Rise in people rejecting pay rises, promotions and extra work to save on childcare costs

PEOPLE are rejecting pay rises, turning down promotions and asking to work fewer hours to ensure they are not penalised when it comes to funded childcare ahead of rule changes coming into force in September, experts have said.

At a time when the economy is already facing severe headwinds, one said it risks creating “a real drag on growth and productivity”. 

Parents, experts say, are also totally confused about the rules surrounding ‘net adjusted income’, with one saying “it’s a minefield".

Reflecting this, financial expert, Philly Ponniah, says she has seen a 300% increase in parents booking in sessions to understand whether they are eligible for funded childcare hours ahead of new rules coming into force from September — and how to avoid accidentally missing out on thousands in support.

From September, 30 hours of funded childcare will be available for kids aged 9 months and up — but only if each parent earns under £100,000 in net adjusted income. This equates to £9,500 savings per year for the three years in nursery before starting school.

Financial advisers and HR professionals say they are getting requests from people for salary sacrifice to stay below the £100k line.

Salary sacrifice is an agreement between an employer and employee where the employee gives up a portion of their salary in exchange for non-cash benefits such as putting money into a pension instead.

Scott Gallacher, Director at Rowley Turton, said he is seeing people make rational decisions to reduce hours and turn down work to stay under the threshold. “The £100,000 threshold is sparking more conversations — especially as families realise they could lose up to £9,500 a year in support. The real issue is the number of tax rate jumps, and in some cases cliff edges, we have in the UK: £35k (winter fuel), roughly £50k (higher-rate tax), £60k–£80k (Child Benefit taper), £90k (VAT registration) and £100k (childcare support and 60% marginal rate due to loss of personal allowance). 

"These create huge disincentives to work harder. People are making rational decisions to reduce hours, turn down work or reject promotions just to stay below these thresholds. This is proving a real drag on growth and productivity. If Rachel Reeves is serious about growing the economy, she must tackle these cliff edges. Tax simplification isn’t just overdue — it’s essential.”

Kate Underwood, Managing Director at Kate Underwood HR and Training, said more and more people are coming to her to try and keep their free childcare.

She said: "The new childcare support is brilliant in theory – nearly £10k a year back in parents’ pockets. But the £100k income cap? That’s a big problem, especially for small businesses. I’ve had more clients asking about salary sacrifice and pensions – not for future planning, but just to keep their childcare. 

"And let’s be honest, most people don’t really get what ‘net adjusted income’ means – it’s a minefield, and easy to trip over. For small business owners and their senior staff, it’s especially tricky. Bonuses, dividends, and one-off payments can unexpectedly push them over the threshold. 

“I’m seeing people consider cutting hours or turning down opportunities – and that’s a huge loss of talent and productivity for small teams already stretched thin. Add in the 60% marginal tax rate and losing childcare support? It’s a double whammy that really punishes ambition.”

Philly Ponniah, Chartered Wealth Manager and Financial Coach at Philly Financial, said: "From September, funded childcare will be available from nine months old, but only if each parent earns under £100,000 in net adjusted income. That threshold matters more than ever and the 300% increase in enquiries we've had means people are now taking it very seriously.

"Net adjusted income is more complex than people think, and many don’t realise what counts or how close they are to the limit. Earning over £100k doesn’t automatically exclude you as, with good planning, you may be able to bring it back under. Missing out could cost families up to £9,500 a year in childcare fees. Over three years, that’s around £29,000. Previously, this support was only available the year before school.

"Some of my clients are increasing pension contributions, using salary sacrifice, or reducing hours to stay under the limit. But it’s not a simple decision. The marginal 60% tax rate above £100k already hits hard. Add lost childcare savings on top, and the financial impact can be huge."

Ross Lacey, Director & Independent Financial Adviser at Fairview Financial Management, also said he was “seeing more enquiries”.

He said: "It does seem crazy how there's such a cliff-edge at £100,000 of earnings where, rather than tapering the childcare hours available, they are lost completely. 

“This can put some people in a position where they are actually worse-off taking a bonus or pay-rise as cash, and the benefits of redirecting this into a pension for example are huge. As always, there's nuance and everybody's situation is different, so it pays to discuss this with a professional adviser.”

Chris Barry, Director at Thomas Legal, said: “The UK and most major economies are facing a serious long term issue of declining birth rates. People with multiple children should receive more support from the government to stand any chance of this country generating future economic growth.”

While David Belle, Founder at Fink Money, was simply gobsmacked: “The insanity of this country having an incentive for people to take home less is far too much to bear.”