Salary/tax reduction advice

wayspray144

Good afternoon all,

I was wondering if someone could please help me with some accounting advice to help me lower my annual income to prevent me losing my free childcare allowance.

I started a new job towards the end of last year and believe my combined earnings between new and old employers will take me over the £100k mark (not by much). This was due to a bonus paid by my previous employer.

Is it as simple as paying the anticipated over earnings directly into my pension? I.e if I’m anticipating £101k, pay say £1001 into my pension pot? Am I able to do this via debit card straight to my pension or would I need to tell my employer to deduct?

Any advice would be greatly appreciated.
Thanks

Grumpy_chap

https://forums.moneysavingexpert.com/discussion/6654202/salary-tax-reduction-advice

Have you calculated your forecast ANI taking into account any deductions already implemented (work pension / gift aid etc) and any other income (any interest, dividends, etc)?

If making additional pension contributions, it is worth paying more than the barest minimum to give yourself some headroom.

Does your employer allow you to make additional pension contributions via Salary Sacrifice? That is usually the most tax- efficient method when available

Albermarle

What is the situation with your current workplace pension? Presume you are already contributing to that ?

wayspray144

Hi both,

Thanks for your responses.

Yes I’ve done an ANI calculation and expect to be £102,772 - so I basically need to pay £3k into my pension over the next two pays (Feb & March)?

I already contribute £450/month into my pension via salary sacrifice, so am I asking payroll to up to £1950? For next two months?

Let’s say I do nothing, what is the full consequence of losing the childcare allowance? My daughter started day care last September, do I end up paying for all this childcare back? I’m not expecting to earn over £100k for 26/27 tax year so I assume I’m ok to claim again after 5th April?

Thanks

Albermarle

I do not know about the childcare, but your normal pension contribution is pretty low, in % terms anyway.

Unless your employer is putting in a hefty amount, you will struggle in retirement to generate a decent income, especially compared to your current one. Plus your chances of retiring early will be much more limited.

Pension contributions are very tax efficient for higher earners.

wayspray144

My employer matches my contributions - so it’s £900/month

Albermarle

(Removed by Forum Team)

Fully understand your reservations about adding so much to your pension , especially with Kids, mortgage etc.

However you might plan to add more when your other commitments become less.

I only brought up the subject as many people underestimate how big a fund they have to build up to generate a decent income, especially if they have any ideas about retiring early. Due to the generous tax relief, a pension is usually the best way to build up these funds.

wayspray144

Thanks and I agree with what you’ve said, I already have a healthy pension pot that I’ve being contributing to for many years now and am on track to a comfortable retirement.

Unfortunately we seem to have navigated away from my original question which was how I physically go about actually reducing my income in the next two months so I don’t end up losing my free childcare allowance.

Dazed_and_C0nfused

https://forums.moneysavingexpert.com/discussion/comment/81874455#Comment_81874455

That is the point being made, you don't need to reduce your income.

Tax free childcare is based on adjusted net income. So you can have taxable income well in excess of £100k and qualify for it. But you need to couple that with Gift Aid donations or relief at source pension contributions.

If for some reason you want to reduce your taxable income then working less hours is one option.

DRS1

Unfortunately we seem to have navigated away from my original question which was how I physically go about actually reducing my income in the next two months so I don’t end up losing my free childcare allowance.

I thought that had been answered early on? Pension contributions. With salary sacrifice being the best way to do that if it is available to you. Salary sacrifice does actually reduce your income.

We don't know if salary sacrifice is available to you or how much notice you need to give to change how much you sacrifice. Presumably you know or can find out the answer to that?

If salary sacrifice is not available then you need to find out how you pay personal contributions to your employer's pension scheme and how you can increase the amount deducted from your pay. Presumably there will be a payroll cut off point at some time if you want the change processed at the next payroll. If you are too late to get it done for the February payroll then you will need to put it all into March.

If salary sacrifice is not used then are your employee contributions paid by the net pay method or by relief at source? The answer to that would determine how you get higher rate tax relief for the contributions (and maybe how much you actually have deducted from your pay).

Grumpy_chap

https://forums.moneysavingexpert.com/discussion/comment/81874455#Comment_81874455

The determination of eligibility for childcare is your ANI, not your income.

If you specifically want to achieve the reduction of £3k to get below the threshold for loss of the childcare, then the two obvious routes that actually reduce your income are:

• Salary Sacrifice pension contributions
• Unpaid leave - about 7 or 8 days

The opportunity for both depend upon the policies of your employer and their willingness to vary SS for short periods. (SS generally cannot be varied easily, but pension is the exception - regardless, the employer may not offer full flexibility.)

Taking unpaid leave and enjoying extra quality time with your young family might yield rewards and memories having value far in excess of the salary given up.