Gone over 100k, what does this mean for tax free childcare?

[UmberFatball]

Morning mumsnetters
My DH has ended up getting a bonus that will take us over the 100k threshold for the year. We considered putting more into pension but actually we've had lots of building work this year and could do with the bonus to rebuild some savings!
What does this mean for tax free childcare now? Next time I need to do the declaration I'll inform them that his earnings have gone over 100k so I assume I won't be able to use it from then?
In this financial year my youngest changed from nursery (where he was getting 30 free hours) to school. How will we have to pay this back? I know he would have been entitled to 15 hours so will they calculate the difference?
We've also used TFC to pay for after school clubs so will we have to pay this back for the whole financial year?
Anyone who's been in this situation and could advise please?

Worth speaking to a tax accountant - you can pay them for an hour for advice.

As he is over £100k he will have to fill in a self assessment anyway. Otherwise there is a fine. Just so you're aware, if you put money in a pension over £100k, the tax relief looks something like this. 20% is automatically topped up in your pension. You then fill your self assessment in, and claim the c. 42% back in your self assessment. This is then paid back in cash. Please double check this, but this is what I've done in the past

Also just remember to look at any extras, like private medical, if you need to be under a certain amount like £100k

Thank you so much all this is really useful. I don't earn anywhere near this (public sector) but do all the TFC admin so although it's his earnings I do need to be in the know. It's reassuring that some haven't had to pay back previous free hours etc as we didn't expect that to be the case. I do see the point about not expecting it and putting into pension but the reality is we don't have an emergency pot of savings at the moment after building work so this gives us that bit of reassurance back, rather than putting into pension. I will talk to him about the 100-125k penalties though and the need to do a self assessment as don't think we knew that!

Yep no child benefit for a few years and now no tax free childcare so I'm glad the nursery days are over and done with!

Your husband shouldn’t need a self assessment unless and until earnings hit over 150k, unless you have things to declare outside of PAYE that is

@PineapplePizzaz oh I've just seen it increased to £150k here www.accountingweb.co.uk/tax/personal-tax/self-assessment-threshold-bumped-to-ps150000?amp

That's crazy, the 100-125k tax bracket has the highest tax - how do you account for pension and charity donations etc w/o a self assessment?

They are hoping you don’t do that they can generate more tax revenue…

OP he’d only need to pay circa £8k into a personal pension to bring you back below the threshold, that would still leave you £7k for savings.
There’s a good calculator here:
www.rossmartin.co.uk/calculators/6557-adjusted-net-income-calculator

£7k - 40% tax.

I guess that’s the OP’s point though, paying 7k into pension is basically the entire bonus so therefore no savings.

@Jammymare 😲 I could well believe it and it

You can max out the tax free childcare account during this period to get the full top up

I read somewhere that you need to earn 137k to make it worth earning over 100k if you have a child in nursery!

Can I? My declaration is due next week so was wondering whether to do one more transfer but again didn't know whether I'd have to pay it back!

I read that it was ~140k to make it worth it, in your position I would definitely top up pension and use his large salary to fund the building work. Saying this as someone who also earns over the 100k, but hasn't been organised enough with pension to keep it under so far and will probably need to put in most of my January bonus too

Can I? My declaration is due next week so was wondering whether to do one more transfer but again didn't know whether I'd have to pay it back!

You can, if you're ineligible your account just becomes "pay only" you don't lose what you already put in and existing top up.

Just to add an update - my reconfirmation was due this week so I have now confirmed on the TFC website that partners income is expected to be over 100K. I had a message that said we will no longer be eligible for TFC so I've transferred the money out to my schools wrap around care provider to pay for that in the future.
I will wait and see if anything else happens but it didn't give any inclination of having to pay back the TFC top ups from earlier this year... fingers crossed!

Did you phone them? It's worth speaking to them

I have just called them and they have confirmed nothing to pay back based on previous declarations. This is a relief!

It makes economic sense to keep the high earners working. Nursery for 2 in London must be getting on for £4k a month now? And someone on £90k would take home about £5k, £5,500 a month.

That is about right if you have a nursery age child.

I was earning around 160k when my DS was first eligible for nursery funded hours. I was making the max pension contributions of 60k. I then received a 20k bonus which meant I no longer qualified for 30 funded hours or tax free childcare savings and also had to pay 60% income tax on the bonus. In all I ended up losing the entire bonus. I was not a penny better off for receiving a 20k bonus. That’s just ridiculous.

As things currently stand, if you have nursery age children and earn 99.9k you need to earn around 135k before you are a penny better off. It’s a massive disincentive for higher earning, higher tax paying parents to work more.

I reduced my hours on a temporary basis as I was effectively working a 5th day for no pay. I earned almost exactly the same working 4 days as I did 5.

I'm sorry to be stupid, but I don't understand how it's "not worth" earning more than 100k if it's less than 140k?

Husband has just gone over 100k, we have a tiny baby. I'm unable to work due to disability. It seems crazy we don't get the 30 free hours- I've thought of suggesting he drops his hours in 3 years time for us to get the childcare but it only seems worth £9k or so in terms of the childcare you get? As in if I were to pay it, I'd be paying £9k.

I've googled it and can't get my head around it, sorry (probably should be trying to sleep next to my baby)

Once you go over 100k you are paying 60% income tax + 2% NI on the next 25k earnings.

At this point you also lose 30 funded hours and tax free childcare.

A rough calculation as an example would be earning 120k instead of 99.99k. In this case you would pay an extra 12.4k income tax and NI leaving you with 7.6k additional income. The loss of childcare tax free saving takes away 2k leaving you with 5.6k. You then need to subtract the value of the lost funded hours which will vary slightly between different providers but will take most of the remaining money.

In summary of you earn 99.99k you are not a penny better off than you would be earning 120k if you have a nursery age child. If you have 2 at nursery you are a lot worse off earning 120k instead of 99.99k. In that situation you need to earn nearly 40k more before you are any better off.

It’s a messed up system!

Thank you! Something to discuss with my husband.

Honestly I'm not sure I'd want him in nursery 30 hours a week, and no idea how a doctor in a massively understaffed department will be able to drop hours to make childcare make sense...I suspect like many doctors he'll end up working all the hours god sends and getting lightly shafted for it.

Definitely worth looking into how he can use pension contributions to get under 100k for now @Gatecrashermum. I'm lucky that we are now out of nursery years so will only be losing the top up for the wrap around school clubs.
On reality the 30 free hours would cover about 3 days in nursery and you'll still have to pay some kind of contribution on top, it doesn't work out as a whole week free.