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.

Poor you.

Gosh, did I post in AIBU by accident?

Isnt it a joint 100k salary? Is his alone around the 100k?

Nope. Per person.

Hence my post about the household with £199,999.98.

To access the 'free' 30 hours of childcare, it's one of the two parents earning no more than £100k, so a family could earn close to £200k and still be entitled to it (and to tax free childcare)

Both my childminder and my very small lovely nursery are happy with the government payment for the 30 free hours. I checked they didn't want a top up (I was happy to pay one as I love them and didn't want them to be out of pocket) but they insisted it was enough so I guess it depends on your childcare provider. I live in the north west if it makes a difference.

Anyway, on topic, I went part time for this very reason, as my full time salary plus bonus took me over the limit. Once I factored in the savings on childcare, the additional tax, and the loss of the tax free childcare and the free hours, the amount of money we lost by me going down to four days a week was small enough for me to decide to reduce my hours and have more quality at home. Cliff edges in the tax system often result in behaviours not envisaged by the policy makers.

Oooh, now that is an idea Wuthering.

I’m going back 3 days, but I might just work out where each of us doing 4 would leave us. I know DH’s work are up for it, he’s asked before, and it would allay my career fears somewhat.

He’s pretty much reached his peak (he tells me, in his early 30s) but I most definitely haven’t. My pension scheme is also infinitely better than.

Very interesting...

Eligibility for the scheme is based on TAXABLE income so pension contributions are not included. For example, if you earn 99k but pay 16k into your pension, your taxable income is 83k not 99k.
Have you tried using the gov.uk calculator? It will tell you if you’re eligible and what your actual taxable income is. Therefore, you can work out how much you’d need to put into a pension fund if your DH got the 24k bonus.

I’m confused dontbuyme. I know it’s taxable income, hence all the talk of wanting to up DH’s pension contributions.

The issue is (well, was, it’s solved by a SIPP) that what we’d need to put in to cover the £24k bonus is more than we can afford. Company pension contributions are determined before bonus is known.

I’m not sure that makes sense, I’m too involved!

Are you calculating you'd have to pay in the full £24k or are you adding the tax. So you'd have to pay quite a lot less than £24k into a private pension to cover £24k of taxable income.

Also is your DH making all the dedications he can? You may also be able to deduct any charity contributions from taxable income. This includes memberships of places if you gift aided it so membership of National Trust etc which can add up to hundreds of pounds a year. Plus membership of professional organisations etc and check his tax code makes sense, if you are close to the boundary it all adds up.

(Sorry, all second hand knowledge as DH works in tax.)

Not sure lost, good point. We’ll have a look.

Sorry, I was thinking he could pay AVCs at the appropriate amount to bring the taxable income down to below 100k (once the bonus is known). A lot of my colleagues to this!

To offset 24k salary

Pay in 19.2k
Reclaim tax 4.8k higher rate
Offset 4.8k of marginal tax

24k in pension costs 9.6k - no fucking brainer! Borrow the money.

PLUS you keep child benefits.

Just make sure he's got personal pension allowance remaining

Even if there isn't enough pension allowance for this tax year, you could always say some of it is a roll over from the previous tax year (you can top up for up to 3 years back).

Ah, I see dontbuyme. We’re not sure AVCs are possible. It’s something we’re looking into.

That’s the sort of thing we’ll do post children at home dontcallme. When we don’t need to borrow (something I just won’t do). At the moment I think the SIPP is our best option, paying in just what we need to rather than what we’re 99% sure will be far more than we need to.

We’ve been wondering about this too as the guidance isn’t that clear. There is a strong incentive at the 100k mark to put anything over into pension. Without bonuses we could plan and stay under the threshold but it is hard to predict. We’ve tried putting various numbers into the calculators online and we’re in the cusp of eligibility.

It’s not surprising there isn’t much guidance as obviously high earners are in a fortunate position and no-one is going to lose sleep over high earners not getting tax free child care. But it is a reality of the tax system that the hard thresholds influence behaviour. There will be lots of people around the child benefit thresholds that have increased pension. This is the same principle. There’s not many people who would willingly spend money they didn’t need to.

Resurrecting this thread as we may be in a similar situation. OP have you gone with a SIPP? And user1471 what’s your plan?

also keen to understand more on this - Moral Beryl where did you get to? I'm equally going to be stuffed for potentially a few hundred pounds over the threshold but flummoxed between taxable income and adjusted net pay!

Get professional advice.

It would a gerat pity if yet another Govcernment initiative led to women (never the men) going part time, earning much less longer term etc etc. Ever thus.

I don't think lower earners realise how little high earners have after tax and 9% graduate tax and loss of single person tax allowance and marginal rates of 60%+ and say £40k out of after tax income on childcare for two toddlers etc in the SE and my mortgage was £90k a year at one stage. No one needs to weep for us full time working mothers and we survive but the idea there are vast amounts of spare money once you've paid for three under 4s in full time childcare, commuted into London, paid a massive mortgage or rent is wrong. However if you can hang on and get women (or men) up to £200k, £400k a year then it does become easier so in my view worth pushing through that £100k - £150k hurdle as it were and taking the tax hit etc etc and pushing well beyond in the pay scales if you can (and some women can; rather than - let us minimise income to avoid losing tax breaks./ childcare help).

Sorry to resurrect this thread but weirdly I seem to have found myself in this position and I am ever so worried. Due to how his company pay my husband ( every 4 weeks) the way it falls has meant he will receive 2 bonuses in this tax year which is going to put him just over £100k. He has never earns anything like this before. We were unaware of the payment issue and have been claiming the 30 free hours as normal. Can anyone tell me how this will affect it? Will we have to repay a years worth of the free hours?

Same issue here was just googling it and stumbled across this...

Anyone know re taxable income - presumably that is after personal allowance but if you go over £100k you loose that too?

But pensions always come off so aren't taxable income?

I have just googled and wandered onto this thread too - I've read it all and am still a bit confused!
My husband earns 94K before bonus which could be anything. Next bonus will be paid in Dec this year We would like to put our little boy into nursery using the free 30hrs per week from Sept this year ideally. I don't think we can make it work but if there is a way around the way his bonus falls then maybe....
Any advice I'd be really grateful!

Ipanema01 can the bonus be paid in to his pension rather than as salary? It is about the adjusted net income which this article talks about: www.att.org.uk/tax-free-child-care-earnings-over-%C2%A3100000

Thanks so much for this nannynick - I'll have a read but whatever bonus he gets is usually swallowed as soon as it's paid so we can't really afford to let it all go to pension on top of what we already pay in