Taxable income - 30 hours free childcare

LesLittle · 18 March 2018 at 1:59PM

Firstly I recognise i'm in a fortunate position here, but any thoughts/advice welcome.

A large proportion of my annual renumeration is based on a bonus paid at the end of March. I'm able to make a bonus sacrifice into my pension which my employer makes from Gross pay, however I had to decide the percentage of my bonus to sacrifice BEFORE knowing what it was (something to do with tax?!). Anyway i've just been told the actual bonus figure which is considerably higher this year and now expect my net taxable income (after pension contributions and childcare vouchers) will tip over the £100k mark - only by £1.5k!

This means i'll no longer be eligible for the 30 free hours childcare. So my quetion is, if i make a one off pension contribution to a SIPP (or similar) of the amount over £100k (e.g. £1,500) will that bring my total taxable income below £100k? The pension provider will add the lost basic rate tax to the amount I contribute then i'll need to register for a self assessment to claim the rest of the tax back, but will this also lower my taxable income below £100k for the purposes of getting the free childcare? I assume the calculation can be based on a SA tax return.

I've looked on the forum and couldn't find a similar scenario.

Dazed_and_confused · 18 March 2018 at 11:41PM

So my quetion is, if i make a one off pension contribution to a SIPP (or similar) of the amount over £100k (e.g. £1,500) will that bring my total taxable income below £100k?

No. It will increase the amount of basic rate tax you can pay which in turn reduces the 40% tax charged but it doesn't alter the amount of your taxable income.

It does alter your "adjusted net income" which is used to calculate your Personal Allowance - it might be worthwhile you googling adjusted net income.

You probably need to check with HMRC if the childcare is based on taxable income or adjusted net income.

LesLittle · 21 March 2018 at 9:23PM

Dazed_and_confused wrote: »

So my quetion is, if i make a one off pension contribution to a SIPP (or similar) of the amount over £100k (e.g. £1,500) will that bring my total taxable income below £100k?

No. It will increase the amount of basic rate tax you can pay which in turn reduces the 40% tax charged but it doesn't alter the amount of your taxable income.

It does alter your "adjusted net income" which is used to calculate your Personal Allowance - it might be worthwhile you googling adjusted net income.

You probably need to check with HMRC if the childcare is based on taxable income or adjusted net income.

Thanks for this, I've done some Googling and based on a pdf on the parliament's website (unable to post link as a newbie Google: CBP-8051.pdf) income is based on "adjusted net income". Therefore I think the pension contribution i'm planning would lower my adjusted net income.

ms1122 · 24 March 2018 at 5:32PM

Yes, "adjusted net income", is also mentioned on legislation.gov.uk (search for "extended entitlement", go to the 2016 document, chapter 2, regulation 4).
I get the impression that this is the actual law, but am not sure. There are several other financial advice website that mention "adjusted net income as well".

However, another government website google for "help-with-childcare" now mentions "taxable income". And I was asked to contact the childcare line about my application, and the HMRC person insisted it was the taxable income. However, they haven't rejected anything yet, and I am still in the process of clarifying this (which proves very tiresome).

ms1122 · 20 April 2018 at 9:50PM

Just to follow up on this: my application was rejected (based on the fact that my taxable income was above £100k), but I requested a "mandatory review", and the decision has been changed, as it is indeed the "Adjusted net income" that should be below £100k.

However, the government website "help with childcare costs" still erroneously mentions "taxable income":

"You’re not eligible if:

your child doesn’t usually live with you
the child is your foster child
either you or your partner has a taxable income over £100,000
you’re from outside the EEA and your UK residence card says you can’t access public funds"

Dazed_and_confused · 21 April 2018 at 9:33AM

Thanks for the update, no doubt will help others.

Potbellypig · 23 April 2018 at 11:48AM

Glad to see the free childcare hours are going to those who are struggling to afford it.

downhillfast · 23 April 2018 at 12:52PM

Potbellypig wrote: »

Glad to see the free childcare hours are going to those who are struggling to afford it.

And just to play devil's advocate...

What about the free childcare that non-working families get from aged 2? We don't qualify for this as we both have jobs... but to allow us to work we have to pay huge childcare costs that non-working friends of ours get for free - their children go off to free childcare (at the same nursery as our son) while they go out socialising! We can't wait to qualify for the 30 free hours in September this year - it will make a huge difference to our family.

Jue83 · 2 May 2018 at 7:27PM

Hi,

Did you manage to get an answer regarding whether you are eligible for the 30 hours? My husbands basic is under 100k but potentially with bonus could go over. Does it go from Gross income or Net did you get an answer?

RickyB2000 · 2 May 2018 at 10:29PM

I thought the application form makes this reasonably clear. At the 100k question it says something like - will your income minus pension and gift aid contributions exceed 100k.

There is also a calculator where you type in your details. Though just playing around with it, it won!!!8217;t let you put in an income 110,000 as it says that is too much, but the next question asks about pension contributions. So if you put in 90,000 income, 20,000 pension contribution and then 20,000 additional income (so 110,000 income) it will say you are entitled but if you type in 110,000 income you can!!!8217;t even get to the pension screen to enter 20,000!

Suggest you try it:

https://www.gov.uk/childcare-calculator

sheramber · 3 May 2018 at 2:17PM

It is your net taxable pay- so salary plus any bonus less pension contributions and gift aid.

Taxable income - 30 hours free childcare

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