To earn over £50k or not

[Joyfullife2]

I'm self employed and getting close to earning £50k this year. I am also planning on becoming single this year from an abusive relationship so will be a single mum with a soon to be 3 year old that is in nursery.

I could essentially stop working now and not go over the £50k tax threshold as I have savings.

Could someone explain (in simple terms!) if I should aim to not go over £50k? Or what the implications would be if I did.

I also want to try and buy my STBX out of our house so I do need to earn as much as possible so I get the mortgage in just my name.

if you go over 50K you are on a sliding scale to pay some of the child benefit currently 25.50 per week back, however you are still not paying higher rate tax, the amount you will be earning over 50K matters as only if you are on 80k will you lose all the benefit as you are self employed you willbe doing a tax return anyway. I think in this situation just maximise your income

You'll pay 40% tax on anything you earn over 50,270. Child benefit doesn't need paying back until you earn over 60,000.

Yes they increased the Child Benefit threshold in April 2024. You will still be better off earning more. You will start to pay more tax, but will have more money than if you stop earning.

Do you pay into a pension?

Do you have expenses to deduct from the £50k or is that your profit?

If yes to either of those you can keep on earning before you start to pay 40% tax or lose CB.

If you need to earn as much as possible, keep working.

Yes sorry £50k would be my profit.

Thank you 👍. Have heard people say it's not worth earning just over £50k as they hit you with a load of tax so was just worried I'd be worse off in that case. And I need all the money I can get to get out of this relationship.

Do you have student loans?

You'll never be worse off by earning more, it's just that the percentage of extra income that you keep reduces above the 40% tax threshold, which is just over £50k (although some of this is effectively refunded into your pension if you pay into one).

Worst case scenario is that you lose 40% tax, 2% NI and 9% student loans if you pay them. So you only keep 49% of the amount you earn. But if you need the income to pay your bills or qualify for a mortgage, it's still worthwhile.

Or, if you can manage without the income, you can pay it into a pension and it only costs you £60 to put £100 into your pension due to the tax relief.

Once you earn more than £60k after pension contributions, you start to lose CB, but it takes until £80k to lose all of it, so always worth it until you earn more than £80k and at some point around here (not sure on exact amount) you'll start to get near the VAT threshold, and that probably is worth deliberately staying under, otherwise you have to charge your clients VAT, do a VAT return and pass on VAT to the government.

Yeah, some folk don't understand tax, and say odd things about becoming a high earner - if you're a high earner you pay a higher rate of tax, but only on some of your salary. So, you don't earn more on paper, but suddenly get paid less due to paying more tax.

There are some cliff edges where you lose money by earning more - but it's higher than £50k, so the OP is OK for now.

At £100k, you start losing your personal allowance, so you have a marginal tax rate of 60%. But additionally, you lose tax free childcare.

So if you have a 3yo in nursery like OP, at £99k you take home £69,977 including tax free childcare top-up, but at £101k you only take home £68,937. You need to go all the way up to £103,600 (ie £4.6k more) to get back to the same take-home pay.

If you have 2 kids in nursery, you need to earn £109k in order to have the same take-home pay as when you were on £99k with 2 lots of tax-free child care. (£71,977).

@strawberrybubblegum, I know, but the OP was talking about £50k. Useful to mention as a caveat though.

100% keep working and if you dont "need" the cash over 50k whack it in a pension

Or set yourself up a Ltd company. Thats where I keep my profits from my consultancy work so that I don't go much over 50k. I also pay myself a pension from my company and pay myself in dividends. I do also have a PT paye role that pays my NI etc.

Thank you this is useful! And reassuring. Yes was worried about free nursery place.

Will definitely need the cash to get this guy out. I am £40k short of being able to buy him out so need all the money I can get!

Lots of luck @Joyfullife2 🙂

You can always pay more into your pension to prevent you moving into 40% tax bracket. I did this. Very satisfying.

right now you need 40k asap so don't put extra into pension thoughlong term that is smart and as soon as you have 40K to buy him out divert to your pension, right now I would do as much work as possible and live as frugally aspossible so you can raise the 40k you need as if you leave it you will need more to buy him out. right now is the time to maximise income it is quite hard to jump from 50k to 100k and even if you could with extra taxes you would still be thousands better off than curently

Can you remortgage to buy him out @Joyfullife2?

Based on my wages I'm £40k short 😭. I can possibly borrow some from my parents (yet to tell them I'm in an abusive relationship as my DM is seriously ill).

Thank you. Right will keep motivated and crack on with some more work and ignore the comments of 'oh you're working again'!!!!

Just a thought....If you are self employed is it worth seeing if
a. You can keep the money in the business until the next tax year and pay it out as dividends
B. You could huy the property through your company

Disclaimer: I'm in no way a specialist but it might be worth investigating these as options

If you want more money in your pocket then go over into the higher tax bracket

I think thinks there is a weird cliff around the 100k mark if you get childcare but usually earning more leads to more in your pocket

I'm a sole trader so I don't think these apply. I'm not an expert though!!!

With a turnover of £50k, look into whether you'd be better off changing to a limited company. There's more admin, but it would probably save you tax:

https://www.gosimpletax.com/blog/should-you-switch-from-limited-company-to-sole-trader

If you switch, be sure to look into how to be tax efficient, eg by taking dividends as well as salary.

There are lots of things you can look at: eg depending on your business, you could look at joining the flat rate VAT scheme (you can register for VAT even if you're below the threshold - but do consider that your clients will then be paying VAT, so it's only a good idea if they are themselves VAT registered companies who could offset it). You can offset expenses against profits to reduce your tax. And things like the 'cycle to work' scheme is open to you, which is great if you cycle.

Buying your house through the company is unlikely to be a good idea though. Companies pay much more tax on a property than you do on your home.