Tax free childcare/30 hours and going over 100k

[spydie]

I started a new role in March earning a bit less than the 100k limit, even with projected bonus earning potential this tax year I would still come under the 100k limit. We claim both tax free childcare and also 30 free hours for my daughter who starts school in September.

Unfortunately, I've just been made redundant, and will be receiving 12 weeks pay in lieu of notice which is taxable. Of course, I'm now on the hunt for a new role and already interviewing, given my experience, salaries are at a similar level. Of course, depending on when I start a new role (unless I wait until end of September), the PILON is going to take me way over the 100k limit.

Has anyone been in this situation before, what happens? I assume I would need to pay back the tax free childcare and 30 free hours used to date this tax year? Is this done as a lump sum or adjusted through tax code? Thanks in advance!

Do you have a pension you could pay into to dip below the limit?

Yes, I was just about to suggest increasing pension contributions to get you below the 100k level.

I'd use the PILON to "pay" myself as normal, and when I started a new role (assuming before September when the PILON would run out) put whatever is left of the PILON into my pension. The aim would be to keep my adjusted net income just under £100k (pension contributions bring your adjusted net income down) so I could keep the tax free childcare and 30 hours. They are really valuable benefits, worth hanging on to if possible.

If you keep the money out of a pension then you could end up with a yearly income of around £125k, which is a terrible position because of the marginal tax rate caused by the withdrawal of your personal tax allowance. You'll lose 60% of that money.

Put it in your pension as above

Thanks all, yes I have some pensions I can out it into. Complete novice at this, as usually just contribute via payroll, so if I personally move money thats already been paid (the PILON) into one of my pensions, how does HMRC keep track? Self assessment the following year?

At the end of July I won't need the tax free childcare any more, husband is a teacher so he has kids in holidays and both will be at school then (no more babies!); just don't want to be stung having to pay it all back for this year just because I've been made redundant, and equally doubly stung on the 60% tax too.

You would need the employer to pay the pilon directly into your pension. It won't work if you move it yourself.

Surely once you get a new job and first payday you won't need the hours anyway so it wouldn't matter about your wage?

Ah I see what you mean. You don't need to retain eligibility for the future, you just don't want to have to pay back what you've already claimed.

I think you're good. There doesn't seem to be any mechanism for repaying. The eligibility questions ask if you "expect" to be earning less than £100k. Once that is no longer true (so when you get your new job and know what your income for the year will be), if you were still claiming the 30 hours you would answer "no" to this, and then after the grace period you wouldn't be able to claim it any more, but you wouldn't have to pay anything back either.

Check this with the Childcare Service Helpline to be sure that there's nothing lurking in the background - www.gov.uk/government/organisations/hm-revenue-customs/contact/childcare-service-helpline. They are normally pretty good.

There is a mechanism to pay it back- your tax return! And they'll want it back sharpish.

You'd need to pay into your pension at the time and be careful of the timing.

I don't think that's right.

See the section on eligibility in the statutory guidance: www.gov.uk/government/publications/early-education-and-childcare--2

If you are no longer eligible you get a grace period from the date that you submit your confirmation of ineligibility, then when that runs out you no longer have a valid code to submit to your childcare provider. But you don't lose your entitlement to the codes you had for previous quarters. There's nothing in the guidance about paying it back, as long as you answer the eligibility questions about your expected income for that quarter correctly.

And if there was an expectation that parents whose eligibility changed mid year would have to repay money through their tax returns then HMRC would surely have issued guidance on how that amount is to be calculated and accounted for in a tax return.

Not sure if I might have misunderstood, but if your kids finish in July and it's now the end of June, and you don't have another job yet, I can't see how you'd go over the £100k limit in the time period.

This is wrong.

You can make voluntary payments into your pension. They reduce your taxable pay for the tax year. Your pension provider will gross up the 20% tax and you do the rest throughout tax return.

You won't have to repay anything. You just won't be eligible when you reconfirm so your code's dates won't be extended any further.
Even then you will still be eligible for 30 hours funding up to the grace period end date with the same childcare provider who has claimed extended hours before the code end date.

Thanks all, I've looked online and can't find anything either about repaying. It's not just the funded hours but also the tax free childcare i.e. the 20% top up I was querying too, but seems to fall under the same eligibility criteria. I'll try and give them a call this morning, couldn't get through yesterday.

@NotRainingToday my query was really whether I'd need to pay it back if I go over later in the year, thinking along the lines of child benefit which I know is payed back.

I'm also wondering whether or how HMRC would clawback either the tax-free childcare 20% top-up or 30 hours free childcare I've utilised throughout 22/23, as I think I'll go over £100k by the end of April 2023. I also don't think I'll have £10k liquid cash to put into a SIPP to get adjusted net income below £100k. Any tips welcome! TIA

Hi I’m in a similar position just wondering if you had to pay anything back?

Hello OP I’m sorry this post is so old but I’m in a similar situation as you and would love to know what you did in the end. I really don’t want to lose my tax-free childcare benefits or the 30 hours funding because of a PILON. Happy to chat over DM if easier.