"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)

Yes, but do you understand that it's only 60% tax on the amount ABOVE £100k? Everything under £100k is still taxed the same as before. Which is what the OP's calculations illustrate.

It won't be when you reach pensionable age.

I thought it was capped at £500 per quarter per child? So £500 a month for someone with three children all in childcare.

Actually, it's 70% on the part between £100k and the point where your personal allowance has gone, then it reverts back down to 40% until you hit the 45% tax bracket.

45% tax bracket starts at 125K since last April .

From here

https://www.gov.uk/income-tax-rates

Yes I understand this (as I clarified above if you read the thread) - I've been through this threshold!!!

I should have said "starts at 100k"...but given some of the views on here, I'm not sure the distinction would have made much difference....

So only a 5k or so gap then these days. Fortunately, I don't have to worry about such things since Liz Truss tanked the economy and all the jobs went away. 😖

I am in this position. I earn £104k a year which means I lose £7k worth of childcare free hours (as well as some of my personal allowance but I haven't calculated this). So I'm about £3k+ a year worse off.

Can't you just put it in your pension?

It’s why there are such problems in the NHS the doctors won’t work to earn into this tax bracket so they …don’t. Such a short sighted policy

They can't " put it into their pension" either.

Doesn't this work for childcare? I've heard it advised for child benefit for people just over that threshold.

Friends in London seem to pay £2k a month per child in nursery. If you have two at once, that's a huge loss. And remember it's not household income its one person (the other half of the couple might be a low earner). So no not many families, can just suck up a loss of a paying out a few k extra every month by the time they've paid mortgage, bills, commuting etc, even if they are on just over 100k

And in any case, it's fundamentally wrong that you can be significantly financially worse off, from receiving a pay rise.

in most cases they can now. This was the reason for the changes to the LTA at the last budget. An NHS worker can contribute more to their pension (via a SIPP) to bring their earnings down if they wish.

No, most GPs cut their hours because they are so burned out they can't stand working 12 hour days more than 3 days per week (bearing in mind they're only being paid for 8 hours 20 minutes per day).

Of all my friends and colleagues who are GPs, none of us are working as many clinical sessions as we were 5 years ago, and it's nothing to do with tax! For some (who are the main breadwinners in their households) this has caused significant financial stress on top of cost of living increases, and was a choice between reducing hours or leaving medicine entirely. And still we get blamed for all the ills of the NHS.

It's this. Once your kids are grown then this issue disappears.

I don’t earn over £100k but my next promotion will take me close/just over.

Looking at the sums for a nursery chain I looked round you can see if you work 5 days a week and have your child in nursery full time you pay £1428pcm for a 3 year old.

if you dropped a day (and went from 36/37h to 32/34 over 4 days) you could drop your salary to £98/99k and pay £661 with 30h funding for 4 days. Which would also be tax free so costing you £528pcm.

So for an extra £820 in your pocket each month you’d get to work a day less…

https://nfamilyclub.com/n-jewellery-quarter/#fees

The new childcare funded hours also have a £100k cliff edge. So it will now affect everyone whose salary reaches £100k at a time when they have a child between 9 months and school age. As I have multiple children, this would have affected me from age 32 until age 43. I would guess that of the population that will ever earn £100k, a lot of them will reach the cliff edge during that age range. At a time when the UK is struggling with productivity it's very odd to actively discourage a cohort of actively productive people from working to their full capacity.

To compound this issue a lot of higher paying jobs require longer hours or more commitment in some way.

My next promotion might take my ftq salary from £100k to £125k. But my target hours would increase by 5 hours per week. If I wanted childcare for that extra hour per day it would cost £70 per week. So c.£3.5k per year. There would also be more travel so I’d occasionally need an overnight babysitter.

I would lose c. £10k of childcare subsidies unless I put all of the pay rise into my pension, which I don’t particularly want to do.

I’m a single parent. Full time childcare without any subsidy would be £3.8k per month. This would leave me with £2,500 on a £125k income. This is barely enough to cover my outgoings and definitely not enough for the sort of help which most people with this kind of job need to make it work (cleaner etc).

So overall I’d be working harder and more stressed for the same or less money. So I’ll postpone trying for promotion and stay working four days for 2.5 years until both children are out of childcare.

Regardless of whether you think high earners should be able to afford childcare and to pay a lot of tax, a tax system with cliff edges or where there is marginal benefit to earning more, disincentives people from progressing and incentivises decreasing income by working fewer hours etc. That isn’t in any one’s interest and is avoidable without actually decreasing overall tax take.

Sometimes a pay rise can mean that because of your circumstances it doesn't result in more money.

I remember df being in a situation that he refused a promotion at work until he reckoned he would go very quickly through to the next level. He did a lot of overtime (at time and a half), and the next level paid quite a bit more, but didn't pay overtime, so overall he'd get less take home pay. When he moved beyond that to the position above that one then he was better off.

You start to lose the personal allowance but you’d still be better off financially. I think it’s more that if you go from £95k to £110k you’ll only getting such a small amount extra take home it’s often not worth it especially if you’ve taken on a more stressful job etc.

For people with kids though you lose the free hours for childcare so that bit really is a cliff edge.

Generally, earning £100-£125k just makes you a wealthy pensioner. It’s better than a kick in the teeth but just hope you retire healthy enough to enjoy it.