Childcare funding help - £100k threshold

[NotMyFirstCrisis]

I firstly want to acknowledge that I know I am in a very privileged position, and I probably should have thought about this more before returning from mat leave, but… mum brain!

Name change for this, I earn £110k base plus £30k commission (which is obviously dependent on sales) and need help with the 30 hours free childcare funding.

I started back at work in May, and we received funding from September as I’m putting money into my pension via work (salary sacrifice). However, that isn’t enough, so I need to put more into my SIP to bridge the gap and get my adjusted net income below £99k.

I need to put £40k into my pension. £12k goes into my workplace pension via salary sacrifice, so I need to put another £32k into my SIP.

Obviously, my bonus/commission is taxed at source, and I don’t receive the full amount in my bank account. I’ve realised I’ll only be able to save around £16k, meaning I’m £16k short because the rest has gone to the taxman.

How do people manage this? I don’t have enough savings, as they were used during my mat leave, and I can’t put any more into my workplace pension. I don’t think I can actually get below £99k, which is frustrating.

Will I need to pay back the funded childcare hours and Tax-Free Childcare from this term? I gave them verbal confirmation, and I genuinely thought I’d be able to make it work.

As I said, I understand this is a very privileged conundrum. I just want to get ahead of it, as my childcare costs will go from £800 a month to £2,100 a month. (Blooming London!)

Does anyone have any experience with this?

Thank you!

Sorry if I’m being slow but when you say that you’re £16k short, what do you mean? Short for….putting money aside to pay for the childcare bills?

I’m not sure I’ll be able to help with advice but I didn’t really understand the conundrum so I think maybe if you can confirm that, someone else might have answers to help you.

If I understand you correctly then I think the answer would be to adjust your lifestyle so that after you’ve paid your taxes you can still put away the amount you need to in order to get under the theshold.

Could you look for a cheaper nursery? Or potentially for a childminder.

Go down to 4 days a week working. Basic salary will fall below £100k and it’s one less day per week to pay for childcare.

Can’t you salary sacrifice a lump sum payment ? We do this alll the time at work, someone left it so last minute and we had to do it in Feb/March for him last year 😅

Also people will take a weeks parental leave at February half term if they are really late but we have someone who uses there 4 weeks consistently at different points throughout the year.

Thank you for your reply. I am pretty confused myself to be honest.

If I dropped a day I would still be over 100k as my commission will take me over. I have looked into alternative childcare but there is a year waiting list in my area...

To clarify: One needs to earn below 99k in order to get funding for childcare. It is possible to get below the threshold by putting extra money into a pension. When you put into your work pension it is salary sacrificed (eg it reduced my taxed salary from 140k to 128k) but then I still need to put the rest into pension but its taxed at 60% before it hits my account.

If I was self employed I would be able to pop 41k straight into my pension and declare that on my tax return - Then pay tax on the remaining 99k. However as I am being taxed at source, as a single parent I am really struggling to save enough from my salary (if that makes sense).

@lalalalalala2024 Ah how do you do a lump sum through work? I am maxed out at 10% into my SS pension and they have said I cant SS any more?

I realise it may not be possible, maybe it's easier with two salaries to bridge the gap which is how others do it!

Again - I know how lucky I am so absolutely not complaining - Just confused (clearly) and running on a year of broken sleep!

Doesn't your employer allow AVCs into the pension, even if outside of the salary sacrifice, but relief at source? That's the way to do it.

Or, opt out of salary sacrifice (it won't be saving you much at that salary) and ask for relief at source, and increase your contribution. You have to be allowed to okt out, it's a legal requirement.

You'll probably find HR/payroll don't know what you're talking about, so ask them to check with the scheme itself, or broker.

Would it not be easier to just pay the nursery fees from salary? It sounds like sacrificing down that low is going to leave you too short over the year - so earn the 140k, pay the tax, and pay the nursery.

as @Negroanyhas said it should be an AVC ‘ additional voluntary contribution’ a lot of people will pop the whole bonus payment as a one off payment, you won’t be taxed on this and if your base is 110k then your pension payments should bring your NET payment under.
Does your employer have a holiday buy scheme ? This also will help bring you under the threshold. What about a car scheme ?

