Tax free childcare - bonus pushed over the limit?

[ELM8]

Does anyone have any experience with tax free childcare being stopped due to a discretionary, non-contractual bonus pushing one parents income over 100k?

My husband was paid a bonus in March (I know we are very lucky), which pushed his income over 100k for last year. His salary is below 100k, but tax free childcare has been stopped for this year. We don't know if he will be paid a bonus, or how much, this year - so as it stands his income is

if you earn over 100k I think hmrc are quite strict about it. to continue to receive it he could divert more pay into an employer pension to get back under the limit as pension isn't included.

Make a pension payment. When combined with the loss of personal allowance, you won’t see any of this money, so you may as well pay it to your pension. That removes the problem.

Yeah we should have done the pension thing, the situation now is though that he is back under 100k for this year? Unless he gets another bonus at the end of the year but we don't know that yet....

But surely you have the bonus money now instead. Next year you can report the lower income and may be eligible again.

You can do a lump sum if the bonus is paid. You just put the amount of bonus, minus 20% tax in the pension, and claim the rest back. You don't need to know now.

Oh great that's good to know thank you!!!

You won't win an appeal, they won't budge on the limits for anything unless there has been an error in them pulling their info, ie they have someone down as being on £100k plus when they're actually on £20k- which isn't the case. Bonuses are counted in the calculations. Putting x amount into a pension is the best thing to do, but probably too late for this period now.

Yeah I'm thinking that's probably the case @Shoebie .. we should have thought about it before the bonus was paid.. I wonder if it's an option for us to pay back the £2k we got last year (completely fair enough as he earned over 100k) and then be eligible for this year as our child turns 3 and so as it stands we now can't access 30 hours free....

You will be able to claim for this year if you declare that you expect your earnings to be below 100k. If at the end of the tax year your earnings are above, you will need to repay HMRC. When does DH find out his March 2023 bonus amount? Could he increase his pension for the Feb / March payroll after he finds out his bonus award?

Thanks @Asiama that's really helpful - we have written a letter to that effect, he finds out in feb and it gets paid in March so if it happens again (definitely an if!!!) we will put it into pension..

Will post it tomorrow and hope it goes that way!

Childcare days for me are long gone and when my children were at nursery there were no free hours. All nursery fees were paid from earned income.

I can't believe an element of childcare should be funded by the tax payer when your income is over 100k gross per year.

I understand what you're saying but if there's a way to work it within the rules it's really helpful. The whole system probably needs looking at to be honest as it's just done on one person earning >100k whereas you could have two people earning 50k each in the same household and they would be eligible despite taking home more..

@user1497787065 I agree with you but the system is designed in a rubbish way.

Two-income household earning £99,999 each (= £199,998) get full childcare support.

One-income household earning £100,000 gets no support.

No idea why it's not tapered like other benefits.

You will have been taxed the equivalent of 60% on that income over £100k too. Definitely works out better all round to divert it into a pension. We keep an eye on DH's pay throughout the year especially in the last quarter to check if he's going to go over. He sometimes gets a Dec or Jan bonus so we up his pension counts on the Jan, Feb and Mar periods to divert the money to his pension.

We also have to continually revise HMRCs pay estimate for the year ie confirm that his adjusted net income will be below £100k as otherwise they put him on a temporary punitive tax code. He gets it back it's just a pain to sort out when it happens. So something else to watch for.

I recommend calling the helping, they’re very helpful and more flexible than many of the posters here. I was told that it’s forward looking only and based on your knowledge at the time so I would sign up for now. If you get the bonus and decide to keep it (rather than put it in pension/donate to charity), at that point you would stop being eligible going forward (but you don’t need to look backwards and worry about happened before that point. Anyway give them a call and work out your options.

Thanks @cluelessaboutinteriors - phoned today and they were so helpful. Basically just said to reapply for this tax year and declare expected income is under 100k. Let's see if that works!

Thanks everyone for your advice, they approved for this tax year today as I said we would put any bonus that pushes his pension over the limit into pension and they were happy with that, job done

That pushes his income over the limit, not pension