>£100k salary and funded childcare

[UncleBunclesHouse]

I hope someone with a better grasp of all this can help as I’m terrible with numbers and tying myself in knots.

I earn £150k plus bonus comes to about 180

I am able to pay over the annual allowance into pension this tax year and next due to underpayment in recent years (mat leave/phased return etc) to bring my net taxable to under £100k

Youngest DC about to turn 3, if I do this I’ll get the 30 hours, will I also be entitled to tax free childcare??

Next point is that I haven’t been doing this so far, so would take decrease in pay to the tune of I think around £800 a month. I’m not sure if I can afford it, but I really want to do it because I think the offset of childcare funding would make up some of this.

Would really appreciate hearing from someone in a similar position, all I can find about this seems to be people in the early 100k range , for which it has very little impact on take home. Over £150k it seems to affect income more?

Nope - it is wise planning and endorsed by HMRC paid for by the taxpayer of which the OP is a significant contributor. Nothing crass about careful planning so you maximise and stretch your income as far as it will go. We all should be doing that - women in particular!

Those countries have higher tax for everyone. Not just the higher earners. The UK personal allowance is one of the highest. Are you personally happy to pay more tax or do you think it's 'someone else's' responsibility?

Sorry OP nothing to contribute but just wanted to support.

This is Money Matters, not AIBU, but some posters don't understand that!

It needs to be done as salary sacrifice. Perfectly legal and legitimate. Speak to whoever does your payroll.

Our nursery bill reduced by about £300 per month with the free hours.

Obviously that doesn't take into account the tax free childcare aspect but I'd be really surprised if it is financially worth sacrificing the £800 per month.

Really appreciate all this great advice thank you. And also appreciate the supportive comments. I’m from a pretty poor background and have worked to get to where I am off my own back, but no one tells you about these matters at work.

To answer a few questions, youngest is 3 end of next month, I can only go through PAYE as I am an employee of a multinational on FTE payroll, and my employer pays a decent % into pension too - which complicates things even further. And my calculation on the savings are based on paying 100% - so PPs are right the real saving would be more like £500 when the 15 hours kick in. Eldest is in prep school with a slightly longer day, and also uses a little bit of wrap around care and holiday club as needed.

Taking all the advice into account, I’d like to increase my pension to get under 100k for this year and next, but I’m concerned that it will be too difficult. Even if I get a little more bonus than expected, or a bigger pay rise, I could end up with a hefty tax/childcare repayment bill.

I am now seriously considering looking at dropping to 4 days/80% FTE until youngest starts school to make this possible. I’m running myself into the ground at the moment trying to do it all, whilst seemingly giving most of the earnings from it away to HMRC. It would be very welcomed to have some breathing space. Not sure if this will be possible with my employer, but could request a trial period perhaps.

Absolutely brilliant work from the government here in incentivising the top 1% of earners to work part time

Utter madness

This worked for me and then it is also one day less at nursery to pay for and some quality time with your child. But I did this on the understanding that I wanted to increase to 5 days once they started at school (as school fees were more than nursery fees too).

Yes it is crazy! Plus the tax relief the government paid out for pensions in 2021 to 2022 was something like over £50bn according to Hargreaves's Lansdown

Well if they get 90k working part time that's another person who can also work part time and get 90k
. 2 people on 90k seems better than 1 on 150 to me - win all round

I would look into this closely with the specific nursery setting. A lot of the people I have known who got the free hours basically had it eroded when their setting introduced "daily consumables fees" or other extra fees to make up for their loss.

If I were you I'd find out exactly how much you'd be paying for nursery in both scenarios (15 hours or 30).

Then work out your take home at <100k and also at your current rate.

Which works out better? Obviously if you put £80k in your pension per year you'll have a very good pension. But I suspect that it's unlikely you'll be better off monthly on £100k with the free childcare.

I would just pay the childcare with the 15 hours free on your salary

IME most jobs that pay this much don't hire someone else with the same salary. The role is reorganized , distributing more work among existing employees, or the part-timer is expected to squeeze it all in.
If, as a full-timer, you were working more hours than contracted. A part-timer doing the same leads to full-time hours!

It's really variable.

The ‘15 free hours’ at my nursery is £50 a week.

So £2,550 a year. Plus tax free childcare would be £4,450 a year.

This mean ‘15 free hours’ knocks less than 10% off the annual bill.

Exactly! Very few would hire a whole person cos a senior person, who would usually not work to a clock anyway dropped a day. It just leads to less tax intake for the Treasury, potentially less productivity from these cohort till kids in school. And if using private school, many would go back to full time anyway but with VAT, many more may decide to take life easy, again reducing tax take and increasing government state school bill. Interesting times ahead

Crass, boasting and grabby.
My DD earns over 100k. She laughed at the thought of trying to manipulate her income in order to avoid paying nursery fees.

It’s a post in money matters about salary, taxes and outgoings. It’s neither crass nor boasting.

@Soontobe60 what a shame your dd is laughing at other women. The government set these rules up like this deliberately so that high earning parents who pay the money over £100k into pensions are not excessively taxed. If she earns so much that these differences don’t matter to her then that’s great, but it’s a little bit crazy not to use the tax planning measures that any competent accountant would recommend.

Why is it that anyone who has a question about a high salary, a large mortgage, a luxury car, and expensive holiday, etc, is seen as boasting?

Jealousy innit.

She should double-check her calculations then, as if she is earning over £100k and has children in nursery she may have less money is her pocket than someone earning £20-30k less.

I don’t know why you’d be proud of not mitigating that.

100%

Does your daughter make pension contributions?

@Charlie2121 I expect people who think like this dd don’t because they would think it would be grabby to benefit from the grossing up relief. Or when she does her self assessment tax return for earning over 100k she probably ticks no to pension contributions particularly to avoid being grabby.

I guess it depends on whether she's on 110k or 250k. If she's on 110k then I'm not sure why she would be laughing because it's certainly not a lot when you're paying a large mortgage and a couple of lots of nursery or school fees. They do say ignorance is bliss so who knows. Either way, let's not laugh at a woman working hard and looking after her family.

Nothing grabby or illegal about what you're doing. It's sensible to want to know how to minimise your tax bill and childcare costs.

At a glance I would say it's not worth putting so much into your pension to avoid paying for 15 more hours of childcare. If you put the numbers in a spreadsheet you'll see the exact figures, but from memory I think it stops making sense around the 150k mark.

OP isn’t throwing the money away, it’s getting paid into her pension. Very smart of her to do this in my opinion.

It’s not just to get free child care, it plugs the pension gap created by maternity leave (it would cost me 1/3 of my salary to top up my pension and I just can’t do that - wish I could!). That money will be needed to support her in retirement. Better to do that now as it might not be possible in future. You never know what will happen with work, or health.