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?

It’s the cost of childcare in this country that is immoral as it discourages women to work which puts them at greater risk of financial abuse. Do you know how much an average childcare place is in Germany?! About 12 times cheaper than the UK as they pay the same amount a year that we pay in a month. https://www.euronews.com/next/2023/03/06/childcare-puzzle-which-countries-in-europe-have-the-highest-and-lowest-childcare-costs

Yes it would be, but that's not happening.

Ummm it is.

I thought the childcare benefits were based in joint household incomes?

Some are, for example if you get the childcare element of UC it's based on household income. Others, like the free 30 hours that OP stands to lose are not.

I do agree that childcare costs are completely immoral yes! I’m all for massive childcare subsidies for parents, and I’m child free.

No it isn't.

The additional £4k tips op over a threshold affecting entitlement to childcare subsidy, resulting in a net cost, but the overall tax rate is - obviously - not over 100% is it?

Oh right, just assumed it was joint income. Does seem a bit crazy. So 2 parents could be earning 90 odd grand a year each and still be entitled to 30 hours tax free?

Surely we want to encourage people to save into pensions therefore saving the taxpayer having to pay pension tax credits?

Yep! Works the same way with child benefit too. Single parent on £60,001 gets nothing at all. Two parents on £49,999 get the full amount.

Marginal tax rate. At 100k you’ll lose personal allowance. That then puts you at about 70%. For someone with children they then lose any entitlement to child care which will puts them over 100% effectively. You’re thousands worse off for earning £1 more. If you don’t understand this, there is no explaining it to you.

Yes. Which again is the issue. It penalises women, especially single mothers. Other women seem happy with this status quo which is perverse.

@TrashedSofa yeah I knew about that one and that doesn’t seem right.

In OP situation I’d have to look at alternative child care, almost £5000 a month for 2 kids is absurd! surely a childminder or nanny would be cheaper.

I think you can't use the 30 free hours with a nanny?

Didn’t know that either, maybe that should change.

There was a great article in the Times that was shared earlier in the thread. It showed how earning £1 more could mean that some people were £10,000 worse off a year. It’s perverse and there is evidence that it, along with the other crazy tax cliff
edges, are detrimental to the economy. I recommend that you read the article.

If childcare was a reasonable cost the OP wouldn’t have to make additional salary sacrifice payments into her pension so I don’t see that there is anything immoral in what she is doing. There’s also evidence that the crazy tax cliff edges that we have in the UK are detrimental to the economy. There was a good article on the Times about this that was shared earlier in the thread.

There are many more people not struggling than there are struggling. If you are going down the route of something being tone deaf because of how a section of society is doing we might as well just close mumsnet and all other discussion forums.
It's not a race to the bottom.
OP has the right to ask a question based on her circumstances.

Don’t ask for a lower amount, ask for them to give it to you spread out into next tax year.

I agree @rainbowunicorn
’tone deaf’, ‘read the room’, ‘check your privilege’… we can have a discussion around different scenarios surely.

If that's tax avoidance and thus legal it's one of the loopholes that needs closing. If it's tax evasion it shouldn't happen.

And before I get accused again of knocking women down I'd say the same if it were a man doing it.

Did you bother to look at the quote history? The OP agreed that ‘there were so many jealous and bitter people here’. My comment was in response to that.

Also ‘Money matters’ would have been a more appropriate place to ask the question.

i can;t see how spreading a bonus over a longer period could really be caught be tax laws?

Isn't it just saying - give me a pay rise every month rather than a one off payment?

the taxpayer is taking a risk anyway - cash NOW or waiting a while for cash, with the possibolity that the company goes bust etc.

many companies will agree to delay a bonus into the April payroll rather than March payroll. All perfectly legal. (of course if you get similar bonuse's each year you have same issue every year but i avoided that by going part time, others could retire, take a break between jobs to have a "low" tax year.

And of course if its your own company, you pay dividends or salary exactly when its most tax efficient to do so.

Quite. Childcare needs to be affordable for everyone. I’m all for that! I didn’t say the OP was immoral, rather I am questioning a system that allows use of artificial salaries upon which a variety of things can then be based. I said I didn’t blame anyone for doing it but the moralitiy, or perhaps better word is ethics, of a system that allows it can be questioned.

And I also agree re the tax cliff edges. It’s also wrong that employers pay low wages knowing that staff will be topped up by the government, thus subsidising employer profits. I totally agree that this country isn’t run well!

So it is legal then - thanks for explaining. I just find it dispiriting that there are so many perfectly legal ways for people to avoid paying tax they owe. Having said that it's even more dispiriting that people feel their first option is to look what avoidance tactics they can employ.