How to plan? Job offer 100k and up to 20% bonus

Albermarle

 it would be prudent for the OP to engage the professional services of an Accountant and an Independent Financial Advisor to review and advise on the OP's financial position now and for future plans (retirement one day). 

Not sure an accountant would be that useful. The OP's affairs seem pretty straightforward (not running their own business or self employed etc ) and we often see in these forums that accountants are not always very well versed in pension issues/personal finance etc.

Engaging an IFA makes more sense though, although as you know there is a debate about the value of engaging/paying an IFA vs DIY investing. A debate played out regularly on the Savings & Investments + Pensions forums. Too regularly in fact.....

biscan25

I'm on slightly less than £100k this year, but have the same considerations

There's also a 100k cliff edge for having to complete a tax return.
Worth avoiding, if nothing else but for the few hours to complete this that you won't get paid for. Don't forget interest on savings as this also counts as income for the £100k trap.

Employers routinely offer bonus sacrifice, so in your circumstance it might be as simple as paying the minimum pension contributions to get the maximum employer contributions (free money), most probably by salary sacrifice, and then contributing some/all of the bonus at the end of the year to get you comfortably under £100k

I like bonus sacrifice, as my OH doesn't then see it as a windfall for us to go on a big holiday or similar.

Albermarle

There's also a 100k cliff edge for having to complete a tax return.
Worth avoiding, if nothing else but for the few hours to complete this that you won't get paid for

Unless you have a complicated life, then there is no way that a self assessment tax return will take a few hours to fill in.

If you have your P60, savings interest and maybe pension contributions ( gross) for the tax year to hand, filling in the form will take about 15 minutes on line. Perhaps 30 minutes the first time you do it and cross check it.

biscan25

Albermarle said:

There's also a 100k cliff edge for having to complete a tax return.
Worth avoiding, if nothing else but for the few hours to complete this that you won't get paid for

Unless you have a complicated life, then there is no way that a self assessment tax return will take a few hours to fill in.

If you have your P60, savings interest and maybe pension contributions ( gross) for the tax year to hand, filling in the form will take about 15 minutes on line. Perhaps 30 minutes the first time you do it and cross check it.

It's getting things to hand that takes the time. Registering for self-assessment, bank interest, some miniscule, from 4 banks, student loan contributions, p60 earnings, pension contributions grossed up, allowable employment expenses, working out whether ad hoc work falling within trading allowance needs to be disclosed etc.
Plus I kept a soft copy full audit trail, I'm not sure whether this is strictly needed but just in case HMRC come a knocking.

So I think 2 hours is reasonable.

How long does it take to do a tax return?

Even if your tax knowledge is top-notch, doing your tax return can often take longer than you think.

According to our survey, the average time it takes to complete a tax return is two and a half hours.

While one in five speedy people said the process takes them less than an hour, for others it takes significantly longer - in fact, one in 10 respondents said that they spent more than five hours on the job.

housestress

Thanks everyone. I previously did tax returns as a student but it was definitely a lot easier back then! Appreciate the advice 

kinger101

housestress said:

Thank you everyone, this has been really helpful! I may just need to pay for childcare instead of the 30 free hours. Does anyone know the repayment method of the free hours in case I am not clear at the start of the tax year please?

On £12OK, it would be a very bad idea to lose 15 of those free hours and the £2k tax free on top.  That's worth about £6k.  Even on the full £20k, that would after income tax of £12,000.  So a marginal rate of 90 percent.  If your taxable income was say £110k, the marginal rate would actually be 110 percent.

Just put more into your pension. Your older self will thank you.

housestress

Would you still say this is the case when the time in nursery would probably only be 3 months by the time I get in? @kinger101 also thinking about saving for a house 

kinger101

housestress said:

Would you still say this is the case when the time in nursery would probably only be 3 months by the time I get in? @kinger101 also thinking about saving for a house 

That changes things, but remember, you will still lose entitlement to up to £2,000 free childcare, which you might want to use for afterschool care etc.

Personally, even without the nursery/childcare, I'd do everything I could to avoid paying 60% tax.  Look at it another way, for every 40 p of net income within this band (38  p if under sal. sac), you get £1 in your pension.  Assuming an income tax rate of 15 p in retirement

85 p for 40 p = an immediate 112.5% uplift
85 p for 38 p (if sal. sac) = an immediate 123.6% uplift

I don't see the two objectives of saving for a house and saving for one's retirement as being mutually exclusive.  Certainly not on that income.