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%?

Yes, you’re right. I agree it should just be the same for all.

The whole system is stupid. My partner will earn just over 100k this tax year and I’m on 21k but we won’t be eligible for the tax free and the 30hrs. Whilst my friend and her partner who are both on 90k gets it. Our combine salary is 125k and my friends combine salary is 180k. Makes no sense.

Abstractly, and ignoring the tax for a second, this is better for society no?

Is both parents earning £55k, better than one (presumably nearly always the man) earning £110k? Ie for women?

I’m not sure I understand your point?

Over time, would couples decide, as a result of this tax regime, that earning equally is far more beneficial tax-wise?

That would empower women surely?

@ThankmelaterOkay what about the single parents - vast majority women - who lose out at a much lower household income than a couple, and are taxed more on the same household income? That's not good for equality, the exact opposite.

Women in relationships who give up their career to enable their husbands career + single mothers on <£50k, would vastly outnumber single mothers on >£50k.

wouldnt you agree?

Huh? You think one group of women should be penalised to benefit another group of women just because the second group is bigger? What a bizarre attitude when we could simply set up our system to be logical and fair like those in most comparble countries.

Hi, I'm wondering if someone can help. In a bit of a panic. My salary is £125k and I have always contributed to my SIPP to make sure my net adjusted income is less than £100k. I have already submitted my self assessment tax return for 2022/2023. I have just been advised by my employer that I have received a benefit in kind (private medical insurance) which takes my net adjusted income for 2022/2023 to over £100k for this tax year. I have now amended my self assessment tax return and notified childcare services but am I going to be asked to pay back the 20% and 30 free hours as with 2 children this is going to amount to well over £10k and simply can't afford this... Any help or experience with a similar situation would be greatly appreciated.

You could make a gift aid charity donation in the current year and are able to carry this back and offset against your prior year income. Obviously you’ll incur the cost of the donation but it may be cheaper than the £10k childcare

The current system is shambles just promoting mediocrity and anyone who wants to succeed in career or do top jobs is disincentived. OP please start a petition for government to provide 30 hours free childcare irrespective of the salary of parents. Women who are working so hard and are at top jobs and leadership roles shouldn't be disincentived by not getting free childcare.
Also, to the posters saying having children is life style choice, stop being ridiculous, the children of today will be the workforce of tomorrow looking after the society. The mindset of the likes of you has doomed the fertility rates of Europe.

I believe that gift aid doesn’t reduce income for this purpose, only the tax on the income

Which poster(s) said “having children is a lifestyle choice?

You could start the petition. This thread is a few months old so OP may not check it again.

I wasn’t sure but do you know where it confirms this is the case on hmrc website as all I can find is where it says

If you or your partner have an expected ‘adjusted net income’ over £100,000 in the current tax year, you will not be eligible
Then when you click on adjusted net income link it takes you to this page

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

@Morph22010 sorry, I don’t know for sure, I believe it is about what is on your p60 but am not definite

Does anyone know if childcare vouchers* reduce the Adjusted Net Income? I think on my P60 my taxable income is net of these deductions, so I suspect maybe(??)... but can't find any clear comment on this from HMRC.

*This refers to the old system for gov help with childcare, which exchanged part of gross salary for childcare vouchers. You could take £248 if basic rate taxpayer, or £124 for higher rate payers and that sum would be tax free. There was no upper limit on earnings restricting claiming childcare vouchers - so someone over £100K can still claim £124 per month from gross. Childcare voucher scheme ended around 2018, but if you were already in the scheme you could keep on claiming vouchers instead of moving to the newer Tax Free Childcare scheme.

Hi,

I would appreciate any feedback on my query please. I am planning second child and is on ILR at the moment. Me and my DH earn around the 50K annually.

I have not applied for free childcare as I got my ILR recently.

I heard about the tax free chilcare. My question is am I eligible for this?
I have access to public funds.

Thanks in advance

Salary wise you'll be fine as it's a 100k limit per individual not per household.

If you have recourse to public funding you should be ok. But I'm not an expert in this area. May be better to make your own thread where people with better knowledge than me will see

Thanks.. I will do that.

Unfortunately the folks earning ‘high’ amounts such as you (and us, I genuinely feel your pain as this has happened to us) are taxed so our actual net income is similar to those on disproportionately lower incomes. The result of this will be that if more people realise working hard, progressing in their career to move up the career ladder doesn’t give the proportionate financial rewards in many industries/jobs - esp. public services - they won’t bother!

Wrong thread