New job. Salary £125k. 15/30 hrs free childcare

eca05mb

Hi Money Saving Expert,

I've recently been offered a new role, however the base salary is now £125k which means I am no longer eligible for free childcare support (15/30hrs).

My employer has a salary sacrifice scheme and I'm looking to utilise this and shift income to my pension. 

Currently my employer contribution is 4% and employee contribution is 5%.

What should be my employee contribution % be increased to so my taxable income is under £100k?

I'm stuck as my hr has not been the most helpful so any help or support on this topic will be greatly appreciated

Thanks!

Dazed_and_C0nfused

If you want to turn a taxable earnings of £125,000 into taxable earnings of £100,000 using salary sacrifice then you would sacrifice 20%.

However AIUi your taxable earnings are largely irrelevant for childcare purposes.

Those rules often use adjusted net income as one of the qualifying criteria so your taxable earnings are simply the starting point for that.

Remember salary sacrifice into a pension results in additional employer contributions so you won't be contributing anything into the pension and employer contributions cannot be deducted when calculating your adjusted net income.

So you would start with taxable earnings of £100,000 but need to add in all other taxable income, for example company benefits, interest and dividends.  You can also deduct relief at source pension contributions and Gift Aid donations.

Note interest and dividends taxed at 0% are still part of your adjusted net income.

eca05mb

Thanks dazed and confused, 
So my aim is to reduce my adjusted net income below £100k to be eligible for the 15hrs.
So what pension schemes can I do?
If salary sacrifice is not an an option as it falls under employer contributions if I've read the above correctly?
Are there any other options available?

Thanks

Dazed_and_C0nfused

eca05mb said:

Thanks dazed and confused, 
So my aim is to reduce my adjusted net income below £100k to be eligible for the 15hrs.
So what pension schemes can I do?
If salary sacrifice is not an an option as it falls under employer contributions if I've read the above correctly?
Are there any other options available?

Thanks

I think you've misunderstood, salary sacrifice is fine to reduce your salary of £125,000 down to taxable earnings of £100,000.

Just remember you cannot deduct salary sacrifice contributions in your ANI calculation.  The staring point for which would be £100,000.  You can only deduct your own pension contributions, not employer ones.  And salary sacrifice is extra employer contributions.  

If you deducted those extra employer contributions you would be turning a salary of £125,000 into income for ANI purposes of £75,000 i.e., double counting them.  They are already factored in when establishing your taxable income, you cannot deduct them later.

But if you had taxable interest, i.e., not from a Cash ISA, of £5 then your adjusted net income would be £100,005.  And I suspect you would be ineligible for the free childcare.

Basically, don't put all your focus on getting your taxable earnings to £100,000.  Look at the wider picture as adjusted net income is likely to be key here.

eca05mb

Perfect, so I would need to just increase my personal contribution of over £25k (ie. 20%) into my pension to reduce my adjusted net income under £100k. (and factor all the other adjustments too)
So the salary sacrifice route is currently not an option to take for my goals. 

Thanks again! 

Dazed_and_C0nfused

eca05mb said:

Perfect, so I would need to just increase my personal contribution of over £25k (ie. 20%) into my pension to reduce my adjusted net income under £100k. (and factor all the other adjustments too)
So the salary sacrifice route is currently not an option to take for my goals. 

Thanks again! 

I honestly have no idea how you have come to that conclusion 🤔

Did you read my second post???

NoMore

I don't think they are saying SS is not an option for you, just that SS to only 100k may not be enough to keep your ANI under the requirement for child care, it depends on your overall position, so you may have to SS more to get your initial taxable income low enough that once all other considerations are taken your ANI is under 100k.

sheramber

Tax free childcare only refers to income

Eligibility

Your eligibility depends on:

• whether you’re working (employed, self-employed, or a director)
• your income (and your partner’s income, if you have one)
• your child’s age and circumstances
• your immigration status

chrisbur

sheramber said:

Tax free childcare only refers to income

Eligibility

Your eligibility depends on:

• whether you’re working (employed, self-employed, or a director)
• your income (and your partner’s income, if you have one)
• your child’s age and circumstances
• your immigration status

This comes from...
https://www.gov.uk/tax-free-childcare

Lower down there is

"If you or your partner have an expected ‘adjusted net income’ over £100,000 in the current tax year, you will not be eligible."

The link for adjusted net income gives the full details.

GDB2222

Is this going to be one of those things that Rachel Reeves has a go at in the autumn budget?