Worried about salary sacrifice changes

[Bunny44]

Hello I've just started a new job on £110k. I'm a single parent to a 2 yr old with no CM so it sounds like a lot but it has to go far especially as I live in London. I pay in 10% to my pension to keep my earnings under the £100k threshold and so far the free 15 hrs and tax free childcare scheme have been really helpful.

I've read salary sacrifice scheme may be scrapped as part of Labour's changes. I did some calculations and realised I would be around £3000 worse off earning £110k than £99k due to the value of the childcare help vs the extra amount I'd actually take home.

I guess in that case if this goes through I'm going to have to ask for a lower salary?? Or ask to go part time (prob not allowed though). Any other suggestions?

Yes - I think OP was worried about the rumoured removal of the salary sacrifice scheme as an option. But from a tax free childcare/free hours point of view, she doesn't need to be.

HMRC will look at the net income on the payslips through the year and for example freeze your TFC account if they think the met adjusted income will go over £100k for the tax year. E.g. if you just get a bonus one month they extrapolate that over the rest of the tax year as though you'll earn the same for every month. Obviously they don't bother to call you and check first.

But if they do this you just call TFC and reconfirm to them verbally that your net adjusted income will be under £100k (in your case because there will be additional personal pensions contributions) and then they reinstate it and the tax return at the end of the year confirms eligibility for both TFC and funded hrs as it would include the pension contributions even if made from net pay as PP have said.

The wider point is that obviously the whole system is ridiculous and harming productivity and grossly unfair for single parents as eligibilty should be based on household income. Any Chancellor with any sense would remove this cliff edge and pointless administration and make childcare universal as a basic public good, improving growth and raising more tax revenue in the process. And remove the withdrawal of the personal allowance for the same reason. But we don't have a Chancellor with sense, so....

You really don’t need an accountant for this. The self assessment forms are really straightforward. It takes me about 5 minutes to complete mine. It even gives you an estimated tax calculation before you hit submit so you’ll know if you’ve made an input error and can correct it.

If all you have is PAYE income plus some pension contributions then 90% of the form doesn’t apply anyway.

You have a big window to complete them so I’d suggest trying yourself first and then in the unlikely event you have an issue you can bring in some paid help to assist.

Yes, all done via the self assessment tax return.

Have a look at vanguard self invested personal pensions.

Caveat with I don't agree with benefits being stopped at cliff edge and think it should be on household income, not personal.

But, if any of your worries are even founded, £3k is a relatively small percentage of your income and only relevant while you need to pay nursery fees. School wrap around care is cheaper and many employers allow some flexible working. If your child is already 2, they will start school in probably 2, or a maximum of 3 years.

This is unlikely to be a long term finance issue. You certainly shouldn't drop pay or hours. Lower pay can follow you for the rest of your working life and working part time is often career suicide. You might just need to accept that it is a bit of short term pain, but over all you are a high earner and can provide a decent life for your child.

Thank you so much for this. I’ve had issues with TFC being stopped in the past due to the odd higher earning month so am familiar with writing repeatedly to request “Mandatory Review”. It sounds like it will be similar when husband is earning a bit more, and I’ll just explain about private pension contributions.

I presume that you can make ad hoc contributions to a pension, and don’t need to commit a fixed monthly sum?

I do recognise that this is a very fortunate “problem” to have. Mumsnet often seems to get very agitated if anyone who earns well is asking for advice - small violin emojis all round - but the posters here have been very helpful.

You are best off doing the lump sum of pension upfront if you can it’s just easier

personally I think the childcare help is AMAZING we weren’t able to use it last year it’s materially changed our standard of living and we are saving well over £700 pm it’s incredible

Is he NHS...? Be careful he doesn't exceed the pension input amount ...this has gone up to £60k now but it's not a simple calculation if you're in the NHS as it depends on inflation so you only know after the year end. I exceeded the £40k input a couple of years ago and had to pay an extra £2k tax. A specialist accountant who understands the NHS pension scheme (if I've guessed rights) would be important

You can make ad hoc contributions to a pension, but it's worth checking with whoever you decide to open a pension with. Different pension providers have different minimum amounts that they will accept as a contribution etc. so find one that works for you.

