Author Topic: Part Time Professional Again? UK Tax changes!  (Read 2735 times)

Sacadoh

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Part Time Professional Again? UK Tax changes!
« on: March 25, 2012, 03:37:52 PM »
There have been a few tax changes in the UK budget.

I am considering switching to a four day week using the Employment Act 2002.

My employer won't be thrilled and from past experience in another job it may affect future career progression & bonus levels.

If my calculations are right by retiring one days work out of five, I can still save about half my salary into my pension pot & use other tax breaks to qualify for UK child benefit of 2,500 net a year which I will otherwise lose.

2,500 is about our current monthly spend.

I am lucky enough to be quite well paid at the moment & part of me says keep taking the cash & the other part says an extra day a week at home with the wife & kids is more mustachian.

What do you guys & galls think?

sol

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Re: Part Time Professional Again? UK Tax changes!
« Reply #1 on: March 25, 2012, 05:42:00 PM »
I suspect that lowering your income just to qualify for a tax break isn't a very good idea.  It might soften the blow a bit, but it's not a reason to work less.

Now if you were already thinking about cutting to 4/5 anyway in order to hang with the family, that might be another story.

Sacadoh

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Part Time Professional Again? UK Tax changes!
« Reply #2 on: March 26, 2012, 07:25:37 AM »
Have been thinking about it for a while. The way I look at it, I am effectively "retiring" one days work a week.

Assuming they agree with my request and there is no catastrophic change to my renumeration other than a pro rata reduction, I will still be able to mainatin my current lifestyle, save 50% of my reduced gross salary & achieve my retirement taget of 55. Not really "early" retirement but I suspect most of my peers will be at least 10 years later - although most are not really aware/thinking about it just now.

The UK tax system is now progressive, disincentivising me from earning more money. Hope the tax system in the States makes more sense.


catalana

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Re: Part Time Professional Again? UK Tax changes!
« Reply #3 on: March 26, 2012, 07:38:13 AM »
If you don't really want to drop to a 4 day week, why not just increase your savings into your salary pot?  You're obviously living on just below the 40% tax threshold (2.5k/month) anyway.  As far as I can understand it, pensions are discounted for the child benefit calculations.

However, you're going to have to keep everything crossed that they don't change the 55yr retirement threshold......

Sacadoh

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Re: Part Time Professional Again? UK Tax changes!
« Reply #4 on: March 27, 2012, 05:23:36 AM »
With current bonus levels, I am well above the basic tax rate. Childcare vouchers, company pension & share investment plan help reduce taxable income a bit but I really need to cut taxable income further to qualify for child benefit next year. I have maxed out my pension & am using carry forward rules this year.

I have been thinking about the quote below:-

"Anyone may arrange his affairs so that his taxes shall be as low as possible; he is not bound to choose that pattern which best pays the treasury. There is not even a patriotic duty to increase one's taxes. Over and over again the Courts have said that there is nothing sinister in so arranging affairs as to keep taxes as low as possible. Everyone does it, rich and poor alike and all do right, for nobody owes any public duty to pay more than the law demands."

I am certainly not the target market for "child benefit", but if I can arrange my affairs legally to qualify for it, is there anything wrong in doing so? It is worth 4,000 gross per annum, assuming a 40% tax cost.

Additionally, the main driver for me is to be home more with the baby & this will allow Mrs Sacadoh to start looking for work, which she is keen to do.

zemblamatic

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Re: Part Time Professional Again? UK Tax changes!
« Reply #5 on: March 27, 2012, 02:26:38 PM »
Will going part-time affect your bonus? (presuming directing bonus into pension is maxing out the allowance).

I'm slightly conflicted on the question of doing it simply to avoid losing child benefit as you are already benefitting from large amounts of tax relief on your substantial annual pension contributions. On the other hand spending more time with your young child is definitively priceless.

Sacadoh

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Re: Part Time Professional Again? UK Tax changes!
« Reply #6 on: March 27, 2012, 03:05:45 PM »
Yes it will affect my bonus & based on past experience probably much more than on a fair pro rata basis. 

Having made the request I am in the company's hands now. Even if they refuse, I will have affected future bonus and salary rise prospects.