March bonus -> 100k -> childcare benefits?

sedor5

Hi there,

My total taxable income including benefits (all paid through PAYE) is a few £k's below the 100k threshold. An unexpectedly high bonus increased my March payslip to about 102k. 
One main aspect worries me: childcare.
I already opted out from the child benefit when I passed the 60k threshold above which this benefit is zero, but I just realised that the 30hrs of free childcare is also dependent on the 100k limit. Therefore, I have three questions.

1) since the total taxable income has exceeded 100k, will I receive a request to submit a self-assessment in the next months? Also, I heard the self-assessment threshold will be raised to 150k...will this become active in this coming financial year 24/25? (But anyway, I suppose it is not retroactive, so I will still be asked to send a self assessment for the year just concluded, correct?)

2) I've asked to HMRC but I got very uncertain replies about this. Is there any risk that I will need to repay some of the contributions I received monthly, and how do I calculate this (even a broad estimation would be fine)? I am quite worried that just by exceeding the 100k threshold by just 2k (and also unexpectedly) I will have to pay a lot of money back. It's not clear to me how this is calculated for the year just concluded: will I be deemed eligible of 15 or zero hours, and is the effect of this going to be counted proportionally for the amount above 100k only?
Also, every three months we need to confirm on the appropriate HMRC website that the highest earner between the parents earns less than 100k. I would still reply that nothing has changed, because my contracted income plus benefits etc is still below 100k, but there may be bonuses that I cannot predict (most of the times they are quite small). What to do? I'm quite confused.

3) How can I prevent this either now or in the future? I've heard many times that earners above 100k should avoid the 60% trap by, for example, dumping the extra on the pension, or take similar actions (I'll look into it for next year). But what happens if I will know about my bonus only a few days before the end of the financial year (like it happened this time to me)? It seems to me that I will find myself constantly in this situation for a while, so any suggestion on how to tackle this would be appreciated. And of course, if there was anything I could do to solve the issue this month, it would be great to hear (but I guess it is too late now).

Thanks a lot in advance for your help. I hope someone could give me some suggestions.

Cheers

r6mile

The childcare benefits are based on having below 100k of “Adjusted Net Income”. Assuming you have calculated yours correctly as 102k (and included all salary, benefits, savings interest, etc), the two main ways to reduce them now in the next few days is to:

1) make 2k gross of pension contributions (which would cost you £1600, and then you could claim tax relief on). presumably you don’t have time to pay into your workplace pension but you could open a SIPP and make a payment.

or 2) make a gift aid eligible charitable donation of 1.6k, which would be grossed up to 2k (and again you could claim tax relief on).

in both instances I believe you could just notify HMRC by phone or webchat.

in your case given that the childcare benefits 100k is a cliff edge, it’s an absolute no brainer.

For the future, I would suggest you increase your pension contributions so that you remain below 100k next year too.

sedor5

Thanks r6mile for your answer.

- you mentioned putting the excess of £100k in a SIPP or through Gift Aid, and then claim taxes back. I don't have a SIPP (but I could open one immediately..) but, in the interest of time, would simply moving these into my LISA work too? (This would be the simplest option for me, if it was a solution)

- about the "adjusted net income": I've seen on the HMRC website how this is calculated and I've looked at many posts in this forum. I'm quite sure that my PAYE Taxable Pay (the same number that will be shown in my P60 when issued) is more or less the same as my adjusted net income. This is because: my full time job is the only source of income (no rentals, other jobs, other benefits), all the job's benefits are already taxed through payroll, interests and dividends are peanuts, I don't claim back any taxes through Gift Aid or professional bodies etc, and my pension is a 5% salary sacrifice (which the employer will match with another 10% I believe) so it shouldn't be included in the calculation for net adjusted income.

Thanks again 

Dazed_and_C0nfused

Putting money into a LISA won't help.

Gift Aid or relief at source pension contributions (to a SIPP or personal pension) are your best bets now if you want to reduce your ANI for 2023-24.

sedor5

Thanks again. Ok, I'll put some money in a SIPP.
Just to be clear: if my total adjusted net income is £N above £100k, what us the minimum amount of money I should move into the SIPP to avoid the childcare cliff edge: just £N or this multiplied by some factor? (and on top of this, I'm happy to add an extra few hundreds on top, just for the peace of mind).

Thanks again very much!

Ferro

N/0.8. e.g. £4000 to reduce ANI by £5000. Don’t forget to inform HMRC!

Grumpy_chap

sedor5 said:

I'm happy to add an extra few hundreds on top, just for the peace of mind

Wise to put the extra £k or so into pension to be sure to fall under the £100k threshold, especially given how the childcare is a cliff-edge.
Getting it a little out on the withdrawal of personal allowance is less significant.

Saint84

Also don’t forget about any other income you may have. Bank interest you have accrued during year in your own account and any joint account. Property income if you have any etc.

sheramber

Interest may be peanuts to you but that amount  must be included. £1 could put you over the limit.

Ferro

sheramber said:

Interest may be peanuts to you but that amount  must be included. £1 could put you over the limit.

Indeed. The marginal ‘tax rate’ of that £1 could be enormous!

sedor5

I wanted to thank you all for you kind help. Very useful. I've now rechecked all the ANI calculations, moved some money in a SIPP and informed HMRC.

One last question. As you may know, there is a website associated to the Childcare benefit where every 3 months I need to confirm that my eligibility has not changed. This was last asked before I knew about the bonus, and will be asked again soon. Until next March when I could (or could not) receive a large enough bonus, I will definitely officially be still below the £100k ANI threshold. Does it mean that I can still confirm on the website that my eligibility is unchanged, even after what happened last month?

Thanks again in advance.