@SprigatitoYouAndIKnow I think it's rather presumptuous to assume £3000 is little money to me. It's absolutely not. My partner left me when I was pregnant and I've never had any CM and poor maternity pay meant I used most of my savings during that time. I'm trying to build it back up again as I need to move house desperately and ASAP due to my current place being unsuitable for a child and only one bedroom. I might be much better off the average person now but managing all of this alone, every £1k counts a lot.

To give you an idea, £3k is around 4% annual take-home but if I'm spending 75 - 80% already on childcare, mortgage, bills and groceries, 4% is actually a 20% difference of what I can save in a year.

I didn't say it was little money to you. I said that if what you think might be introduced comes to pass, you will have short term pain.

If you just want a moan about how unfair it is that men can fuck off without paying for their offspring, that London property is so expensive that even multiples of £100k only get you a flat and that there is a cliff edge at that point that means people with kids are worse off until they earn over £120 then I completely agree. If you want any tips on cost cutting from your current outgoings, I have seen some great advice on here. Even for people on high wages, as that doesn't necessarily mean people are finding the best deals.

But if those things aren't what you want from their thread, then the truth is that you will have to just belt tighten like the rest of us.

Well you implied it wasn't a big deal and I'm saying it is, besides I already got some good advice on here that I can already put more into my pension rather than working less and this will mean I'm not worse off.

Point is that if I'm better off earning £99k than £110k and I wasn't able to offset it then frankly I'd rather request a 4 day week, earn less and spend more precious time with my child. Why should I suck it up when it has a real impact on mine and my child's life? Every day I spend away from them should be to provide for a better future for us both so the monetary value is much more than just a number.

Surely if you would be worse off post Budget (and you may not be), you should be looking for a pay rise to get you back where you were not reducing your hours. It's not as if you'll get any less work to do! Start on your business case today.

I've only just started as per my OP so would likely have to wait a year and as per a PP I'd have to earn £15k more to break even - that's a big jump...

I think you can also make a charity donation to reduce your earnings - I would do that instead of asking for a lower salary

That's a great idea 😊

Drop some hours if that happens, even if only on paper and sometimes you end up working the extra. Hopefully employer would agree if you tell them you still intend to work the hours if you’ve got deadlines to meet.

OP, please get yourself a decent accountant and get professional advice. I’m truly shocked by the number of people in U.K. earning over £100k who won’t pay an accountant £200 or £300 a year for decent tax advice. You need to fill out a tax return once you earn over £100k anyway. (BTW, well done for getting the job).

There are some clear avenues for you, but you need proper professional advice, but you’ll need to wait until after 30th Oct to find out what is in the budget anyway, and plan accordingly.

Lots of people are in over £100k category and everyone is sweating on the budget as it might affect pension pay-in and so on. Pretty pissed off with labour tbh, as I am a contractor who got bollocked by the tories with IR35 and I was hoping the labour could at least not kick contractors in teeth with regard to Pensions … but that is the rumour. Sigh.

@Plmnki I've paid an accountant in the past as I used to have a rental property and my experience is that they don't really 'advise' you. They just seem to tell you what the rules are but not make suggestions. I paid between £250 - £400 several times felt like they didn't tell me anything I couldn't work out myself. Maybe I hired the wrong sort of accountant I don't know!

I do feel like I could do with advice but not sure who to turn to.

There really is no need for an accountant. If your income is straightforward PAYE salary then it’s a waste of money paying someone to tell you the blindingly obvious.

A quick google search or a chat with colleagues and you’ll sort it all out. The form is dead easy to complete as most of it will be non applicable.

I earn over 200k in a PAYE job and have never had any need for an accountant to sort out my tax.

You're not going to get tax advice for £200-£300! Basic compliance for tax return maybe.

@Plmnki - the threshold for having to fill in an SA return is £150k not £100k for 2023/24 and it's going to be abolished for simple PAYE cases from 2024/25. (Obviously still need to do SA of other criteria met).

As others have said, it doesn't matter whether pension contributions are made through salary sacrifice or not - they still act to reduce your taxable income.

However, at this point I'd just wait and see what the budget brings - they might leave pensions alone but change the childcare to be lost at 80k not 100k. None of us know at this point.

Rather than try and second guess I would wait and see and react to what happens.