Reduce your hours but not your salary - ish

WindfallWendy

Hey all...

I'm sure this isn't news to any or many people but I've just had my first payslip after reducing my hours and am quids in - kind of.

My full time salary is ~£54k so into the 40% threshold. I wanted to reduce my hours as I didn't want my interest earnings to be taxed that heavily.

So I reduced my hours to fit around a bit more life. I have a short day every week, and a full day off every other week. In terms of FTE, I am now 83.3% FTE. It needs a bit more planning during the week and a bit more diligence and focus on tasks to power through things rather than pondering (perhaps more honestly, I'd procrastinate because I had the time), but I don't feel like I'm trying to fit a full time job I to part time hours: I'm just making better use of my time and have filtered out some of the fuzzy edges.

I'd roughly worked my finances out to be 17% reduced (approx take home pay going from £3300 down to £2800).... But having not been minded to be able to fully work out the tax impact, I have today discovered my salary has only gone down by about 12%.

My interest savings won't get me so near to £50k that I need to worry, and I feel like I'm cheating the system somehow whilst also feeling *so* much free-er with my time.

I don't think this is necessarily a trick, but it's something that makes a lot of sense to me and my circumstances and so I thought I'd share it with others out there who might be able to feel a bit lighter without quite the same associated lightness of pocket.

Happy days!!!

Dazed_and_C0nfused

WindfallWendy said:

Hey all...

I'm sure this isn't news to any or many people but I've just had my first payslip after reducing my hours and am quids in - kind of.

My full time salary is ~£54k so into the 40% threshold. I wanted to reduce my hours as I didn't want my interest earnings to be taxed that heavily.

So I reduced my hours to fit around a bit more life. I have a short day every week, and a full day off every other week. In terms of FTE, I am now 83.3% FTE. It needs a bit more planning during the week and a bit more diligence and focus on tasks to power through things rather than pondering (perhaps more honestly, I'd procrastinate because I had the time), but I don't feel like I'm trying to fit a full time job I to part time hours: I'm just making better use of my time and have filtered out some of the fuzzy edges.

I'd roughly worked my finances out to be 17% reduced (approx take home pay going from £3300 down to £2800).... But having not been minded to be able to fully work out the tax impact, I have today discovered my salary has only gone down by about 12%.

My interest savings won't get me so near to £50k that I need to worry, and I feel like I'm cheating the system somehow whilst also feeling *so* much free-er with my time.

I don't think this is necessarily a trick, but it's something that makes a lot of sense to me and my circumstances and so I thought I'd share it with others out there who might be able to feel a bit lighter without quite the same associated lightness of pocket.

Happy days!!!

You are overlooking the fact that all of the earnings you no longer have will have attracted tax and NI at a mix of 20, 40, 8 & 2%.

So 17% less hours isn't 17% less take home pay.

Nomunnofun1

WindfallWendy said:

Hey all...

I'm sure this isn't news to any or many people but I've just had my first payslip after reducing my hours and am quids in - kind of.

My full time salary is ~£54k so into the 40% threshold. I wanted to reduce my hours as I didn't want my interest earnings to be taxed that heavily.

So I reduced my hours to fit around a bit more life. I have a short day every week, and a full day off every other week. In terms of FTE, I am now 83.3% FTE. It needs a bit more planning during the week and a bit more diligence and focus on tasks to power through things rather than pondering (perhaps more honestly, I'd procrastinate because I had the time), but I don't feel like I'm trying to fit a full time job I to part time hours: I'm just making better use of my time and have filtered out some of the fuzzy edges.

I'd roughly worked my finances out to be 17% reduced (approx take home pay going from £3300 down to £2800).... But having not been minded to be able to fully work out the tax impact, I have today discovered my salary has only gone down by about 12%.

My interest savings won't get me so near to £50k that I need to worry, and I feel like I'm cheating the system somehow whilst also feeling *so* much free-er with my time.

I don't think this is necessarily a trick, but it's something that makes a lot of sense to me and my circumstances and so I thought I'd share it with others out there who might be able to feel a bit lighter without quite the same associated lightness of pocket.

Happy days!!!

Reduce your salary from £54000 to £50270 - £3730 gross! 

Your net will reduce by £2163 - ignoring any pension contributions. 

Are you in the NHS? Is the £54000 your taxable pay?

I 

WindfallWendy

Dazed_and_C0nfused said:

WindfallWendy said:

Hey all....

I don't think this is necessarily a trick, but it's something that makes a lot of sense to me

You are overlooking the fact that all of the earnings you no longer have will have attracted tax and NI at a mix of 20, 40, 8 & 2%.

