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!

Out of interest, to those that think IABU, on what basis do you consider it fair that someone earning £110k pa takes home less than someone earning less than £100k?

This just isn’t the case though. Yes, the personal allowance tapers and you are taxed at a higher marginal rate but net pay increases.

Yes, there is an issue with the loss of the additional 15 funded hours of childcare but this if for a short time.

Everyone with children has to make sacrifices and as someone who grew up in poverty and now earns decent money (admittedly not £100k) I’m glad I have the ability to make choices and still live comfortably.

Well in my case, the work won’t be done and therefore the business will be less efficient.

A lot of people appear to struggle to understand how high paid roles work. You are not making widgets where a reduction in working hours results in a reduction in output.

In most cases you are paid for knowledge and experience rather than hours worked.

If you work fewer hours your employer can still tap into your knowledge base just not quite as often as they could before.

When I temporarily reduced hours for tax reasons, my employer was more than happy to oblige as they still had access to my knowledge base but effectively at a cheaper rate. When I wanted to increase them again they were OK with that because they wanted to retain the knowledge within the business.

I worked far more hours for many years at lower rates building up my knowledge and experience than I do now when I can demand decent rates for fewer hours worked.

Private schooling is a whole different conversation. The irony of taxing education is that it makes the independent sector far more elite - it's not the (super) wealthy families that are priced out.

Most of the "old money" have fees being paid for by trust funds / grandparents as part of the expert tax planning they benefit from - thus reducing future inheritance tax. Even with 20% VAT there is a significant saving to them by significantly reducing any future IHT liability. The families hit are the ones that earn a good (above average granted) salary and largely already go without certain luxuries to stretch to the fees.

I was very much against independent education myself largely due to the heavy bias to the independently educated in my profession when I entered. It was very competitive and incredibly frustrating that who rather than what you knew provided a springboard.

However, when I found myself in the situation where one of my children was being failed because they didn't fit the mould that state education is geared to suit, I went against my personal bias and moved her to a small independent school.

I don't disagree with VAT in principal, I don't agree with the short notice, it should never have been implemented mid school year. There is only so much planning you can do on such short notice, the £100,000 cliff edge described makes this harder.

But this is a digression and a whole different thread.

The problem is the disincentive to working..... as per the title.

The 30 free hours has been extended, and from September will be from 9 months.

There is also £2,000 tax free childcare.

Higher earners only get 15 hours at age 3.

30 hours childcare = c. £6k for me.
Tax free childcare = another £2k.

On the £10k over £100k I get £3,700 after tax.

So I am £4,300 worse off earning £110k vs earning £100k, with one child.

Wirh two you might be £12,000+ worse off earning £110k vs earning £100k.

@MidnightPatrol

I appreciate all of that. But I still don’t feel it’s the awful situation painted.

The short period you refer to can be 4 years per child which is not insignificant.

The point is not that costs go up temporarily but that you are actually better off working less.

I explained above how I was offered a 30k bonus and would have been worse off than not receiving it. I decided to temporarily reduce my hours instead. Are you seriously suggesting I should have worked a 5 day week during that time yet end up with less money than working a 4 day week?

Her op doesn't mention loss of childcare benefit as the issue though. It's the private school fees going up she's on about.

@Merryoldgoat why is it an ok situation for a £10,000 pay rise to cost you £22,000 in taxes and lost benefits?

It’s clearly insane.

@ConstantCringing the poster I am replying to is discussing the situation in which you take home less at £110k vs £100k.

This is a function of the removal of childcare benefits.

In my situation the work just takes longer to do, no one else does the work just lead times are extended.

Tbh it’s the same for everyone- you aren’t being punished for ‘doing well’. You are being taxed more because you earn more. Having your kids in private school is entirely your choice. Cut your cloth accordingly if you are struggling.
i get taxed 20% on my second job which I need to feed my kids- meaning I work up to 60 hours a week to pay basic rent and bills. That’s life right now unfortunately, it’s not particular to high earners.
i also have 2 kids with SEN and have to just take what I get from the education system. Most of us do.

I’m struggling to see how you think this is acceptable?

Surely any tax rules should consider the likely behavioural changes resulting from it.

Would you be happy to go to work for an extra day every week for no additional pay and also have an extra deduction added to your existing pay for doing so?

For every £1 earned over £100,000 you lose 50pence of your tax free allowance. You are then also taxed 40% (as per your tax bracket). which together means for every £1 earnt you take home 38pence.

This is the situation for every £1 until you have lost your entire tax free allowance, at which point each £1 is taxed at 40% until you hit the 45% threshold.

In addition, £100k is the level where any additional earnings mean you lose the child care contribution - in addition to paying 62% tax on every £1 you also have the additional expense of the childcare that was previously paid for making you significantly worse off than being below the £100k threshold.

@Sophie717373 you are replying to the wrong poster, I definitely don’t think it’s acceptable…!

Funny thing is, due to the freezing of thresholds and inflation the number of people effected is growing massively - so it’s going to become a bigger issue politically IMO.

But yes I agree with the others in getting financial advisor involved to manage the cliff edge

There’s not much you can do other than pension contributions of your income is PAYE derived.

More tax rises are coming. The softer targets are a pension raid and, breaking with manifesto promises ("due to exceptional circumstances") an increase in personal income tax rates. In just over two months' time we will be told to expect more tax rises. Another £30bn on top of the last £22bn wiped-out by the increased cost of borrowing.

@ConstantCringing

The point is you have OPTIONS.

You could have put it all in your pension or reduce your hours but still have the benefit of that money in some way.

@MidnightPatrol

I disagree with your characterisation - the loss of benefits only affect parents and the vast majority of working parents who need and rely on subsidised childcare earn significantly less than £100k per year.

Is it perfect? No. Far from it. Could it be improved? Absolutely. Do I think that it’s unfair high earners pay more tax and lose benefits that are a ‘helpful’ rather than a complete necessity without which they couldn’t work? No.

I still do it, the turnaround time is longer so a reduction in productivity.

At a certain point of income, financial planning and tax planning becomes essential. It is not just salaries that provide disincentives. We wanted to move house but the levels of stamp duty now are prohibitory. It makes zero sense to move. And I do not fancy buying a plot and building, too much hassle with all the supply shortages. Tax and long term financial planning are essential skills to have. I spend at least an hour a week looking at my SIPP and ISA and managing it well and into different strong currencies, rather than working to hand it all over to HMRC. I might be more inclined to do so if they did not piss it up the whole like Liz Truss and Reeves have just done. I often give to charities instead because at least that gets grossed up and I get a choice in what the money is spent on.

But you can submit your tax return from April onwards - that makes it much less of a surprise and you can put more aside.

About 100,000 families will be impact by it this tax year.

Double the number as last year.

I’m not really sure how you can ‘disagree with the characterisation’ when it’s a statement of fact that you lose money despite having a higher income if you have children at this income level.

It’s absurd to think it’s not an unfair situation - I’m sure if you suddenly found yourself thousands worse off than someone earning less than you, you’d wouldn’t be saying it was all terribly fair and just.

2x childcare places could be 100% of the take home pay on £100k after tax, student loan etc in London - it is not a sensible threshold given the difference in cost of living across the country.

No, the income is kept below £100,000.