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Original poster

Current tax thresholds act as a disincentive

86 replies

Transferwaiting · 12/12/2022 12:21

I have been asked to apply for a promotion at work starting next year. This would mean a big jump in responsibility and a 10k payrise. I've been working it all out and because it takes me into a higher rate bracket and we have 4 DC, I would lose all CB and pay 40% of this in tax. I would actually only see £150 extra per month which whilst nice would not make up for the increase in responsibility and potential impact this would have on our lives and also doesn't cover any extra costs incurred for childcare/commute etc . I feel so disheartened.

FYI I am happy to pay tax and happy to pay more but this feels like such a steep cliff edge between being worth it and not. Surely many people must find this and we are missing out on a lot of talented people where it's not worth it making that jump.

OP posts:
Neodymium · 12/12/2022 12:24

This is a common problem in Australia too. Daycare costs are based on income. So for a lot of parents there is little difference between working part time or full time, when you pay the extra child care fees at a higher rate and extra tax.

PropertyGeek525 · 12/12/2022 12:26

Could you negotiate a bigger pay rise? At what point would it be worth the extra responsibility?

PropertyGeek525 · 12/12/2022 12:29

Just to add, I think the current system is designed for 2 working parents. My OH pays the higher rate and he doesn’t want to be promoted because the role would be more work for not much more. It makes more sense for us as a family to improve my work prospects because I’m not at the higher rate yet.

MRSDoos · 12/12/2022 12:30

I don’t have DC yet (one on way) and I don’t earn enough to pay the 40% tax but I do have sympathy. Especially when you are just about in the pay bracket so you don’t end up earning much more and losing out on CB payments. I’m glad you have weighed it up and decided it is not worth the extra responsibility for the extra bit you’ll receive.

I know it isn’t as easy as this… but if they have asked you to apply for a promotion it sounds like they are keen. Could you explain the pay situation and see if they could offer a bit more. I do know someone that did this and his work accepted as they really wanted him to take the position.

BarbaraofSeville · 12/12/2022 12:32

You're in quite a niche position to be affected so badly. Just on the edge of the tax threshold so you feel the full impact, plus large family so CB is a significant amount of money.

Most people won't be anywhere near as badly affected, so it doesn't make sense to design a system to capture all possible outliers.

If you don't actually need the money, you could put the pay rise into a pension instead, then you wouldn't pay the tax and you'd keep the CB.

EmmaAgain22 · 12/12/2022 12:33

OP "I would actually only see £150 extra per month which whilst nice would not make up for the increase in responsibility and potential impact this would have on our lives and also doesn't cover any extra costs incurred for childcare/commute etc"

work it out again and remove the costs.

I don't have children, but there's a spot where pay rises aren't worth the extra stress. You might be looking at that point.

BarbaraofSeville · 12/12/2022 12:34

The other thing to remember is whether this promotion could be a stepping stone to another one.

If you take the promotion and put up with the loss of CB, or put the money in your pension, you could then get another pay rise later on, making it more worth it.

Declining a promotion because it doesn't seem financially worth it is effectively removing the next rung of the ladder, meaning that you might never be able to progress further.

Nocutenamesleft · 12/12/2022 12:34

I’d ask to go up to 49,999. You’ll keep the lower tax bracket and all the benefits!

RedToothBrush · 12/12/2022 12:36

It depends on where you see your career long term, how old you will be when the kids are 18, what age you will retire, how this affects your pension contributions etc.

Think long term and short term. It may be more worthwhile than you think.

SirMingeALot · 12/12/2022 12:37

They certainly do for some people, yes. Not everyone, but some. We have quite a few bottlenecks of this sort in the UK system, yours is just one of them. Some relate only to tax, some to benefits and some to both.

I'm in a similar position wrt my very part time work, as I'm just a sliver below the student loan repayment threshold and once that kicks in, would be left with not far over 50% of money earned for any extra work. We don't need it, so it simply isn't worth my time. The loan has been sold off anyway, without my permission, so I have no interest at all in repayment.

As for whether it's worth it, hard to call really, especially as people have different responses to tax thresholds. It's probably one of the areas where we've not yet really processed the impact of labour shortages though.

RedToothBrush · 12/12/2022 12:38

If you don't actually need the money, you could put the pay rise into a pension instead, then you wouldn't pay the tax and you'd keep the CB.

This is the big one to look at.

