High earner query - basically over 100% tax on xmas bonus.

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My employer has decided to be very generous and give everyone £5k cash bonus this Xmas (in previous years they have given £2k). I have adjusted my salary sacrifice pension contributions so I earn approximately £96k gross. I cannot amend this until April as per my employer policy. I thought there was enough buffer for bonus and benefits.

problem is if I earn over £100k (I have 2 kids aged 1 and 3 in full time nursery)

• I will pay 60 % tax on my bonus
• i will become ineligible for tax free childcare - worth £333 per month,£4k per year
• I will become ineligible for 30 hours childcare for DD1 - worth £600 per month, £7k per year.

basically because I’m getting this bonus we’ll be much worse off financially - is there anything I can do to avoid this?

My heart bleeds….

This is correct. Please take the money and use charitable giving either through an employer’s scheme or as a personal donation. I would suggest a self assessment for this year so the tax office has a clear record. There will be a tax reduction offset so you could make more for the charity.

if the bonus is likely to be annual then maybe build in more flexibility by making higher payments to your pension.

OP isn’t even a massively high earner to be honest. Plenty make a lot more than that.

Perfect timing!

The issue is with the tax bands & benefits so you are penalised earning certain amounts. I think tax free childcare, child benefit & the additional 15 hours should be universal anyway.

3.8k a month on childcare is absolutely scandalous!! The fact that someone is on a 96k a year salary and struggling due to a childcare bill is madness, it needs sorting out.

Are you doing the married persons tax allowance thing OP? Where you can take some of your husband's lower percentage?

Unpaid parental leave is a good idea, but only if you don't have to pay your nursery fees.

You could ask for less which is naff but long term your better off, I have a really good friend who was a single mum who had to do this most years whilst her daughter was young.

On 100K a year and you want free tax advice?

Try paying a professional tax adviser who earns on 200k a year

Ridiculous comment.

Again, the thread has been derailed because someone who has a high salary can’t ask question before the vipers come out.

OP just ask for your bonus to be either reduced and the rest put into a pension if possible. Or 3k to land this year and £2k the following financial year with the same potential issue to arise if you get another bonus.

I’d thought you’d do it direct with the pension provider then complete a tax return to claim the tax back.

I earn £70k so less than you but over the child benefit threshold. I top up my pension and donate to charity to bring my taxable income low enough that I still get full child benefit.
Are either of those an option for this financial year to keep you dipped below your threshold?

Do you not think that when a person earning £96k a year has to budget just £400/ month food for a family of four something in this country is going badly wrong? And our country’s tax system is set up so the consequences of earning slightly more means come out with far, far less money than they had before. It’s crazy.

How is nursery costing 3.5k/month when one of the children is receiving 30 hours free?

If things are quite tight on your salary, you need to have a look at your finances

Ignore the people saying this crap who simply don't understand what it costs to live in/near london and don't realise lower earners in london often only manage it because they are depending on social housing and UC top ups, or don't have kids to pay for.

That said, 3800 is a stupid amount of money on nursery when you have tax free childcare and 30 free hours for one. That suggests that the cost pre those is well over £2k per child a month - that will be a very swanky nursery and you can easily find cheaper options.

OP we rent, we have 2 children and both earn much less then you and your husband but with help of universal credit we have more available income then you do.
Unfortunately in this country having higher salary can leave you worse off if you have to pay for childcare, mortgage etc. But some people are too ignorant and jealous to understand that.
Childcare for 2 children can cost almost £4000 and £2000 mortgage is considered cheap in South East so again people who live in more affordable areas have no idea how expensive it is and majority of women on here didn't pay full time childcare for 2 children so often don't think about it.

It is really unfair when someone works extremely hard, go into debt to study and then suddenly is much worse off for getting a little pay rise. The system is really broken and I think childcare support should be lowered gradually once you go over threshold but here you go.

