Tax free childcare - £100,000k limit and bonus

[Annas1237]

Hi there,
I just wanted to double check my eligibility for the tax free childcare. I am a single mother with a taxable income of 96k for this FY 22/23. The question I have is we do get bonuses most years but they are discretionary and they are paid always at the end of June (so technically in the next Financial year)

Q1 If my bonus is for example £10k - would that be counted as part of the FY 23/24 - i.e. next financial year? As I mentioned they are not guaranteed and vary a lot year to year (we had years with zero bonus too) as they are dependent on company’s financial performance. Just hope I don’t get penalised for this bonus this year (since technically it is part of this years income but just paid in June).

Q2 could I automatically get my company to pay/route the bonus into our company’s pension? Or do I need to set up SIPP
anyone has any experience in doing this?

thank you for your advice in advance.

1. it’s counted in the tax year it is paid. So a bonus in Jun22 is in the 2022/23 tax year. A bonus paid in Jun 2023 is in the 23/24 tax year, regardless if it was paid in respect of work done in y/e 2022

2. you can put it in your pension if you like but it is still counted for the calculation of the tax free childcare as that is based on your gross income.

I opt to have my bonus paid into my pension so you should be able to choose this. I'm not sure about the timings though. I always assumed it's on the month paid into the bank account but I might be wrong

I thought pension contributions do have an impact. It is based on your adjusted net income so any gross pension contributions come off that.

Yes that was my understanding too - 100k threshold is based on Adjusted net income which is calculated by deducting the gross pension contribution from total income. So I just looked at my monthly taxable income for on my payslip which already had pension contribution deducted and multiplied it by 12 months to arrive at 96k.

in terms of bonus that’s helpful - I was hoping it was the case since it’s paid in the next financial year.

Yes your company may allow you to pay it direct into your pension on a salary sacrifice basis (my company does this and adds on some of their NI saving too, so it makes a lot of sense to choose this option). If they don't, I am under the impression that most pension companies allow you to make one off payments into your pension - check with them and if so make sure you make the payment in good time before the end of the tax year (don't leave it right to the last minute particularly in case you need to do any admin with the pension company before you can make the payment).

as the pp said it’s off net adjusted. Multiplying taxable income might not necessarily be right tho. As my employer strangely takes off my tax free allowance and shows this as the “taxable pay” which if you multiplied this by 12 would give and artificially low net income.

double check by taking the gross and taking off pensions then multiplying by 12.

pension/ride to work can all be used to reduce the net income. I’ve used ride to work to get “accessories” etc to reduce my taxable threshold.

be ware of putting the 40k annual pensions growth allowance. Depends if you’re on a dbs dcs pension.

This happened to us where a bonus tipped the total over 100k. Tax free childcare was stopped pretty much straight away but I called up (after some good advice on here) and explained it was discretionary and said next year if it happened again we would put it in pension so take home would be <100k for the year.

They were so helpful and reinstated it within a few days. From what the lady said on the phone it seemed pretty common.