Childcare Vouchers: cut childcare costs by £1,000/year Discussion Area

naughtyminnow

I can't see that this specific question has been asked, nor can I see it on the MSE page for childcare vouchers, so here goes.

I am currently a higher rate tax payer, but reduce my earnings by paying into my company pension scheme via a salary sacrifice arrangement to make my new gross salary fall into the basic rate tax band, thereby allowing me to claim the £243/month CC vouchers.

My payroll lady says that I need to make my pension contributions such that my revised gross salary is no higher than £42,385, the HRTB for 2015-16. But (and this is where I need advice)... I think that as CC vouchers are also deducted via salary sacrifice, these also reduce my gross. i.e. if I reduce my salary (using pension) to £45,301, the CC vouchers will then reduce the gross further by £2,916 (£243 x 12), bringing me down to the necessary £42,385, meaning that I become a basic rate tax payer. Am I unnecessarily overpaying into my pension?

I guess the get-out is that I can always complete a basic earnings assessment at a higher pension contribution rate, and the next month then reduce the pension and get more take-home that way, but I'd feel a tiny bit bad for playing the system...

onlyroz

I think you're right but surely the payroll lady will know for sure?

naughtyminnow

yah... you'd think. I don't have much faith in her and her dodgy spreadsheets I'm afraid. I found a link on Citizens Advice that suggests I'm right. The article is about Child Benefit, but at the bottom, the last section suggests ways that you can reduce your taxable income, and one of these ways is Childcare Vouchers via salary sacrifice.

Unfortunately I'm not allowed to post a link as I'm a relatively new user but a google search for "child-benefit-and-tax-if-you-have-a-high-income" will yield a citizensadvice page near the top of the search, with this text string as part of the URL.

rpc

Your pension contributions are included as part of the basic earnings assessment, your childcare vouchers are not.

So your income needs to be below the threshold WITHOUT childcare vouchers in order for you to benefit from the full voucher allowance.

Payroll lady is right.

Child benefit is different and yes your childcare vouchers do reduce your income for the purpose of the child benefit charge calculations.

welsh_woody

Hi all,


Can someone help me understand how the upper earning limit of £100k is defined ie what does it include / exclude?


For example is it:
+Salary
+Car allowance
+Bonus
-Salary sacrifice (eg pension contributions)
+/- anything else


Cheers,


Mark

rpc

I don't think they have the regulations in place yet, but if you assume it will be along the lines of the current basic earnings assessment I think you won't be far wrong.

They could do something more complex where they reclaim the top-up from you at the end of the year (doing a retrospective assessment like tax credits) but that would possibly cost more than it is worth.

In either case, it is your taxable gross that sets the threshold - the basic earnings assessment is simply quicker and does not include some tax avoidance that would be covered by a tax return type of system. Donations to charity, personal pensions, etc.

If you are at risk of being in the 60% marginal tax bracket then there should be enough motivation to reduce taxable income anyway :-)

Tax free childcare probably needs a new thread.

susancs

welsh_woody wrote: »

Hi all,


Can someone help me understand how the upper earning limit of £100k is defined ie what does it include / exclude?


For example is it:
+Salary
+Car allowance
+Bonus
-Salary sacrifice (eg pension contributions)
+/- anything else


Cheers,


Mark

If it is the 30 hours free childcare you are refering to that comes into force in most areas in 2017. Here is the information on it.
https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/482517/Childcare_Bill_Policy_Statement_12.03.2015.pdf

Fiona_T

Anyone on here with up to date knowledge about the vouchers while on mat leave?

blueincubus

Fiona_T wrote: »

Anyone on here with up to date knowledge about the vouchers while on mat leave?

My understanding is that it is no longer a legal requirement for vouchers to be funded by your employer in the period in which the parent on maternity/parental leave earns SMP. It does depend on the employer though - my wife's employer (a University) is still funding her vouchers in this period, not sure whether this is their intension or if they've just not noticed the recent legal ruling which states it is no longer a legal requirement.

This article suggests it would be 'risky' for employers to act on the latest ruling, which to me suggests most are likely to be continuting to fund CCV when earners are on SMP:
http://www.lawgazette.co.uk/law/legal-updates/childcare-vouchers-and-maternity-leave/5055128.fullarticle

me1234

I am a civil servant and my partner is a primary teacher - we are expecting our first child in December 2016. Partner will return to work in July 2017 onwards (so she can get paid over the summer holidays) therefore we will need to pay for childcare for a couple weeks in July 2017, not over the summer holidays, and again from September 2017 onwards.


I note that there is a tax free childcare scheme coming in next year, but am I correct in thinking that I would be better off signing up for the childcare vouchers scheme in December?


Any help/advice would be much appreciated.