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

[NameChangeBonus]

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?

It used to be legal to discriminate against gay people, didn’t make it right.

According to you, the OP paying £20k in tax and national insurance. That’s about eight times as much tax and national insurance as someone on minimum wage so the OP is definitely contributing to public services more than most.

In my opinion some of these legal loopholes need closing. Some of the suggestions seem suspiciously like tax evasion to me - and that isn't legal.

Says more about them than the OP.

30 hours and tax free childcare are meant for those that earn under 100k for a reason. You already artificially reduce your income to claim benefits you are not morally entitled too. Do you not feel any shame in doing so?

Tax avoidance like paying into isa or pension is legal

Tax evasion is illegal. That's where people are suggesting being paid cash (and not declaring it))

Great. So where is your tax advice for the op then? Oh no that’s right, another poster coming to give their ‘opinion’ translated into tearing another woman down. It’s my opinion that we shouldn’t be in a position where we have a marginal tax of over 100%. Is someone being literally thousands worse off for a minimal pay rise not enough for you? What about a 200% marginal tax rate? It’s my opinion that the triple lock should be canned. Sick of paying to fund one of the most wealthy generations. Nothing to do with the op though so not my place to say.

Saving tax by increasing pension contributions has been around for decades. You could argue that it benefits society if people have enough money to look after themselves in their old age rather than relying on pension credits.

Yeah, I have actually wondered if part of the reason the government are so keen on refusing to tackle fiscal drag is the wider societal benefit in more people paying more into their pensions. Especially at the 50-60k band where more people are affected than the 100k point.

Which of the suggestions seem like tax evasion? Also, really? Because evasion is not paying the taxes you're due to pay.

So you don't have, have never had, and wouldn't want to have an ISA?

Partly because the state pension will be long gone soon. They had to up the pension allowance because we were losing experienced consultants hand over fist. They’d maxed out and these anomalies don’t make work pay. Society needs these people paying or there is nothing for anyone.

@ssd I think that's unfair - being good at your job doesn't make you an accountant...unless your job is an accountant. I know lots of people who are things like creative directors who are super talented and make a lot of money but being a talented creative doesn't mean you wake up one day with an understanding of the very complex tax system. It does of course mean you can afford pay an accountant, who should have that understanding. But the OP is probably having to engage with this sort of tax situation for the first time in her life, due to pay rises over recent years. We all have to learn at some point, somehow.

The £100k cliff May pursuade a lot of people at that level to consider things like doing a 4 day week.

Which is fine if you are just an accountant in a company.

But if you are a doctor? That impacts the public

More than one person suggested that her bonus might be paid in cash. That looks like tax evasion to me.

Childcare costs in the UK are amongst the highest in the World. It’s disgraceful. Everyone should have the right to good quality low cost childcare. Someone on £100k in London, where a childcare place can cost up to £2500 per month, could have almost all of their income wiped out if they have two children in childcare.

It does. Which is why they had to change the lifetime pensions allowance. People don’t think about these things though.

Yes, you're right, my mistake, along with the person who suggested the bonus is paid to OP's husband (that person made both suggestions, even). Besides these two suggestions, though?

Why do you think this is a legal loophole

i don’t think it is but not an expert so i am interested

Yes. It's also not a legal loophole that needs closing, it's just plain illegal.

Technically the bonus could be paid in cash. That is legal

However it royals still have to go through the payroll system and be taxed correctly

It's the paying cash AND NOT DECLARING IT that is illegal.

Currently, 4% of the UK earns over 100k a year. This puts them in the top 96% of earners and is £77,000 above the national average wage.
Not a large enough problem IMO as some of those will be men, some of them single without children
Childcare costs are not for ever.

I think this is what I’m feeling if I’m honest. I also wonder how much public money is lost through such schemes. (Not that this government would spend it wisely). I don’t blame anyone for taking advantage but surely any scheme which requires you to have a pretend salary can be questioned as being a bit immoral?

Any tax scheme which has a marginal tax rate of over 100% is immoral tbh.

Leaving aside the eccentricity of regarding the parameters of a scheme designed by this government as some kind of moral guide, have you given any thought to how much public money could be lost by people simply working less to pay in less instead?