Is it pointless earning £100,000 with young children

DonFog

Hello,
I am expected to see my salary rise about £100,000 in the next couple of years. I have two children under 2 and would loose my childcare benefit plus free childcare hours.
Additionally, earning above £100,000 would reduce my tax allowance.
I can't see the point of having this salary and being worse off. I can't see how I can sacrifice salary for childcare anymore.
Is there anything I can do or do you think I need a financial advisor?
Don

calcotti

Don't think that has anything to do with welfare benefits. There may be things you can do to minimise tax so you may be better posting on the Cutting Tax forum.

Grumpy_chap

DonFog said:

Hello,
I am expected to see my salary rise about £100,000 in the next couple of years. I have two children under 2 and would loose my childcare benefit plus free childcare hours.
Additionally, earning above £100,000 would reduce my tax allowance.
I can't see the point of having this salary and being worse off. I can't see how I can sacrifice salary for childcare anymore.
Is there anything I can do or do you think I need a financial advisor?
Don

As mentioned, this is really in the incorrect forum - please ask a Moderator to move the thread.

The title of your thread smacks of boasting, selfishness and entitlement - in fact read the wrong way, it could almost seem offensive, especially with the incorrect forum selection.  There are many people that would give an arm and a leg for the sort of salary you mention.

Notwithstanding the above, the removal of personal allowance does create an anomalous taxation rate and it encourages some illogical behaviours and responses.  "Some" of an extra pound is always more than "no" extra pounds.

There is a lack of detail in your OP but based on two under-twos and expecting salary to rise to above £100k in the next couple of years, I'll assume that you are 30-something yo.  If you are currently on £80+k then you need to either accept career stagnation, or work a way to navigate through the punitive tax band if you aspire to be the £500k CEO or whatever.

Having the £100k income gives you choices:
 - Can you increase pension contributions through salary sacrifice (SS)?
 - Can you work less, either part-time, or buy extra weeks of annual leave so more quality family time?
 - Are you able to take advantage of an SS electric car scheme through your employer?
 - Make Gift Aid donations to charity.  

There are limits to some of the options above.  As you are considering this ahead of reaching the £100k threshold, choices about timing of decision may make a difference.  For example, SS pension contribution this year gain tax efficiency of 40%, in a future year may gain an efficiency of 60%.  

If your ANI (adjusted nett income) remains under £100k, then AIUI, there is no impact to childcare.

Once you are at £100k, you will need to prepare and submit your own Self-Assessment tax return (SA).  It is probably worth employing the services of an Accountant to give you the peace-of-mind of correct SA submission and also best opportunity to ensure that you have taken advantage of any opportunities that apply in your specific circumstances.  If you engage the services of an Accountant early, they can advise about decisions / deferrals that you might sensibly choose to consider.

This is a type of query that arises fairly frequently on the Cutting Tax forum, one recent thread as an example:
https://forums.moneysavingexpert.com/discussion/6379447/avoiding-60-marginal-tax-rate#latest

Albermarle

or do you think I need a financial advisor?
Financial advisors are more for how to invest your money, via a pension or otherwise.

Is there anything I can do 
Be thankful you have a good highly paid job. I think going over £100K puts you in the Top couple of percent.

DonFog

Grumpy_chap said:

DonFog said:

Hello,
I am expected to see my salary rise about £100,000 in the next couple of years. I have two children under 2 and would loose my childcare benefit plus free childcare hours.
Additionally, earning above £100,000 would reduce my tax allowance.
I can't see the point of having this salary and being worse off. I can't see how I can sacrifice salary for childcare anymore.
Is there anything I can do or do you think I need a financial advisor?
Don

As mentioned, this is really in the incorrect forum - please ask a Moderator to move the thread.

The title of your thread smacks of boasting, selfishness and entitlement - in fact read the wrong way, it could almost seem offensive, especially with the incorrect forum selection.  There are many people that would give an arm and a leg for the sort of salary you mention.

Notwithstanding the above, the removal of personal allowance does create an anomalous taxation rate and it encourages some illogical behaviours and responses.  "Some" of an extra pound is always more than "no" extra pounds.

There is a lack of detail in your OP but based on two under-twos and expecting salary to rise to above £100k in the next couple of years, I'll assume that you are 30-something yo.  If you are currently on £80+k then you need to either accept career stagnation, or work a way to navigate through the punitive tax band if you aspire to be the £500k CEO or whatever.

Having the £100k income gives you choices:
 - Can you increase pension contributions through salary sacrifice (SS)?
 - Can you work less, either part-time, or buy extra weeks of annual leave so more quality family time?
 - Are you able to take advantage of an SS electric car scheme through your employer?
 - Make Gift Aid donations to charity.  

There are limits to some of the options above.  As you are considering this ahead of reaching the £100k threshold, choices about timing of decision may make a difference.  For example, SS pension contribution this year gain tax efficiency of 40%, in a future year may gain an efficiency of 60%.  

If your ANI (adjusted nett income) remains under £100k, then AIUI, there is no impact to childcare.

Once you are at £100k, you will need to prepare and submit your own Self-Assessment tax return (SA).  It is probably worth employing the services of an Accountant to give you the peace-of-mind of correct SA submission and also best opportunity to ensure that you have taken advantage of any opportunities that apply in your specific circumstances.  If you engage the services of an Accountant early, they can advise about decisions / deferrals that you might sensibly choose to consider.

This is a type of query that arises fairly frequently on the Cutting Tax forum, one recent thread as an example:
https://forums.moneysavingexpert.com/discussion/6379447/avoiding-60-marginal-tax-rate#latest

Thank you very much. It's my first post and wasn't easy to understand where to put it. I'll try to work out how to get it moved by a moderator or remove and repost myself.

