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!

Excellent post 👏👏

The problem with our income tax system is there are too many circumstances where it is simply not worth earning the next £1. There should be no instances of that.

My basic salary was just under 160k when I started to use nursery. Despite putting 60k into my pension each year it meant that any additional money would effectively be taxed at 100%.

In the first year I was in line for a 30k bonus. This would literally have been worth nothing to me had I taken it as cash so I agreed with my employer to work reduced hours that year and forfeit the bonus in return. Had the effective marginal tax rate been the standard additional rate of 45% I’d have happily taken the bonus and paid an additional 13.5k income tax.

It is such a perverse system that encourages the highest tax payers to work less. The additional tax from the bonus alone would have been the equivalent to the total amount of income tax paid by 4 people who earn a 30k annual salary each.

Yep they are hammering the wealthy for sure. I don't agree with it. Too many contributing bugger all and taking out for decades (I'm not talking about seriously dusabled people before anybody gets on that bandwaggon(.
No I'm not wealthy but I have friends who own businesses who are sick of it ... one of whom is going to emigrate before selling business and property to totally avoid the absolutely mammoth tax bill.
That's what happens when government tighten the screws.

I don't think I understand the maths of over 100k. Is there a website that explains it?

(I am nowhere near that bracket but I am still interested)

Cliff edges are not great

Can't really blame the current government for them though

But I don't really believe the country is a worse state because sone very wealthy people decide to have a better work life balance . If the work NEEDS doing then there will be someone else brought in to do it - just because you don't pay that tax doesn't mean someone else isn't

If the work doesn't need doing wtf are you being paid to do

I paid 50% of earnings into my pension pot in my final year, got it all back as part of my 25% tax free lump sum. A complete no brainer for me.

Why are you not paying yourself in dividends through a limited company? Taxed at 20%.

Are you a limited company director or self employed? Pensions are the way to go to reduce, plus that reduces your corporation tax liability if you are limited. It's the most tax efficient way to get money out of the business.

If you aren't limited I'd suggest you should be as you can pay fur lots of other outgoings and reduce your salary.

I don't think that's the right question. I think the question is whether the work needs doing immediately. IME (and I work 80% of full time) the work is done but it isn't done as quickly as I would be if I were full time because I have a full time amount of work to fit into 4/5 of the time.

It is very difficult to justify hiring someone else in 100% of a high salary to cover 20% of the work so generally it seems to be done by expectation management.

Yanbu, its completely insane to have a system where, if you have young kids, you're factually worse off if you earn say £105k instead of £99k. Most people appreciate the more you earn the more tax you pay but its crazy that this is the situation - no one, ever, on any income level, will choose to work harder to end up with less.

On mumsnet lots of people will tell you that you're so lucky to be a high earner that you should count yourself lucky. But if they were in the same position I can guarantee that wouldn't work more to end up with less either.

It's not good for the country and will drive a lot of people to work part time to keep them under the threshold

Where is the incentive to earn over £100k. When you can save it into your pension for a start.
Or you can reduce your income to £99999 and learn to live with it. It is your choice to pay a huge chunk of that out on School fees. My dd was like yours, highly intelligent but dyslexic. I didn't have the choice you have.

100%

I don't know the ins and outs of ops situatiion but financial advisors are fantastic - so many ways to avoid paying and/or storing funds in various areas like pensions, charities, shares, borrowing against shares etc.

First step IMHO before getting the big boys involved is always pension. I think it's hard when you've come from a family where this isn't the norm, and what pisses me off is that the person who worked really hard to make it and work their way up, ends up losing a chunk because of knowledge that isn't passed down. And they're made out to be heroes for paying higher tax. No, you're not a hero. If the loophole is there, take it, until its closed. All the wealthy people are, so should you. Also, screw morals, got bills to pay and mouths to feed, not like bank of mum and dad are there like most the people actually using tax loopholes.

https://www.unbiased.co.uk/discover/pensions-retirement/managing-a-pension/what-is-the-60-tax-trap-and-how-can-you-legally-avoid-it

You start losing your tax free personal allowance once over £100k in increments with complete loss of the allowance once earning £125k.
So you need to either reduce your taxable income to below £100k or earn well over £125k - the £25k in between is taxed punitively

I know this country has the mentality of despising anyone doing better than average I don't despise anyone doing better than average. I do despise those who do better than average who are unable to accept that it wasn't entirely through their own efforts, and extrapolate this to say that those doing less well than average have only themselves to blame.

Completely agree with this. As someone who’s subject to the cliff edge, I’m happy to pay more tax, I’m not happy to work more for less money after childcare, therefore the government is missing out on my tax contributions over £100k as I’ll be cutting hours and putting money into pension to avoid this. If they changed it I wouldn’t and they’d receive more tax. We want two kids so this is likely to be the case for 8-10 years.

Oh I can completely accept I’ve had advantages in life that have enabled me to do well that others may not have had. I’m still not willing for my immediate family to be worse off if I can avoid it by cutting hours or paying into pension.

Wow. I'm not criticising in any way, genuinely. And I certainly don't "despise higher earners"!
This thread has largely gone over my head, as I don't really understand the tax system? I've never felt that I've needed to try and understand it - I earn (below!) NMW, and I'm not bright enough to even start to try.

These figures just feel so alien to me. A yearly salary of £165k, with a £30k bonus??
I can't imagine that.

I genuinely hope I don't come across as bitter or jealous, because I'm not, I promise!
I'm a care worker, have been for 29 years, and I adore my job. I wouldn't swap it for the world.
I do a two week rolling shift pattern - 5 days of 15hr shifts in week 1, and 4 days of 15hr shifts in week 2.
I earn £23,515 a year, and I get a yearly 'bonus' at Christmas of a £10 Tesco voucher.

Sorry if I'm derailing the thread. Nobody needs to respond to this.

Posted too soon. I can understand the thing about it not being worth earning above a certain cliff edge, so I haven't missed the point of the OP xx

Where did I say I hadn't put sufficient money aside?

The clue is in the title, the question asked is where is the incentive? The answer is there clearly is none which has the (presumably unintended) consequence of the government collecting less tax revenue.

I agree, it is.

The question relates to the lack of incentive to work at a certain salary, created by loss of personal allowance/ childcare.

Surely earning more should always mean taking home more even when paying higher levels of tax.

The 100% threshold means you are actually paying significantly more than 40%.

Childcare loss aside, for every £1 earnt over £100k, you lose 50pence of your tax free personal allowance. 40% is taken in addition to this leaving you with 38 pence in every £1 earnt.

Add to this the loss of the childcare and subsequent expense...........

No problem at all with 40% tax, or even 45. 62% is absurd and the loss of childcare makes it ridiculous.

I don't agree, no one else does the hours I don't do, there isn't a new job created. The turnaround time is simply slower.

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

why? Does the work disappear? Do you believe that the work will be done abroad?

no one else does the hours I don't do, there isn't a new job created. The turnaround time is simply slower

so the tax is generated at some point then? And you have the opportunity for a better work/life balance?

Even without the childcare issue, the tax rate is the equivalent of 62% - not exactly an incentive.