30 hours free childcare, tax free childcare, the £100k limit and bonuses!

[MoralBeryl]

I'm spending a happy Mother's Day trying to figure out our childcare options. Goodness knows why I thought this was a good idea!

This tax year (17/18), DH's taxable income will be around the £100k mark. Could be up to £1,000 under or £1,000 over.

In 2018/19 (so the tax year in which we hope to start getting 30 free hours for DD1 and will have to make a decision on vouchers v tax free childcare), we can increase DH's pension contributions to hopefully keep below £100k.

The challenge is that his bonus could be anywhere between nothing and £24k, dependant mostly on company performance. This year it is likely to be £6k (the biggest ever). It's paid at the end of this month.

We're thinking of offsetting a potential £12k bonus with increased pension contributions. It will impact on our disposable income, but getting the extra 15 hours free for DD1 will go some way to balancing that out.

What happens though, if we claim 30 hours free (and potentially tax fee childcare) and then he gets an unexpectedly large bonus?

We can't afford to offset the whole £24k.

Oops. Here:

forums.moneysavingexpert.com/showthread.php?t=5592205

This seems like a massive hassle to just be saving around £200 a month in childcare?

Firstly, I do not sniff at £200 a month!

Secondly, I have more than one child.

Oh and thirdly, it’s also about the 60% tax rate.

Fourthly, it’s about £450 per month.

You have more than one child aged 3?

No. 2 children in a very expensive nursery.

Tax free childcare has a benefit of up to £2000 per year, per child.

Then there’s the additional 15 hours free for the 3 year old.

It’s a lot of money.

I'd love to know what you decide to do. I've buried my head in the sand about it but also looking at a 60% tax rate and over £1000 on childcare for school aged children per month.

Oh and regarding the ‘free’ 30 hours, it’s not free.

The nurseries round here take the govt funding as a subsidy. We then pay a top up (technically for food, nappies, suncream etc.)

stick with the vouchers. you'd be mad to do anything else.

I can't see how childcare vouchers would work out better than the extra free nursery hours that are worth £££... Not too mention the additional income tax and loss of personal allowance...

Nurseries have to take some form of payment because (I'm not sure you are aware of this) what they receive from the government doesn't cover their outgoings. Depending on your local authority, a nursery may receive anything from £3.50 per child, per hour to £4.30. That is not a lot, and it doesn't cover all of the cost entailed in offering the childcare. Which is why they either have to charge, or have to not offer it, or close down. Nurseries up and down the country have closed down since the introduction of this scheme.

So in my humble opinion, as a childminder who would be paid far less than minimum wage if I'd be offering the 'free' 30 hours of childcare, I think that the £100k limit is outrageous. I think the limit should be £75k.

If you want to fiddle with the system to not pay childcare, it's legal, your choice. But it's morally wrong.

We've been hit by part of this this year. Neither DH nor I earns anywhere near £100k a year - but this year, we got a huge, very welcome and completely unexpected bonus when a share scheme paid out early. We could never have anticipated it, but it suddenly meant we no longer qualified for tax free childcare. We're still waiting to hear how we pay back the benefit we received before that happened. And I'm hoping that we still qualify for the 30 hours when DD turns 3 in the summer, since that will be a new tax year.

As others have said, its a nice problem to have, but it does worry me as we've always tried to do the right thing.

Jojo it's vouchers OR taxfree childcare. Both are ways of getting a top up from the government for childcare fees. Which is best depends on many factors - martins money tips has a good guide.
The 30 hours is separate but some people get confused because it's the same log in as tax free childcare. You can still have vouchers and 30 hours (if your childcare provider offers it)

Twofishfingers, I’ve already said that we may be below the threshold. The main issue is not knowing. I am fully aware of the shortfall issue and have no complaints about the top up to our nursery.

On the point of morality, is it fair that a household earning £199,999.98 (2 parents at £99,999.99 each) can get all of these advantages when a household earning £106,257.15 (1 x £100,000 and 1 x minimum wage for 16 hours a week) can’t?

I think some people have serious misconceptions about the lifestyles of higher rate tax payers. We often attract high salaries for working in places where living costs are exorbitantly high. £200 a month may be pittance to a PP, but makes a big difference to us.

Pigshave, it’s really not straightforward. For the next 3 years we’d be better with tax free. After that we’d be better with vouchers. By then I might well have changed employer and not be able to get vouchers anymore.

Oops, wrong username

'I think some people have serious misconceptions about the lifestyles of higher rate tax payers.'

Right. Yes, I'd admit, I do have misconceptions... but if you work 16 hours, you can't claim 30 hours of 'free' childcare.

From the .gov.uk website:

^Eligibility

You can usually get 30 hours free childcare if you (and your partner, if you have one) are:

in work - or getting parental leave, sick leave or annual leave
each earning at least the National Minimum Wage or Living Wage for 16 hours a week - this is £120 if you’re over 25^

I don’t even think you have to work 16 hours. You just have to earn the same as someone who works 16 hours at minimum wage.

How the fuck do you have a 100k salary and still manage to turn round and say 'we're not rolling in money'?

You're talking about buying holidays or upping pension contributions to get free childcare?! Just pay for the childcare?!!?

I sometimes think I'm from another planet.

I’d miss even £50 a month.

We don’t live in a mansion, we don’t buy new cars, we don’t have extravagant holidays. I’m a higher rate tax payer myself and it’s barely worth me going back to work after childcare and travel costs.

PipGirl404, maybe you are. Or just a bit dim. If you're a family in London, you might as well have a mortgage of 2.5k+ on a two bedroom flat or a small terrace, pay a few hundred for commuting into work on public transport and paying for 2 children in nursery with no funding costs over 3k. So that 100k is not even enough to then go to Lidl for a weekly shop on top of those bills. Not to mention that those jobs often aren't 9-5 but 50-60h per week so the nursery doesn't even cover the hours needed for getting into work and working.

The discussion here is about a range of options offered by the government. If you get a lot of sponsorship through those people on 100k paying 30-40k+ in taxes, perhaps you should be thankful and not nasty.

PIP you are not on another planet (or a bit dim). I have exactly the same questions as you. We live in a nice part of London, own a 4 bed house, and DH is a key worker - I'm a childminder and we manage very well with a total income of less than £80k a year. I don't know how OP manages her finances, but it makes very little sense to me.

Both higher rate tax payers worried about paying for childcare 😂 you should live in my world then you'd really worry

Twofishfigers, then you’re much better off aren’t you? No 3k in childcare, no commuting for one of you, 2 sets of personal allowances, you’ll get child benefit and all sorts as well...

Peachyfizz, I don’t think the Op is worried - she’s trying to navigate the complexities of taxes and funding that are in place.

Where did I say I was worried? I’m financially aware and don’t throw away money.

You’re also forgetting things like student loans. It often costs a lot to get into a position where you can earn a good salary.