To those who are commenting on the high nursery costs. I have two children in nursery, 3.5 days per week and it costs £1,500 per month. 30 hours free is calculated over the school year so in effect it’s less than 2 days per week ‘funded’ and still a lot to pay for. Plus meals for the unfunded days. Believe me, it was a shock to me too when I had been banking on ‘free’ nursery for my twins when they turned 3!!!

Ask not to have the bonus
ask they redirect the bonus to the lowest paid staff member instead
put the money in a SIPP

If you do go the pension route ring them to ask because we were advised when we recently rectified that it needed to be a different private pension that the extra cash went in (DH is in a similar bracket, over £100k but not so far over that losing tax free childcare doesn’t make us worse off than earning £99k)
He’s opening a new private pension to contribute to before April and according to the person we spoke to that’s ok.
I’m not sure why it makes a difference and the woman we spoke to didn’t really seem to know either but that’s where it was left

Tall poppy syndrome is rife in this country. Don't get ahead of yourself now OP. Don't have any ambition, or get any better qualifications to get ahead and earn more to help you and your kids. Don't be talented, or invent something. Let's make sure we are all on the same level, not overly educated and working too hard so that no one else will get uppity.

OP, I would talk to an accountant. It might be good to do that anyway to make sure you are maximising the money you earn.

As for donating it to charity, OP is already contributing loads of money into the pot which no doubt many of you benefit from. She is doing her fair share of paying for others already.

Oh don’t get me started on the tax free childcare system! It should be based on household income not individual incomes to make it fairer as atm a couple each earning ££99k would get but a couple with a household income that is much lower wouldn’t get it if one of them earns over £100k.

People just don't get it! It's such an ignorance. And costs are so different across the country.
Also people with kids on lower salaries get other benefits. If you count how much better off a family can be by receiving universal credit, living in council housing, getting 30 free hours childcare etc it's actually a lot of money.

someone who earns £120k pays 60% on their top 20k….and I’m actually have less money by being given a bonus….surely that doesn’t make sense.!

I'm embarrassed to say that I'm a chartered accountant and don't quite understand how you get from the 40% higher rate (up to £125%) to your marginal tax rate of 60%.

Although having looked at it, are you in Scotland where the personal allowance tapers? In which case you end up in the 47% band plus lose your PA?

Obviously just jealous and bitter

think people needs to remember
someone who earns this type of money contributes more to the public purse than the average person earns in a year

This happened to us a couple of years ago. DH works in sales and his commission can vary a lot. One year he 'accidentally' earned over 100k (about 102k I think). Obviously I didn't declare this to HMRC in advance because I didn't know it was going to happen. But they did freeze our 30 hours and TFC once they found out after the tax year finished. I called them and explained what had happened and that it was a one off, and they just unfroze it all. Like you, we really relied on it as we had two kids full time in nursery in London and a big mortgage.

I'm not suggesting you try this, just sharing a story! I actually like the idea of asking for some of it as holiday or asking them to reallocate it to another member of staff.

And please ignore the people saying nasty things, money threads bring out the worst in people!

Do a manual payment into a private SIPP in March

I completely agree. It almost became "fashionable" to be "poor" and to complain. And while there are definitely people who genuinely struggle majority of those who I see complaining never mention how lucky they are to be in council housing or how much they get in childcare support and universal credit on top of their wages.
But if you worked hard and have a high salary then god forbid you say anything even if you were left on a bread line after paying for your mortgage and childcare. You're still be classed as privileged and deserving of suffering.

The whole point of getting into high paying jobs (which is very hard to do and requires a lot of sacrifice!) is to have a better lifestyle and security. The way tax and childcare support works makes it other way round which just doesn't make any sense.
People shouldn't be worse off by earning more. The whole point of getting a pay rise is to have more money not less. The system is totally illogical and awkward.

To be fair they have chosen to have two children quite close together rather than space it like most couples do in order to get the funding. That is a choice is it not?