Cornelious · 12/12/2022 12:38

I've heard that you can up your pension contributions to bring you under the threshold so that you keep CB.

Whataretheodds · 12/12/2022 12:39

If you don't like the new salary, negotiate a better one.

SirMingeALot · 12/12/2022 12:40

Cornelious · 12/12/2022 12:38

I've heard that you can up your pension contributions to bring you under the threshold so that you keep CB.

You can, so that's definitely one of the options to weigh up.

gamerchick · 12/12/2022 12:40

PropertyGeek525 · 12/12/2022 12:26

Could you negotiate a bigger pay rise? At what point would it be worth the extra responsibility?

That's what I was thinking. Since they've asked and it's not financially worth it for you. Surely they would be open to negotiation on pay?

OnlyFoolsnMothers · 12/12/2022 12:40

Yes it’s shit! Well- the tax increase doesn’t bother me, there will always be a cut off and tax is important for a civilised society- I take enough as a parent with children on the nhs and in school. But it Angers me to my core that CB is based off individual income based not family based.

titchy · 12/12/2022 12:41

Nocutenamesleft · 12/12/2022 12:34

I’d ask to go up to 49,999. You’ll keep the lower tax bracket and all the benefits!

If she loses CB the pay rise would take her to over £60k, so she must be on more than £50k now....

Original poster
Transferwaiting · 12/12/2022 12:41

RedToothBrush · 12/12/2022 12:38

If you don't actually need the money, you could put the pay rise into a pension instead, then you wouldn't pay the tax and you'd keep the CB.

This is the big one to look at.

I'd need the extra money to cover the costs of the extra responsibility - so potentially longer hours and therefore more childcare required.

It is a stepping stone but one I just don't think would be worth it. I think I'd be better waiting until CB reduces as children get older as it will impact on family life too.

OP posts:
pd339 · 12/12/2022 12:41

BarbaraofSeville · 12/12/2022 12:34

The other thing to remember is whether this promotion could be a stepping stone to another one.

If you take the promotion and put up with the loss of CB, or put the money in your pension, you could then get another pay rise later on, making it more worth it.

Declining a promotion because it doesn't seem financially worth it is effectively removing the next rung of the ladder, meaning that you might never be able to progress further.

This

DisneyPrincesss · 12/12/2022 12:42

Another one suggesting sticking as much as possible in your pension. You must be high 40s at the moment are you? Going up to high 50s? So you're basically losing all child benefit and nearly the full pay rise is 40% tax. Brutal.

I'm in a similar position, next pay rise will take me above £50k so I start paying child benefit back and it's highly taxed. I will put as much as possible in to my pension.

Original poster
Transferwaiting · 12/12/2022 12:43

gamerchick · 12/12/2022 12:40

That's what I was thinking. Since they've asked and it's not financially worth it for you. Surely they would be open to negotiation on pay?

Show quote history

Unfortunately it's banded so there's no room for negotiation I don't think as I couldn't jump up the pay scale without achieving the targets.

OP posts:
ThreeFeetTall · 12/12/2022 12:45

As well as pension could you offset other things against the tax? Eg charity donations?

SirMingeALot · 12/12/2022 12:46

Transferwaiting · 12/12/2022 12:41

I'd need the extra money to cover the costs of the extra responsibility - so potentially longer hours and therefore more childcare required.

It is a stepping stone but one I just don't think would be worth it. I think I'd be better waiting until CB reduces as children get older as it will impact on family life too.

Show quote history

Sounds like you feel the gains wouldn't outweigh the downsides. Most people do have a point at which more money isn't worth the things they have to do to get it, you may well have found yours.

44PumpLane · 12/12/2022 12:53

Just want to reiterate what others have said OP, if you plug money into a work or private pension you take this off your gross for the purposes of tax calculations.

So say your promotion would take you to £60k you'd be paying 40% on everything over the threshold and would lose all CB- which is significant.

So stick £10k per year into a pension and you don't enter the 40% tax band and keep all your CB.

This will also help you to be able to retire a little earlier if that is your goal.

But only you can decide whether you want the additional stresses now for the future gains to your pension pot. If you want to continue to advance and progress in your field then the pension investment and promotion is the way forward.

However if you are happy with where you are in life, work etc then just give it a pass for now.

mumda · 12/12/2022 12:54

What would having a dependent child tax allowance do for people's earning incentives?
Sharable within the family unit of course.