Where is the incentive.....

[LookingforMaryPoppins]

Fairly certain I am going to be shot down and 100% appreciate I am in an incredibly fortunate position however.......

My parents are working class, money was short but I never went hungry. I was taught that education was everything and the value of the opportunities it offered. I passed the 11 plus, went to grammar and was the first in my family to go to university.

Fast forward to now and I have a well paid professional job which I (mostly) enjoy. I am now self employed (to give me the flexibility to be there for my youngish children) and have ended up in a situation where I worked far more hours than I would choose due to not wanting to let clients down. This has resulted in a huge tax bill - despite putting a good amount aside, when you hit 100k you start losing your tax free allowance which effectively puts you on the equivalent to higher than the highest bracket. I think it equates to over 60%.
Ive also had the increase in school fees this month - having started off in state school it was very clear there was a total failure to meet needs (youngest daughter is academically bright but dyslexic - this means she "meets expectation" in state provision so gets no help albeit fails to acheive her potential which apparantly is acceptable to the state education system).

Despite the increase in fees, which we will cover by not taking a family holiday, I have now chosen to reduce my hours to keep my income below £100k. This is at least a £20k loss in income tax to the country (less than 12k take home reduction to me), another £6k loss to the country in VAT plus the loss to the economy of the money I have forgone so am not spending.....

I know this country has the mentality of despising anyone doing better than average but surely anyone with any economic sense can see this is a lose lose scenario......

If I didn't have school age children whose education would be detrimentally disrupted I would move to different country!

Suddenly I understand why a lot of people at work put 50% to 100% of their bonus into their pension.

That blew my mind until I considered it in the context of this thread.

You can put up to 60K a year in your pension through salary sacrifice which is taken out before tax. The ‘problem’ you have isn’t hard to deal with if you look into it.

I agree OP. It's bonkers and just encourages people to 'play' the system

Apart from the fact you are then forced to save ~40% of your income without being able to access for the next 20-30 years.

Given the very high cost of housing etc in some parts of the country, this isn’t an optimal use of income at that stage in your life.

And if you’re a doctor the above doesn’t work because of the way pensions are calculated.

And… if you earn >£160k you can’t do anything at all. I think I worked out on that £60k it’s still an effective take rate of 79% (Taking home £12,500).

on what basis do you consider it fair that someone earning £110k pa takes home less than someone earning less than £100k?

The cliff edge at £100k is bad but I think it's worth pointing out for those who may be worried by the above, your take home pay won't be lower if you earn more. You will have a higher net pay, it's just that the value you lose through other benefits, such as free childcare, may be worth more than the increase in pay.

@ItsFineReally how does that in any way allay their concerns though, they still might end up several thousand pounds a year worse off.

As said you can put up to £60k into your pension lowering your tax bill.
Speak to a tax advisor if you can have a salary sacrifice car or other scheme (as a business expense).
I am in the same boat so empathize.

@Legaleagleplease crazy though that a car can be salary sacrificed as a business expense, but not childcare.

The patriarchy in action right there…!

Because not everyone will be in a situation where the loss of free childcare will affect them. So if the headline is always "you're actually worse off if you get any increase above £100k until you reach £135k" then it really will disincentivise people.

The £100k cliff edge is monumentally shit. You don’t gain anything until £129k I was reading in The Times. We are a single income family and my husband earns £119. Worse off than if he earned £99k. Or if we both earned £50k that would be a sweeter spot as we would get all the child benefits that have been out of our scope

In this scenario, it is literally better for OP to work less in order to access childcare support than it is to work full time. She’s asking what the incentive is - why would you work full time to be worse off? Her situation will change when her children are school age

Surely the incentive is that her situation will change when her children are school age? And then she'll still have a really good salary, excellent pension contributions etc. And besides, she won't actually be worse off if she puts the excess in her pension.

I know someone who pays £500 a week on childcare, with the free hours, so over 12 months that's nearly £2,200 a month. That's basically her take home pay. She works because she doesn't want to lose years of pension contributions, or leave the job market when she might struggle to get back in. Her incentive is that once her children are out of nursery, she'll be glad she stuck around. She's not unique in this position.

The nursery years can be shit for your disposable income, whatever you earn. But they are relatively short, depending on how many children, mat leave length, and when your child is born (September babies obviously spend longer in nursery/pre school than August ones, because they're older when they go to school).

Contributing more into your pension isn't playing the system. It's not a loophole. The system is designed to encourage pension contributions.

