Free Childcare: Adjusted Net Income

PUGXS_22

Hi All,

I have searched the forum and cannot find anywhere where this has been answered - I seem to be caught in a catch-22 position.

Essentially, I am a day-rate contractor, inside IR35 and being paid via PAYE through an Umbrella company.

I am fortunate enough to earn >£100k p.a. but that gives me a problem with the 30 hrs free childcare. To combat this (and to provide savings for retirement) I pay into a SIPP to reduce my Adjusted Net Income.

Because I am a contractor and my assignment could end at short notice and therefore not wanting to unnecessarily tie up cash into my SIPP if I were to have a period where I am out of an assignment I like to hold off paying into my SIPP until March each year when I will then have certainty over how much I have earned and how much I need to pay in to reduce my income to £99k.

Where this becomes a problem is that the 30 hr free childcare eligibility gets assessed once a quarter and I have just been rejected as the HMRC estimate my income to be >£100k. However, this estimated income doesn't take into account the fact that I pay a significant lump sum into my SIPP at the end of each year and therefore will be <£100k come the end.

I can demonstrate via my HMRC annual record of income and also my annual tax returns that I have done this for a number of years and always end up with ~£99k ANI. This has fallen on death ears with the 'childcare people' (presume this is DWP?).

Has anyone else had this situation and if so, how did you stop yourself from being rejected for the free childcare?

Thanks in advance.

kinger101

It should be based on what your ANI will be, not what HMRC think it will be.  Just tell them that you will make sure it is below the 100K limit.  Might also be worth signing into your online tax account and seeing what that says.

While you make quarterly declarations, ANI is determined once each year.

I suspect you've been dealing with an inexperienced member of staff.  Ask for your case to be escalated.

PUGXS_22

kinger101 said:

It should be based on what your ANI will be, not what HMRC think it will be.  Just tell them that you will make sure it is below the 100K limit.  Might also be worth signing into your online tax account and seeing what that says.

While you make quarterly declarations, ANI is determined once each year.

I suspect you've been dealing with an inexperienced member of staff.  Ask for your case to be escalated.

Thank you for the swift response.

I have been into the online tax account and it estimate >£100k but thats not a surprise given it wont have visibility of my intentions around SIPP payments. When I say HMRC - what I mean is the childcare team were quoting my estimated annual income according to HMRC (i.e. the figure you see on your online tax account).

We did initially go back to the childcare team and said my ANI will be <£100k but it still got rejected! Escalation is next on the list, as you say. Was hoping to pick up some playbook tips from here if anybody else has experienced this same scenario...feel like I am going around in circles with them!

Dazed_and_C0nfused

PUGXS_22 said:

kinger101 said:

It should be based on what your ANI will be, not what HMRC think it will be.  Just tell them that you will make sure it is below the 100K limit.  Might also be worth signing into your online tax account and seeing what that says.

While you make quarterly declarations, ANI is determined once each year.

I suspect you've been dealing with an inexperienced member of staff.  Ask for your case to be escalated.

Thank you for the swift response.

I have been into the online tax account and it estimate >£100k but thats not a surprise given it wont have visibility of my intentions around SIPP payments. When I say HMRC - what I mean is the childcare team were quoting my estimated annual income according to HMRC (i.e. the figure you see on your online tax account).

We did initially go back to the childcare team and said my ANI will be <£100k but it still got rejected! Escalation is next on the list, as you say. Was hoping to pick up some playbook tips from here if anybody else has experienced this same scenario...feel like I am going around in circles with them!

Why would it show a different amount 🤔

Adjusted net income is a totally different figure to your taxable income. 

You may well be expected to have taxable earnings in excess of £100k.  And relief at source contributions to a SIPP would never change that.

But they would reduce your adjusted net income.

kinger101

I believe they are obliged to review if you ask. This will be done by someone more senior.  It can be taken to a tribunal if that fails.

If you've consistently made end of year pension contributions to reduce your ANI to below the threshold, then they have no grounds for not believing you. 

They should take into consideration the variable nature of self employed income.

PUGXS_22

Thank you all - so is it that simple, just escalate and argue the toss?

If it is, thats great. I reached out on here in case its more complicated than that and there was, for example, things you needed to do with HMRC to enable a better outcome.

mybestattempt

PUGXS_22 said:

Thank you all - so is it that simple, just escalate and argue the toss?

If it is, thats great. I reached out on here in case its more complicated than that and there was, for example, things you needed to do with HMRC to enable a better outcome.

You ask for a mandatory review:

https://www.gov.uk/guidance/challenge-a-childcare-service-application-decision

Hondadudepro

I am in a similar situation so share this confusion. Any wisdom or experience from the good people on here greatly received.

