping hole in the public finances. That is not sensible policy making.

The doctors thing though was largely to do with the quirk of them being in a final salary pension and going over the limits so they ended costing them more in tax to work the additional hour than the hourly rate, this was changed at recent budget. I don’t think the 45% is so much an issue and of course national insurance is lower once you get into higher rate tax bands so thst makes up for some of the increase

And this is why lots of my high earning friends moved to eg Dubai when the kids were really little. Cheaper childcare aka easier life and they managed to save lots of money due to the low tax rate. When they came back they had enough savings/deposit to buy a house.
These are the friends who had zero inheritances/help.

OP people on Mumsnet will tell you to be grateful that you have a great job… in reality you are paying taxes for the poorer in society (which most people don’t begrudge) but also for the very rich who aren’t paying on their wealth and the rich pensioners.
If government want high achieving women to keep breeding and paying taxes there has to be an incentive to do so. But you won’t get much sympathy here.

We both have jobs which would be just over 100k if we didn't take steps to reduce it.

We managed with 8-6 nursery, we just take it in turns and occasionally finish up in the evening. Hybrid working has been very helpful.

Unfortunately OP, even for lower or middle earners the cost of childcare makes working unprofitable. Sadly this impacts women who are in the prime of their careers. The reality is that you can't have it all and something somewhere has to give.

From what I see in the jobs market, the 100k cliff edge negatively affects the UK in many invisible ways. Can't get a hospital appointment? I don't know a single consultant or GP, people in their 30s and early 40s, who works full time, because it costs them money. It is not that they pay more tax, working more hours leaves them with less cash in the bank than working fewer hours.
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It is about an insane system of cliff edges, negative earnings, and someone earning 110k paying more tax per extra pound earned than someone earning 1m.

Same, and same in finance and consultancy. Why would anyone pay to work?

This country is dire for high earners or businesses, it isn't going to get any better so I'd genuinely advise looking to take your skills and qualifications elsewhere. Leave all of the at least you're not on the breadline, high earners should tax themselves into oblivion behind to fester.

You chose to have children, knowing the effects on earnings and cost of childcare.

If you spent 100k on a new Bentley or got a bigger house with a larger mortgage, would you expect to get any sympathy on your reduction in spending power?

Personally, i loved having a tax "problem"

Take home on 100k is over 65 k
If you take off 8k that you don't get as child support you still are on over 50k

Not a tax rate of 68%

Pretty impressive salary for someone with no maths

Mumsnet is generally pretty unsympathetic to this, and I do understand why. It's a nice problem to have!

But no one else would accept working for no net pay , so I don't see why you should. Personally I have dropped a day and put extra in my pension. It works out better for my until my ft salary gets to about 200k

I think your maths is still wrong. The 2k in tax free childcare is per YEAR, and you seem to be discounting it from your MONTHLY salary.

So if your monthly take home pay is 10k, it would amount to 9,833 without the tax free childcare (2k divided into 12 months).

🤔

It is a very bizarre result of a lot of tax policies. It must be a real disincentive to earning more than 99k unless you can push up to the 150 mark.

I dont earn anything like that. Im a very low earner. Neither does my partner. But to me the whole point of a tax that is a % is the more you earn, the more you pay without the need for all these different things.

It amazes me, as a low earner, how much i need to earn to make much difference to my take home as it is, with just the basic rate income tax and national insurance. Currently the tax free allowance is a big chunk of my earnings so any additional earnings 'feel' very impacted by tax if that makes sense. Probably because i have several jobs so one is totally tax free and the others the entire amount is taxed as i used the tax free allowance elsewhere.

No net pay after expenses ? Isn't quite the same as no net pay after tax

Thanks, but I meant the effect on childcare funding (either tax free or free hours)

Hi OP

The nursery will not be reimbursed at £10 per hour. I know that the 15h free for 38 weeks can also be expressed as 11h free all year round, but in practice, as the reimbursement rate is something like £6 per hour, nurseries will put prices up elsewhere (lunch charges, craft supplies etc) so you would be unlikely to save £100 per week.

You do a tax return and I think the benefit would be clawed back, and disapplied going forwards. Not 100% certain though.

Absolutely. I moved role just before DC1 started school and the salary offered was just over £100k. I intentionally went PT so we could continue receiving childcare benefits with intention of moving FT once DC2 started school but now they are in school, I have decided I am quire happy staying PT and have no intention to go upto 5 full days. That was an own goal for the government as I otherwise would have gone FT, stayed there, and been paying more tax in long run.

DH intentionally did not go for a promotion until DC2 last term of nursery. At this point, we had enough in out TFC account to cover fees and stopped claiming 30hrs as we knew that his salary would go over for that tax year as soon as he got promoted. We also reduced pension contributions at this point

Many miss the point of how much extra work you do to earn that amount which is pretty much all swallowed in tax. When DH did get his promotion, the outcome was him being away overnight most weeks with work, expectation that the majority of our plans would be cancelled for the most important clients that he is in charge of. Is this worth it when he is losing the majority of his pay rise to tax?

Op means the marginal rate ie the rate on the bit between 100k and 125k. Because of the loss of the tax free allowance, even without childcare, the marginal rate on this piece is very definitely high vs other pieces.

And then people wonder why there aren't more women in the top jobs...
The fact that a woman has to consider dropping hours because if not they'd be working the extra for free or paying to work it, to me is the reason it should be universal if only for encouraging women (who it is predominantly) to work if they wish.

We've JUST missed the threshold as my husband's bonus would put us over she's already finished. If not, he would have put his bonus into his pension.

If we had another child or it was another year though, they'd be no point me working as I'd be working for free. So another woman out of the workforce that actually wants to do some part time work.

Lots of posters here don't understand the marginal tax rate problem.

Its a specific cliff edge problem for people earning £100-125k where the marginal tax rate on each pound earned in this bracket is more than 60%.

So if you're on 99k salary and you get offered a pay rise you will be paying more than 60% tax on every pound of that pay rise, plus you lose your tax free childcare entitlement at the same time.

The solution not to fall off this 60% cliff edge is to keep your salary below £100k by going part time or increasing pension contributions. In future if you earn above £125k fte you can go back to full time and then its on to 45% marginal rate instead of 60%+ for every pound earned above the threshold

Bonuses are generally paid April so you know for tax planning. There are also options for putting them in to pension so they don't count. The hours declaration also says if you're expecting to earn over £100k so just expect a smaller bonus and up pension contributions for the next year.

I get it @Childcare47. I've reduced days returning from maternity leave as I get more disposable income. It also reduces my bonus so I won't earn just over £100k next year with 2 in childcare. We're also looking at moving abroad for a couple of years to cover the £100-125k ish range as the tax cliff is so punitive here for young families.

I don't mind paying tax but I'm not having less money for my family too spend less time with them too.

Well I understand the marginal tax rate issue.

But I also understand that

• It’s normal for less well off people to receive more help that very well off people
• the OP still has choices, like adding more to her pension. Choices that other people just don’t have
• her going back to work very quickly was a choice too. So is choosing to work full time rather than part time etc…
• paying to be able to work (Aka nursery costs are higher than the take home pay) is a choice that many women have had to do before. The OP isn’t even in that position.
• plus the old MN comment - didn’t you think about it before having children?