"Cliff edge for those earning over £100kpa" What does this mean? Is it correct?

[ivs]

I've seen a few posts where people have claimed its not worth getting a payrise after 99k, as you will effectively have a pay cut due to taxes.
Is this correct?

I went on a take home salary calculator (with no additions/changes to the basic set up) and this is what came out?

Are the posters who have made the claim correct? is this wrong?

99k
take home
67,223.40 (5,601.95 monthly)

101k
68,183.40 (5,681,95)

110k
71,603.40 (5966,95)

130k
79,932.40 (6,661.03)

150k
90,532.40 (7,544.37)

Did you change the tax code when you punched those numbers in? At £100k, you lose the £1275 a year tax-free allowance.

It’s not really that short term, OP. Not for a great many people. Childcare doesn’t stop at nursery if a couple endeavour to continue working full time. Not many well paying jobs cater for a working day of 9:30-2:30, term time only.

Yes but post nursery, there are no free hours so they only difference in earning over £100k is losing the £2k a year tax free childcare. So the biggest problem for any cliff edge is when the free hours are lost at nursery age.

Over 100k you loose Tax allowance too

So you do get more when you get a pay rise when you earn less, but surely thats how it should be?

But this isn't the case for all salaries. The effective tax rate between £100k and c£125k is higher than any other salary because of the reduction in the personal allowance. E.g. a person on £150k who gets a £10k pay rise will have a larger increase in their take home pay than someone on £100k who gets the same pay rise.

I didnt - I had thought it would automatically do it?

I have no idea :-)

If you’re using thesalarycalculator.co.uk, it will assume 1275L tax code and it won’t account for pension or loan deductions. You have to input all of these further down the page. You lose this allowance at £100k, with it gradually reducing to zero at around £125k.

Using your example:

£99k
take home:
67,223.40 (5,601.95 monthly)

101k
take home:
68,183.40 (5,681,95)

I now need to pay out £17000 for childcare that I would otherwise not have paid

It's interesting that with all the benefits bashing threads for those on low incomes, that people earning well over the national average are complaining it's not fair that they are losing benefits.

£17,000 is a lot more in tax relief/ benefits by another name, than most low earners on uc receive.

The thing is, the highest earners pay an increased proportion of the tax take in the country, so anything that disincentives people to reduce their salaries to a 'cliff edge' point, whether it be because of childcare, pension contributions, increased marginal tax rate, is pretty poor policy. Seemed strange that the Tories would have kept it in. People really underestimate the lengths people will go to reduce their tax burden, and what that knock on effect may have on the wider economy (eg doctors cutting their hours as they were getting penalized by the annual cap on pension contributions). So it's all very well 'boo-hooing' those complaining about the cliff edge, but then don't come moaning when you can't get a GP appointment or your operation.

I'm not in this bracket BTW, so I don't have skin in the game.

I clearly don't earn anywhere near this.

I was just interested, it seems like a complete fuck up by the government and they should sort it out

Why would it matter that it doesn't affect many people, for those people who are affected by it?

The UK tax system and the way it interplays with benefits and other services produce a number of these, incidentally. Sprinkled across the income spectrum. None of them individually affect that many people, but added up the number is going to be much higher. And because of fiscal drag, they'll increase. We do at least now have the child benefit one raised, which is better than nothing, but that's only one part of a wider problem.

It looks like the OP certainly did change the tax code. You don't lose the full amount straight away but it's tapered until you get to £121,140 when you do finally lose all of it.

Earning £101k your tax free allowance is reduced from £12,750 to £12,070, a fall of £680.

Thank you for clarifying. I knew it was tapered but didn’t know the rate.

That's missing the point. It's not a moan at losing benefits- it's a moan that at 100k you'll pay 17k more than someone on 99k so you're actually worse off...who would want to be that much worse off than someone, on the face of it, earning 1k less than them?

Precisely!

Excellent explanation here: https://taxpolicy.org.uk/2023/09/24/70percent/

A lot of people choose to go part time to stay under 100k - the stats don't tell you how many do that. I do, my DH does and half my social circle too.

It's also not just about the pre school years, tax-free childcare is also used for wraparound and school holiday childcare so it's not that short term

No - I didnt change anything at all

I feel so sorry for people earning so much money. It must be awful for them.

If I was paying over £30k a year in tax and not getting tax-free childcare, I’d be pretty miffed.

This was a post that inspired me to post this (not a TAAT)

This isn't quite true. You don't lose all of your personal allowance by going £1 over £100k. What actually happens is that for every £2 you earn over £100k, you lose £1 of your personal allowance, so when you take into consideration tax (this is in the 40% bracket), you gain 60p for every £2 you earn until after £120k (or whatever the relevant number is for your own personal tax allowance).

@ivs it is always worth earning more money. There is no time when tax means you earn less after a pay rise. You may not earn much more (per the example above), however it is always beneficial.

The exception is if there are other benefits that would be lost, but that is a different statement to saying that tax causes the drop off.

I was simplifying by saying there was another issue...I've been through it myself and now have 45% rate.

I love the boo hoo comments from posters not comprehending the issue here. I'm pleased with my take home personally but I think people think we're just suddenly handed a huge salary!

I feel sorry for people who miss out on services they need because we have a tax system that encourages a cohort of 100k earners to drop their hours.

It is one of the two certainties in life. I have also been through that area. Strangely, it is the band that is most noticeable, once you are through it, the next bit doesn't seem so painful.

Personally, I have always aspired to pay £1m in tax 😂

I earn less than £30k a year gross, and there are millions of others in the same boat. If I earned £100k+ a year I'd be overjoyed.