Thank you so much I didn't know about AVC - do all workplaces have this. My bonus/commission is paid monthly and it changes monthly, am I able to set up an AVC monthly (I am already saving all my commission not spending it but obviously half of it is gone in tax).

I can't speak for all workplaces, but I've never known one that didn't allow it.

Usually you just log into the pension portal and change the contribution percentage, or £ sum if you prefer.

Yes,

we have a form so employees will either do a set amount each month or they will send in a new one every single month. They then send the form into us and we make the change for them.

Employees can also send the form into us and say they want it to start in January and we then pop it in the January folder and action it then, others will choose they want the deductions for 5months. Our process is very manual and I would much rather a process where the employee logs in and does it themselves.

If your company does salary sacrifice pensions, surely they must have the option of AVC’s

Thank you so @Negroany much I will look into that! As I am already half way through the year I just need to figure out if I can manage it - will I get the tax back I already paid as a rebate or is that a loss I will just have to absorb?

Honestly I don't know why I am finding this so difficult - My accountant wasn't helpful at all - Any recs for a broker I should approach?

Would it not be less hassle and faff to just pay the tax and the nursery fees? You earn a huge amount of money. The free nursery hours were intended to help lower earners than you.

Great advice above. I'd add that if you get close to the threshold you could take unpaid parental leave for up to 4 weeks. It's worthwhile given the extortionate cost of childcare otherwise

It’s worth it if the employer shares their NI savings. Not all do though.

Yes you should get a rebate if you get under the 100k threshold, it can either be in your monthly payments or when you get a rebate from HMRC.

You’re not too late, on your payslip it should tell you how much your pensionable earnings are up to date. Just an FYI you can do an AVC up to the minimum wage amount, it can’t go under that.

Can you not just put your entire bonus (or as much of it as you need to/can afford to) into your work pension? That's what I do. It's pretty common I think. That way you don't pay any tax on it either

You are not entitled to free childcare. Stop trying to find ways to access benefits that aren't for you.

No because of the ridiculous 100k cliff edge and removal of child care credits you end up being worse off and at her level she would be pretty much giving everything the earns over 100k away. If the government want people to stop ploughing money into pensions they shd remove the cliff edge - they would probably actually get a lot more tax,

This

On a yearly salary of £140k monthly total after tax is around £ 7,165.54

So just pay for it.

She is entitled if she adds money to her pension - which she should absolutely do.

Can I check your maths OP? You say you pay £12k in via salary sacrifice but need to pay in £40k to get you under £100k - that’s a gap of £28k, not £32k?

You only need to pay the net amount in (ie the amount before basic rate tax relief), not the whole £28k. So you need to pay, before the end of the tax year, £22,400. Your SIPP provider will claim the basic rate tax relief to make the gross contribution £28k, then after the end of the tax year you will be able to claim £5,600 in additional tax relief from HMRC.

As a high earner, you must be able to access some form of short term credit (eg cash transfer credit card) which you can use to bridge the gap and pay off later (eg with the tax rebate)?

Companies do not need to offer AVCs, but I’m surprised a company employing people who earn just over the £100k threshold wouldn’t be more helpful in sacrificing bonus etc (as then you don’t need to find the money/reclaim the tax relief).

Thank you so much everyone, I will look into the above this has been super super helpful.

I may be able to put my whole bonus in via AVC so will speak to my workplace and see if that is possible.

I understand this can be a divisive subject - As a single parent household I just want to make sure I am being as efficient as possible, within the parameters of what the government allows.

Thank you @WhyIhatebaylissandharding - Looking at the numbers I think I will be worse off if I lose the funding.

Thank you everyone for taking the time to reply, it is really appreciated. x x

If you are unable to increase your SS contributions via your pension, I would raise this with your employer. I change mine monthly according to what I want to save. I’m currently saving 20% of my salary but I can increase up or down as long as it does take my salary below minimum wage.