Can I reduce my tax bill with tax free childcare?

bo_rai_cho

My partner earns £55k and I earn £11k.

Because of the £50k child benefit cut off, we have to pay back half of the child benefit and if he hits £60k we have to pay it all back or opt out.

He currently puts £5k into his pension so that he does not need to pay it back as that brings his salary down to £50k. But we would like to use the money instead and not put towards his pension anymore.

We were never enrolled in Child Care Vouchers (CCV), however if we enrol in Tax Free Childcare (TFC) for 1 child and put in £2k towards that, will that reduce his earnings and therefore mean we only need to put £3k into his pension?

Or does TFC not work in the same way as CCV in reducing your earnings?

bo_rai_cho

Thank you, the thing is with that calculator it says this bit:

"Taxable benefits provided by your employer - for example the value of any medical insurance, company car, or anything else included on your P11D"

What I don't understand is if you "contribute" to TFC does this mean you transfer it from your bank account to the TFC account so you already have been taxed? Or does it come directly out of your salary?

sheramber

Tax free childcare is paid from taxed income hence the Government add 20% to the account to make the payment 'tax free'.

bo_rai_cho

sheramber wrote: »

Tax free childcare is paid from taxed income hence the Government add 20% to the account to make the payment 'tax free'.

Thanks, so hmm my partners payslip/salary won't actually get reduced by funding the TFC account.

This is what i don't understand - does this mean HMRC won't know how much we contribute and therefore won't deduct that from his salary to bring it back down to the £50k limit?

With pension (or CCV) they deduct it from salary so that would know how much over £50k you earn.

sheramber

HMRC don't need to know how much you pay to tax free child care as it is not deductible for the child benefit income charge.

bo_rai_cho

sheramber wrote: »

HMRC don't need to know how much you pay to tax free child care as it is not deductible for the child benefit income charge.

Sorry maybe I wasn't clear with my question, what I mean is say my partner earns £52k instead and we took £2k worth of tax free childcare, would this mean we can still keep all of our child benefit?

How would HMRC or the government know that we are putting the rest of the money to TFC to know to deduct that from our taxable income?

Dazed_and_confused

Your question was clear, you just don't like the answers you are being given.

The High Income Child Benefit Charge is based on the higher earners adjusted net income and this is explained here,

https://www.gov.uk/guidance/adjusted-net-income

He currently puts £5k into his pension so that he does not need to pay it back as that brings his salary down to £50k. But we would like to use the money instead and not put towards his pension anymore.

There is usually nothing to stop him reducing his pension contributions but one of the consequences will be that there is some Child Benefit to repay.

It could be consider tax inefficient as he will be missing out on 40/41% tax relief and have to pay some of the Child Benefit back.

bo_rai_cho

Dazed_and_confused wrote: »

Your question was clear, you just don't like the answers you are being given.

The High Income Child Benefit Charge is based on the higher earners adjusted net income and this is explained here,

https://www.gov.uk/guidance/adjusted-net-income



There is usually nothing to stop him reducing his pension contributions but one of the consequences will be that there is some Child Benefit to repay.

It could be consider tax inefficient as he will be missing out on 40/41% tax relief and have to pay some of the Child Benefit back.

So based on that link above TFC can't be used to reduce net income in the same way as CCV?

BoGoF

bo_rai_cho wrote: »

So based on that link above TFC can't be used to reduce net income in the same way as CCV?

Correct...