Tax band and childcare vouchers

Stuart_Toni

Hi,

I've just been lucky enough to get a promotion which will take my salary to £45,299, so technically well into the 40% tax band.

At the moment I get the full amount of childcare vouchers at£243 a month, through a salary sacrifice scheme at work, and I have been informed that this payment amount will continue until the end of the financial year. My question is about next financial year.

I am also in an employers pension scheme and contributions are taken off before tax is calculated. From April my annual pension contribution will be £3,035. When you take this, plus the personal allowance from my salary the taxable income will be £32,824, so just above the 40% band of £32,245.

Now when I add the childcare vouchers salary sacrifice in it takes me below the 40% band, so I assume that I will not pay any tax at 40%. However, my question relates to the amount of childcare vouchers I am entitled to. Those in the 40% band can only claim £126 a month, those in the 20% band can claim £243. So, since I won't pay any tax at the 40% rate can I still get the full £243, or because the only reason I fall below the 40% band is because of the childcare vouchers will that mean I can only claim £126?

I hope that all makes sense. Thanks for any replies.

nomunnofun

What a nightmare! My take on it is that, before considering the vouchers, you are a higher rate taxpayer and would only be eligible for the lower amount - unless someone can prove me wrong?

However, you are only £600 odd into higher rates. Can you take out a personal pension of £40 per month (£480 net = £600 gross) and become basic rate again? Sounds like an option to me.

WestonDave

Bizarrely it depends when you started getting the childcare vouchers - if you were getting them before the restriction on 40% relief came in, then you can still get the full £243, if not then you'll be on the lower amount if you are a 40% tax payer.

Its further complicated by the fact that there is a once a year assessment done as to whether you are a higher rate tax payer and if you are then you are for the whole year and if not, then not for the whole year for voucher purposes. However worse still yet, it only works on things your employer can see, so if you earn over the 40% limit, and pay private pension contributions which stop you paying 40% tax, for voucher purposes you would be treated as a 40% tax payer because your employer can't "see" the pension contributions. It is a nightmare! I've seen employees switch from making private contributions to paying more into the company scheme in order to avoid this problem.

My advice would be to talk to your HR people and ask them nicely if they could run the figures for you and let you know where you will stand - its probably easier than trying to do it by proxy over a forum!