Grumpy_chap

A Moderator has already moved this from the Benefits Forum to the Cutting Tax Forum, so no need to ask for it to be moved again.  Definitely, please don't delete the thread as then the same question can't be seen by others.

It can be hard to find the correct place when new to the Forum - don't let that put you off.  Welcome and hope you find this a friendly and useful place to visit

DonFog

Grumpy_chap said:

A Moderator has already moved this from the Benefits Forum to the Cutting Tax Forum, so no need to ask for it to be moved again.  Definitely, please don't delete the thread as then the same question can't be seen by others.

It can be hard to find the correct place when new to the Forum - don't let that put you off.  Welcome and hope you find this a friendly and useful place to visit

Thank you and I agree with the earlier comment that some of a pound is better than none but this £100k threshold immediately removes the £2,000 'Tax-Free Childcare' benefit and cuts 30 free hours down to 15. In our area the cheapest cost is £75 per day so we'd be looking at £1,200 month with two kids until school age. So I'd need £100k + £20k post tax for it to level out by my maths. Which must be something like £140k / £150k.

norsefox

DonFog said:

Grumpy_chap said:

A Moderator has already moved this from the Benefits Forum to the Cutting Tax Forum, so no need to ask for it to be moved again.  Definitely, please don't delete the thread as then the same question can't be seen by others.

It can be hard to find the correct place when new to the Forum - don't let that put you off.  Welcome and hope you find this a friendly and useful place to visit

Thank you and I agree with the earlier comment that some of a pound is better than none but this £100k threshold immediately removes the £2,000 'Tax-Free Childcare' benefit and cuts 30 free hours down to 15. In our area the cheapest cost is £75 per day so we'd be looking at £1,200 month with two kids until school age. So I'd need £100k + £20k post tax for it to level out by my maths. Which must be something like £140k / £150k.

I am in a very similar position to yourself.  I make use of Tax-Free Childcare, and 30 hours (one child 3.5 years, and the other 2.5 years).

I am also in a fortunate position of being over £100k (but only slightly) from April 2023.  The fairly absurd position (as noted above) is that if I earn £2k in 2023 through self-employment as I did in 2021, and will achieve in 2022, in combination with my PAYE role of £100k, that £2k isn't taxed at 41%, or 61%, it's effectively well north of 100%.

My method will be to salary sacrifice pension (I have had to get my employer to bring this is), and salary sacrifice for an electric vehicle.  I am also fortunate that my employer will purchase the EV (for the Corp Tax benefit) and then likely sell it to me at the then market rate in the future.

In short, you need to find methods of sacrificing your salary below £100k, or - as you say - be hit with losing more money than you earn for an amount over that £100k threshold.

DonFog

norsefox said:

I am in a very similar position to yourself.  I make use of Tax-Free Childcare, and 30 hours (one child 3.5 years, and the other 2.5 years).

I am also in a fortunate position of being over £100k (but only slightly) from April 2023.  The fairly absurd position (as noted above) is that if I earn £2k in 2023 through self-employment as I did in 2021, and will achieve in 2022, in combination with my PAYE role of £100k, that £2k isn't taxed at 41%, or 61%, it's effectively well north of 100%.

My method will be to salary sacrifice pension (I have had to get my employer to bring this is), and salary sacrifice for an electric vehicle.  I am also fortunate that my employer will purchase the EV (for the Corp Tax benefit) and then likely sell it to me at the then market rate in the future.

In short, you need to find methods of sacrificing your salary below £100k, or - as you say - be hit with losing more money than you earn for an amount over that £100k threshold.

Thank you. At least I know I’m not going crazy with my own maths now. It feels like this threshold is quite old now so maybe it will change soon. Until then I’ll have to put it in a pension but that doesn’t really boost the economy or allow me to provide more for my family at the most crucial time.

norsefox

DonFog said:

norsefox said:

I am in a very similar position to yourself.  I make use of Tax-Free Childcare, and 30 hours (one child 3.5 years, and the other 2.5 years).

I am also in a fortunate position of being over £100k (but only slightly) from April 2023.  The fairly absurd position (as noted above) is that if I earn £2k in 2023 through self-employment as I did in 2021, and will achieve in 2022, in combination with my PAYE role of £100k, that £2k isn't taxed at 41%, or 61%, it's effectively well north of 100%.

My method will be to salary sacrifice pension (I have had to get my employer to bring this is), and salary sacrifice for an electric vehicle.  I am also fortunate that my employer will purchase the EV (for the Corp Tax benefit) and then likely sell it to me at the then market rate in the future.

In short, you need to find methods of sacrificing your salary below £100k, or - as you say - be hit with losing more money than you earn for an amount over that £100k threshold.

Thank you. At least I know I’m not going crazy with my own maths now. It feels like this threshold is quite old now so maybe it will change soon. Until then I’ll have to put it in a pension but that doesn’t really boost the economy or allow me to provide more for my family at the most crucial time.

Cliff edges shouldn't exist, but there are a number of issues in taxation in the UK that really should be adjusted:

- Child Benefit charge for one parent earning £50k - £60k
- Scottish 'higher rate' tax payers paying a marginal tax of 54.25% on earnings between ~£43k and £50k
- Marginal rates for many earners being above 100% when earnings amounts over £100k

I have no issue paying more tax (though I don't delight in paying more tax in the environment of wastage and poor policy planning but that's another discussion) but taxation should never be a disincentive to working.  All of the above are clumsily implemented, and/or just downright unfair.  

caprikid1

Unless I am mistaken easiest way to get your notional salary down is salary sacrifice into a pension scheme.

Kept myslef below 40% for some time, lost most of it in divorce ! Ces La Vie..