So 17% less hours isn't 17% less take home pay.

That's kind of my point. 17% fewer hours only reduces my take home salary by about 12%.

WindfallWendy

Nomunnofun1 said:

Reduce your salary from £54000 to £50270 - £3730 gross! 

Your net will reduce by £2163 - ignoring any pension contributions. 

Are you in the NHS? Is the £54000 your taxable pay?

I 

Yes, I know the thresholds. And I need to be below that to allow for some interest income and still avoid the 40%. A reconsideration of my hours has been a neat way to benefit my life without having the same associated proportionate reduction in salary.

I am in the civil service. My salary was just over £54k, now around £45k, plus ~£3k in anticipated savings interest (only £2k of which will be taxable).

Hoenir

Will reduce your valuable employers pension contribution though.  17% reduction in accrued pension won't be an insignificant amount. 

WindfallWendy

Hoenir said:

Will reduce your valuable employers pension contribution though.  17% reduction in accrued pension won't be an insignificant amount. 

I've done the sums on what my pension will look like and I'm fine with it. To be fair, I'd be planning on having to take a significant pay cut as I just needed to get out of my previous role, and anything was going to be better than being there (the 'problem' has since left herself which is a bit annoying, but nevermind). So to be able to do this is a privilege which I appreciate isn't an option for everyone.

I was just really pleased with how the numbers popped out on my payslip that's all, so thought I'd share my "free" money story. I completely understand the need for those who understand the operations of it all explaining the detail so I don't inadvertently send everyone to their doom by playing the same silly game.

Grumpy_chap

WindfallWendy said:

My full time salary is ~£54k so into the 40% threshold. I wanted to reduce my hours as I didn't want my interest earnings to be taxed that heavily.

WindfallWendy said:

My salary was just over £54k, now around £45k, plus ~£3k in anticipated savings interest (only £2k of which will be taxable).

If your salary was £54k plus the savings interest £3k makes £57k.

What were your pension contributions (employee contribution) from the £54k?

There are other ways that could have bought your taxable income down to below the £50k threshold without giving up hours / income.
 - Possibly additional pension contributions, either to the employer scheme or to a SIPP
 - Possibly record any Gift Aid donations already being made
 - Possibly use marriage allowance if viable / available
 - Move savings to tax efficient wrappers, ISA / premium bonds

OR, shock, horror, receive the higher income and still receive 60% of the income after tax.

IF the driver for this is really more to do with working less hours, than that changes things from the "saving tax" premise as stated.

Ksw3

You are very lucky to have a job where a reduction in hours is manageable. I reduced to 80% FTE and it was incredibly draining.

I can see how this is a win for you, at my age I'd probably just prefer the extra money, 40% tax on it or not but each to their own!

WindfallWendy

Grumpy_chap said

If your salary was £54k plus the savings interest £3k makes £57k.

What were your pension contributions (employee contribution) from the £54k?

There are other ways that could have bought your taxable income down to below the £50k threshold without giving up hours / income.
 - Possibly additional pension contributions, either to the employer scheme or to a SIPP
 - Possibly record any Gift Aid donations already being made
 - Possibly use marriage allowance if viable / available
 - Move savings to tax efficient wrappers, ISA / premium bonds

OR, shock, horror, receive the higher income and still receive 60% of the income after tax.

IF the driver for this is really more to do with working less hours, than that changes things from the "saving tax" premise as stated.

I have thought about SIPP and am still considering it as an alternative to savings, but I didn't feel able to make a decision on that in the short term. Ideally I would have had an investment builder already set up to shovel money into, which I e used in previous years, but my job (and pension) has changed recently.
I do declare donations to charity in my tax return, so there is a bit of that too.
Marriage allowance: NA
ISAs maxed, Premium Bonds also in use but proving disappointing.

I wasn't sure where else to share my news, so picked the cutting tax thread as it was the impact of tax (amongst other bits and pieces) which has created this fun little proportional oddity for me. Avoiding the 40% threshold has been a tipping point for me which might no make sense to some, but is a psychological big deal for me. When it next edges closer, I'll be turning to the SIPP.

WindfallWendy

Ksw3 said:

You are very lucky to have a job where a reduction in hours is manageable. I reduced to 80% FTE and it was incredibly draining.

I can see how this is a win for you, at my age I'd probably just prefer the extra money, 40% tax on it or not but each to their own!

Yes, it's very much a quirky discovery of my own circumstances; mostly inspired by losing family and friends in recent years which leaves me wondering if I'll even see retirement myself, so live life while you can.