I was told did not have reasonable expectation of having ANI of £100,000 or less. 

Last couple of years always managed the ANI through salary sacrifice arrangements of pension contributions, holiday buy back and now company car. Unless I have misunderstood how benefits count towards ANI. Always left plenty of fat in my calculations. 

This year they made the decision. I challenged and provided evidence I was able to amend my pension payments, I am about to buy a house in next month and so interest from savings to be wiped out so asked for mandatory review. The outcome of which they now inform me will be to stand by original decision and still reject. 

Now all I am left with is option for tribunal, which may require attending in person. 

All this over something that is deemed to potentially happen in the future and not established as fiscal statement of fact! 

Anyone had any luck with the tribunal route? 

P.s I know these things are all relative, but going from £150 a month to £750 in childcare costs is quite the dent. 

mybestattempt

Hondadudepro said:

I am in a similar situation so share this confusion. Any wisdom or experience from the good people on here greatly received.

I was told did not have reasonable expectation of having ANI of £100,000 or less. 

Last couple of years always managed the ANI through salary sacrifice arrangements of pension contributions, holiday buy back and now company car. Unless I have misunderstood how benefits count towards ANI. Always left plenty of fat in my calculations. 

This year they made the decision. I challenged and provided evidence I was able to amend my pension payments, I am about to buy a house in next month and so interest from savings to be wiped out so asked for mandatory review. The outcome of which they now inform me will be to stand by original decision and still reject. 

Now all I am left with is option for tribunal, which may require attending in person. 

All this over something that is deemed to potentially happen in the future and not established as fiscal statement of fact! 

Anyone had any luck with the tribunal route? 

P.s I know these things are all relative, but going from £150 a month to £750 in childcare costs is quite the dent. 

Just my thoughts but I would feel inclined to pursue an appeal to tribunal.

For £600 each month, in my view, it would be worth taking the time, if necessary, to attend a hearing.

My understanding is that you must not expect your ANI to exceed £100k to be eligible:

https://www.gov.uk/hmrc-internal-manuals/tax-free-childcare-technical-manual/tfc11050

If you do take an appeal to tribunal HMRC will need make a detailed submission setting out the facts and relevant legislation to convince a judge that you are wrong to expect your ANI to be less than £100k.

You appear to be confident you can provide oral (and documentary) evidence to a tribunal that you do have a reasonable expectation that your ANI will be less than £100k. 

As I say just my thoughts, others may disagree.

kinger101

It sounds like some jobsworth with no understanding that income is taxed on a annual basis has decided to have a crackdown.

I got a phone call for having salary of £50,016 for the first six months.  A lower figure than in some previous years.

I'd go with the tribunal.  Someone needs their stripes tearing off.

kinger101

mybestattempt said:

Hondadudepro said:

I am in a similar situation so share this confusion. Any wisdom or experience from the good people on here greatly received.

I was told did not have reasonable expectation of having ANI of £100,000 or less. 

Last couple of years always managed the ANI through salary sacrifice arrangements of pension contributions, holiday buy back and now company car. Unless I have misunderstood how benefits count towards ANI. Always left plenty of fat in my calculations. 

This year they made the decision. I challenged and provided evidence I was able to amend my pension payments, I am about to buy a house in next month and so interest from savings to be wiped out so asked for mandatory review. The outcome of which they now inform me will be to stand by original decision and still reject. 

Now all I am left with is option for tribunal, which may require attending in person. 

All this over something that is deemed to potentially happen in the future and not established as fiscal statement of fact! 

Anyone had any luck with the tribunal route? 

P.s I know these things are all relative, but going from £150 a month to £750 in childcare costs is quite the dent. 

Just my thoughts but I would feel inclined to pursue an appeal to tribunal.

For £600 each month, in my view, it would be worth taking the time, if necessary, to attend a hearing.

My understanding is that you must not expect your ANI to exceed £100k to be eligible:

https://www.gov.uk/hmrc-internal-manuals/tax-free-childcare-technical-manual/tfc11050

If you do take an appeal to tribunal HMRC will need make a detailed submission setting out the facts and relevant legislation to convince a judge that you are wrong to expect your ANI to be less than £100k.

You appear to be confident you can provide oral (and documentary) evidence to a tribunal that you do have a reasonable expectation that your ANI will be less than £100k. 

As I say just my thoughts, others may disagree.

Being as ANI can be adjusted on the last day of the tax year (potentially later if a charitable donation and election made on tax return).  Might be hard to document what's happening in the future but if the nursery hours are claimed erroneously or fraudulently, HMRC should seek to reclaim costs rather than make arbitrary judgements on limited evidence that potential deprive people of their entitlement.