Childcare vouchers and high rate tax payer

[TinyTear]

I am going to call the tax office in a bit as advised by my payroll person but I was wondering what you think...

I joined the childcare voucher scheme in October or November 2012.

I was a lower rate tax payer so claimed £243 a month

I earn 42k a year, which while it was lower rate in March 2013, suddenly in April 2013 turned to higher rate due to changes in personal allowance.

I was never told I was now higher rate!

Today had a meeting at work about pensions and it was when I realised I am higher rate payer, and I have never been told about tax returns or anything...

1. do I need to change my vouchers down to £124 ASAP?

2. do I need to repay the overpaid vouchers? will they just ask me for a large cheque or will I pay in small amounts?

3. I will start pension contributions in February as per the new company schemes and that will take me back again to lower rate. Do I change the voucher amount when I start getting the pension contributions or wait until the new tax year?

It's all so confusing!

Thanks for any help...I am going to call the tax office in a bit as advised by my payroll person but I was wondering what you think...

I joined the childcare voucher scheme

From memory - haven't looked at that in a while - it's actually your employer's responsibility to decide whether you are basic or higher rate taxpayer for the year and give you the tax-free childcare vouchers accordingly. No year end adjustments are needed so if they guessed you were a basic rate taxpayer at the beginning of the year but you get a bonus pushing you into higher rate by the end then no clawback is required.
I will go and verify this now.

thanks. there was no bonus or anything and i had to put the amount of vouchers i need on the website.

i have been earning the same for just over a year but the change in personal allowance took me to higher rate

Broadly my comments above are correct. If you want to read up on it then HMRC FAQ for employers is here www.hmrc.gov.uk/thelibrary/employer-qa.pdf. It's quite long-winded but the thing you need is the question on page 10.

I also don't know how this works. For example, if you're only just over the higher rate tax threshold then reducing your childcare vouchers to £124 means you save less than someone on lower rate claiming £243 as not all of your saving is at the 40% iyswim.

Interested because so far my pension has been keeping me below higher rate but in march my salary goes up and I'm sure I'll just go into that bracket!

Thanks

Will call them in 15 minutes to check and will let you know!

the tax office seems to think i am basic rate but told me to call the voucher provider

the voucher provider says the pension consitributions don't count that i am higher rate and to get that changed

the payroll person said she will check again... to leave it as is for now...

what a palaver!

According to hmrc information, if the employer gets the earnings assessment wrong and you are given too much tax relief the excess should be reported on the p11d at the end of the tax year. This would then show that you had underpaid tax and presumably hmrc would claim it back from you. Iirc underpaid tax of less than £2000 is incorporated into your tax code and essentially you then pay it back over the next tax year.

In terms of pension contributions, yes they do lower your pay for the earnings assessment. If your pension contributions from February and march will bring you back to basic rate tax over the whole tax year, then I would guess that this would essentially cancel out your employer making an incorrect earnings assessment in April and you wouldn't need to repay the extra tax you've saved. I don't know this for sure, but I would imagine that you could argue the case that although the earnings assessment was wrong in April, over the whole tax year you've received the correct voucher rate.

If February and March's pension contributions will not take you down to basic rate tax, it may be worth making additional voluntary contributions before the end of the tax year to ensure that you were a basic rate payer.

Note that how pension contributions are deducted from your salary for childcare vouchers earnings assessment will depend on whether your pension is deducted from your gross pay or net pay. Essentially the amount taken from your pay is the figure to use (rather than the grossed up contributions if you pay from your net salary).

I hope that is useful and makes sense - I'm aware I may not have explained it brilliantly!

Thanks, it makes some sense...

The payroll person got back to me and said it looks ok for this year and to remind her in April to review when we get the new tax codes and stuff...

I just put a note on my diary to get a reminder...