Reducing working hours and financial implications

[padsi1975]

Hi, hoping someone can help with this. I currently work five days per week, earn just over 100k. This tips me into a situation where I may be losing more than I'm earning due to things like losing tax free allowance over 100k. It may be more financially efficient to reduce my working hours to a 4 day week (between tax savings, reducing childcare bill, etc). I have three children, 1 in school/wraparound care and two in full time nursery. I think I need to talk to a financial advisor but I have no spare money to invest in anything and colleagues tell me that that is how IFAs make their money (they sell you investment products). I need someone to look at our household income, costs and work out if we would be no worse off by my working a 4 day week. Anyone know who sells such a service (if indeed such a service exists)? Thanks in advance.

IFA's do make money on commission, but some will also just charge a flat fee per session. Just ring some up, explain what you need and see what they say.

I think you'd just be better off doing a spreadsheet and then working it out yourself. I'm not sure what an IFA would tell you that you already don't know. IME they are more for investing/pensions security etc.

I do this on a spreadsheet myself. I've done full time, 4days, 3days and I find my own calculations to be quite efficient for decision making.

E.g. - I do 3 days now but my employer is cajoling me to do 4 days. If I agree, I will pay higher tax on that day's earnings, my childcare increases & my commute expenses further bring down any savings. In all I'd earn £1000 more per month gross but would only save £300!! Not much point really!

Keep the calculations simple & realistic & you should find your answers. Don't add household expenses etc. Just go with reducing a day and it's impact on tax, costs, childcare.

Thanks. yeah, they are probably not the right people for this (I have no money to invest). I'm worried that if I do it myself I will miss something and it's a bit of a risk to drop a working day without being 100% sure what take home salary will look like, what it will all cost in terms of any additional benefits, pensions, insurances, etc. Thanks though.

I'm not sure you're right in the way you are looking at this. In very basic terms if you earn say £110k you will lose all of your personal allowance. That simply means that instead of paying no tax on that first £10k you pay higher rate tax on it. So of that 10k you (very roughly) get £6k after tax instead of keeping the full £10k tax free.

On £110k your take home is £69,270

If you reduce your hours by 1 day then you are getting 4/5 i.e. you are paid £88k. Your take home on £88k is £58,507

take home on 105k is £67,367
take home on 100k is £65,476

Thanks Newtssuitcase. Why do you think I'm looking at it in the wrong way (that's exactly what I'm worried about, making some big assumption that is incorrect). With salary and bonus I lose my tax free allowance, so that is worth roughly 3 to 4k per annum. I will have 3 children in some sort of childcare (at the cost of approx. 130 per day). The government apparently will give 30 hours free childcare this year, an increase of 15 hours. However, the increase will only apply to people making

Are you part of a couple? If so won't the free childcare hours be calculated on both incomes (I have no idea)?

Current finances aside, you need to factor in the possible longer term implications, on your career, of going part time.

Would you be overlooked for promotion/career development by only working 4 days and would this affect your longterm earning potential? Maybe not even an issue, but worth a thought.

Have you considered paying more into your pension to reduce your taxable pay?

OK, you wouldn't take home more, but the money would at least still be yours not the tax man's and you'd have access to it from age 55 (on current law).

You def don't need an IFA, they don't deal with this sort of thing at all. You need a spreadsheet, a copy of last month's bank statement and cc statements and a link to listentotaxman.com/

There's are app's that work this out for you- i.e. Tax and how much if you drop hours.

How many hours a week do you do?

Do you repay a student loan at all?

On a very basic analysis on the figures I used (which might not be your income) by dropping 1 day a week you lose £206 net.

If you save £130 childcare on that day then you are only down £76 a week. Does your childcare work like that though? Can you take it down to 4 days without any sort of penalty. Will the nursery be able to fill that one day a week?

The 30 hours is only during term time not for the whole of the year BTW.

Hi, no student loan. It is officially a 35 hour week (longer in reality but that's neither here nor there).

Dropping one day is a 5th of your salary, it's easy to work out then out the result into the tax calculator I posted.

Of course, bonus may not be affected in the same way, you'd have to look at the terms of the bonus, what it is based on etc.

Only you can decide if it's worth it.

I've worked out simply based on figures (35 hrs a week works out your hourly/daily rate to calculate the difference). But like others have said- will you then lose access to promotion/bonuses/career development- that said if it's more than about money, only you can weigh up the pros and cons.

Anyway, say this is your current wage- you can see the take home/deductions

And this your daily rate. (Take home)

Daily take home x 52, off your current salary, equals a take home of this for 4 days work rather than 5.

It's better to do the maths on the gross and input that to a tax calc to get the net as you can input your exact tax code and pension contributions.

4 days on £110k ft, is £88k.

It's very tax efficient to pay more into you pension if you can. I pay an additional £500 pm but by take home pay only decreased by a little under£300 (though I no where near earn as much as you!)
This could give you more flexibility in the future if you want to reduce your hours for any other reason.