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!

Ask on the HenryUK thread on Reddit. You'll get help without the judgement :)

So HR have said they do not do AVC - should I push them to go to their provider? They have said I can up it to 15% (which is new as when I checked on Mat leave it was 10%). I believe this would leave me with around 9.5k to put into my SIP which is much more doable.

Hopefully I can keep the funding for this year as I have already put my bonus straight into my my SIP in anticipation. At least I can now plan in case I don't qualify from April, as I didn't realise employer contributions counted towards the 60k.

@SovietSpy Thank you so much for the tip! I will do this too (Although I have had lots of super helpful advice here already).

there are very valid business reasons to limit what can go into the pension via salary sacrifice and at what point to say additional contributions are 'relief at source' instead. Out of curiosity what were they?

Not earning a lot???!!!

Clearly people live on entirely different planets. She is earning a huge amount.

OP is a net contributor by a fair way, she isn't entitled to any benefits at all, the only thing she can access is some childcare relief. Most civilised countries offer very low cost or free universal childcare recognising the importance of net contributors to the economy. OP is also a single parent, if she was 2 parents earning 65k each she'd be entitled to it. Also any policy that makes it more likely that more women will remain in the workplace is good for women, good for the economy and good for society overall.

I THINK (have seen on Instagram) that you can also put 2500 ish into a pension for your child and this is also tax deductible. Check it out. But a cool way to make your child a millionaire in retirement!
I would also cut to a 4 day week or take 4 weeks off unpaid parental leave every summer if you can

Yes I agree @MeowDoku op is a brilliant single mum and should be so proud of her careee

One reason is that it is generally considered (although not tested in court) that when an employee goes on parental leave, the employer’s pension contribution (which technically includes the amount sacrificed) must continue as if the employee was working normally. So an employee could potentially increase their pension contribution right before mat leave, and the employer would need to keep paying it even if there wasn’t enough being “sacrificed” to fund it (eg when SMP kicks in).

Also @Negroany the “life event” restriction doesn’t apply to pensions, the Heaton v Bell principle only applies to income tax, not NICs. Pension contributions benefit from full tax relief anyway so HMRC doesn’t care how often salary sacrifice pension contributions are changed.

Of that she will have to pay £2100 in childcare and possibly more on mortgage! She shouldn’t just pay it, why should she when she’s struggling like everyone else.

I don’t really think ‘cheaper’ nurseries exist in London, in my experience at least…unless there is some staff discount available

You can set up a seperate SIPP (self invested pension plan) with for example AJ Bell. I am pretty sure you can do this alongside your employer pension
You will need to select a fund, so maybe a global tracker

@Excellentboiledpotato I know, I am aware how fortunate I am, and that I am a high earner. I am just trying to ensure I maximise my full earning potential as a single income household. A couple earning my salary total would have a higher take home pay and still be entitled to the childcare funding. I am allowed to have access to it, there are just more hoops (again, no complaints here) - I just needed a little help.

@Unexpectedlysinglemum Thank you so much, that comment actually made me cry a little bit. This is not the life I expected for me or my daughter but I am trying to make the best of it. (Solidarity to a fellow single mum)! Also, WHATTT? I can give my child some of my pension and that will adjust my income - I need to look into that!

@SlipperyLizard Ah how did I not know this, I need to check my work pension carefully as that would be amazing if work was still paying while I was on leave.

And thank you @MeowDoku that was much more succinctly put than I could do.

Thank you @vladimirVsvolodymr - Yes if I have to pay £2100 next term it will floor me a little as I haven't planned for it - Mainly as my mortgage is super high as we took it out with the anticipation we would have two salaries. I am managing and can manage, I am in the fortunate position that I can move if needed, but I would rather not (memories here). Completely my fault, I really should have thought about this in more depth before I went back to work.

Problem is that the value of the childcare hours might be >£15k.

£100k after tax = £65k

£140k after tax = £82k

So she takes home an extra £17k net over £100k for £40k of gross earnings. But she might lose the same amount in childcare help.

That means she’s no better off for earning that extra £40k. The outcome is the same as on £100k plus the childcare hours.

If she uses her pension, she can claim the >£15k of childcare hours, and put £40k in her pension. It’s a no brainer.

Not quite - the OP can make contributions to her child's pension but those contributions do not reduce her taxable earnings. The child gets an extra 20% contribution from the government which is akin to the child's 'basic rate tax relief' although since the child doesn't earn, it's just an extra contribution.

A contribution to a junior SIPP will give tax relief for your daughter. Max you can invest is £2,880 which rounds up to £3,600 with tax relief.
However I am pretty sure this is a gift and does not reduce your own income position. Please check this out though
.

@notspringingback double post!

Unfortunately contributing to your child's pension does not reduce your taxable earnings. The contribution is made out of your taxed earnings but the government add 20% (or 25% of your contribution ie. 20% of the total). This is all separate to your earnings / tax / childcare situation.

It is a good idea though - even a few years contributions will compound to a decent pension due to time invested. We've done a few years for both our boys so far who are 3 and 5.

Not by my standard and must be tough to be a single mother.

In the Uk only up to around 4% earn over 100k. It is therefore a large salary by independent, factual, standards. That’s not judging anyone.

Thank you this info is very helpful, I didn’t know I could do a junior pension. I was going to do a savings pot for her but would absolutely prefer a pension she can’t touch, she has a small amount from her father’s will she can access sooner anyway.

I will absolutely look into this for her (once she’s out of nursery).

Thank you again everyone, there’s lots for me to mull over (wish I had asked this question sooner, I’ve learnt a lot)

You've had some good advice here OP but one thing I noticed which might help.

You say you returned to work in May... Did you earn anything in April? Just because if that was unpaid maternity leave that is money you don't need to count.
The tax free childcare runs April - April same as the tax year.

It would be a lot more than 4% if this tax cliff edge didn’t exist!

@Hopefulbride18 Of course! No, I was on unpaid leave in April - so that will take my income down. Thank you for flagging that!

I think it is time to find a new accountant who can help me work out the numbers to be honest.

Exactly, re the cap on salary sacrifice. You say "not tested" but I worked somewhere where someone had increased their contribution to c80% and then gone on family heave and the legal advice was that the employer had to continue paying the pension at that rate. It was actually before I joined do I didn't see the full details.

Life event - OK, but most providers do seem to use this excuse to limit changes throughout the year, a pp said their employer does. Maybe they just lump it in with other flexible benefits.

One thing that's not been mentioned, someone else will know more than me, but aren't pension contributions capped at £10k over a certain amount of income?