I hear you. There is a general feeling on here that you can never moan if you earn above the national average.
I earn a similar amount and everyone I know who does, all feel privileged and happy to be able to contribute to society but equally feel like it's take take take as we don't qualify for anything.
We are lucky to have private health care plans so we pay ni plus tax on the benefit of the private healthcare plan and save putting pressure on the NHS most of the time as it includes an online gp.
In order to earn that kind of money I commute to London and pay £500 a month travel. I have family here and can afford something more than a one bed. The trains are terrible and are usually cancelled or late.
We don't qualify for child benefit nor childcare help if we let our salaries go above 100k, often which we won't know as it's the bonus part which takes us over and the company won't do salary sacrifice on bonuses and the bonuses aren't guaranteed.
You lose all your tax free allowance so we pay tax on every penny we earn.
There is no option for me to cut hours. I can't fit my current job in 5 days and there are no part timers in my company!!!
I am a lone parent too which means 2 people on £49k do better than me which also feels unfair.
Just because we are lucky and not struggling we are allowed to moan sometimes.
They need to sort the tax cliff edge.

Now going to hide under a pillow fort at my desk to wait for the comments about how I am being so very unreasonable and unless I am earning nmw I can never complain about anything.

Missed the point of thread but one thing sfYou cannot afford a family holiday? Something is seriously wrong that you cannot afford a family holiday earning six fugues.

You are right. Taxation is so prohibitive the people like you, who are net contributors are reducing hours to avoid the hard work vs excessive tax. Result is a net loss of tax. RR has discovered the hard way that more tax often results in less take. That is why people are being taxed out of jobs. The economy outside of welfare/benefits/public sector/pensions/mn echo chamber has tanked.

I was recruiting in your bracket - in a shortage area. The positions have been withdrawn. Even less tax take.

People won’t have any sympathy as they can’t think logically. Who is paying for their state and lifestyle? They’ll soon be crying when RR comes for the welfare state and disability payments in the spring. It is because people like you are being so punitively taxed that we are reducing our tax take even further. No other country does it.

I don't have any sympathy with private schooling, and personally in my own financial spreadsheet would have anticipated a 20% uptick in fees as soon as it was announced (as I did with our mortgage when Truss had her fun back in 2022 despite our mortgage not going up until this year)

But I do empathise with the tax, the £100k cliff edge is weird and I think everyone should have a personal tax allowance.

OP I completely agree with you - unlike some posters on here, I very much doubt you are in the fortunate position you’re in due to ‘luck’ and have likely worked very hard to be in the position you are.

There has to be an incentive for high earners to work at the level they do. The cliff edge is ridiculous. Definitely seek help from an accountant.

Sweden has a really good system, yes the tax is higher however the system is fair and the public services good.

Childcare provision is provided by the state with a ceiling cost which means cost of childcare isn't a barrier to working.

So if you overestimated the amount you would need for tax, what's the problem? If you don't have enough to pay it you didn't overestimate it, did you? That's on you.

I hear you OP. People like you have, rightly, had enough. Unfortunately there are too many who think you should be grateful for paying tax and should continue to fund their lifestyle.

Worldwide we are seeing the dragging down of the middle classes, those who are net contributors. It's not going to end well as people like the OP have choices, one of which is working less. Same as those, in the over 50's bracket, who were/are being criticised for not going back to work post Covid but just deciding to muddle along with what they have. How dare they not use all their skills and hard work ethic to work for shitty employers on zero hours contracts and be happy to be paying tax!! Meanwhile we've got thousands 'sick' and getting benefits.......

Feel your pain. How I preferred being taxed at source and never having it. Paying over tens of thousands of pounds is pretty galling. I would suggest incorporating as a company you are taxed differently it’s not as bad.

That cliff edge at 100k is a real issue, especially in London where it really isn't unusual to hit that sort of salary just when you have children, and it is definitely does disincentive working more. Almost everyone i know in that position has dropped to four days a week etc to because the maths just doesn't make it worthwhile. I'd lose something like 70% on that income and thats before i pay for childcare, commute to work. Once I add those in I get basically nothing for having given up a day with my children.

I think this argument may be valid from a purely financial perspective but I think it completely discounts the emotional reality of making this kind of decision. Lots of parents earning £100k a year need to work very long hours and therefore put their children into childcare for longer than they would ideally like when their children are so young. It is one thing to do this and make this sacrifice if you are being financially recompensed for it but to expect someone to do this and make a loss is insanity.

IME this is why so many parents drop the hours during this stage of life. They get to take home more money AND get to enjoy more time with their children. The fact that they may have slightly damaged their long term financial prospects just won't factor that strongly into their thinking at this time of life when all family resources (time, energy and money) are so stretched.

You make a very good point. Do you think there is any solution to it?

IMO:

• move the 45% rate to £100k
• Stop withdrawing the personal allowance
• Universal childcare provision