Calculation of adjusted net income - conflicting guidance

I am trying to calculate my adjusted net income. However, despite reviewing the regulations and HMRC guidance I find there are two versions of the calculation. Firstly at: https://www.gov.uk/guidance/adjusted-net-income It does not mention adding employer pension contributions to the total. However at: https://www.gov.uk/guidance/pension-schemes-work-out-your-tapered-annual-allowance It states you must add your employer pension contributions. Are these 2 different net incomes? 1. As an example if my salary were £100,000 gross (assuming zero personal pension contributions) and my employer made pension contribution of £20,000, is my adjusted net income for the purpose of personal allowance £100k or £120k? And for tapered allowance is my net income £100k or £120k? 2. I receive a £1000 dividend (inside dividend allowance). Is this included in my adjusted net income in either case? (Personal allowance or tapered allowance calculation)? 3. Can I see my adjusted net income calculation from previous tax years?

Hi George Williams,
Adjusted net income - add together the total income liable to income tax
This includes:
income from employment before tax
profits from self employment
employment benefits (for example medical benefit, car benefit)
pensions including State Pension
income from property
gross savings and dividends
deduct any allowable reliefs
This includes:
Professional Subscriptions
Flat Rate Expenses
Job Expenses
Payments to pension schemes that have been made without deduction of tax (a gross payment)
Trading losses (early trade loss, trade loss relief against general income, property loss relief against general income)
Qualifying loan interest payments
deduct any grossed up:
Gift Aid donations
pension contributions
do not deduct any pension payments made under net pay arrangements, these are deducted from salary before the employer provides PAYE and are therefore ignored for the purposes of calculating adjusted net income
add any relief claimed for payments to trade unions or police organisations.                                                                                                                                                                                        Tapered annual allowance is a different thing altogether - this is to determine the amount of money you can pay into your pension without having a tax charge -
HS345 Pension savings — tax charges (2023)
Thank you.

Thank, that's very clear. It's just a shame there's so much "advice" on here,on other posts, which doesn't seem to get that distinction correct.

Hi, The below is how the calculation works on a draft self assessment I have done for 22-23. I have also made a pension contribution (not salary sacrifice but paid after taxes out of my net pay) that had a pension relief added. Pay from all employments £X minus allowable expenses £Y Total from all employments £X-£Y Dividends from UK companies £Z Total income received £X-£Y+£Z My questions are: 1. Is the total income received the "Adjusted Net Income" which has allowable expenses taken off? 2. Do I need to take off the pension contributions I made (without the relief component) to get the Adjusted Net Income? Please clarify. Kind regards, I have also

Hi,

1. Yes, that is correct.
2. If the pension contributions were from your net wage and you are higher rate then you would include the grossed up contribution on your tax retrun to receive the higher rate relief due. The relief is shown on the calculation by extending the basic rate tax band. 

Thank you.

Hi. If my employer deducts my pension contributions from the salary and if I don’t pay tax or NI on it, should this be deducted when calculating adjusted net income and also should be multipled by 1.25 times?

Hi,
If the contributions are taken from your gross wage before the tax is calculated then you would not deduct again for the adjusted net income. 
Thank you.

Hi, Putting together all the above, for the calculation of ‘adjusted net income’ (as defined in https://www.legislation.gov.uk/ukpga/2007/3/section/58)- If my only income is from employment, and my employer deducts my pension contributions from my gross income before tax deduction, then my adjusted net income is ‘gross income minus employee pension contributions’, which is essentially equivalent to my taxable income (as shown on HMRC app). I do not add my employer’s pension contributions to my net income. Kindly confirm. Thank you.

Hi l.s.
You are correct - you would not add your employer's contributions in this case.
Thank you 

 

Hi there Does participating in a company Share Incentive Plans (SIPs) result in any impact to calculating Adjusted Net Income? Thanks

Referring to "If the pension contributions were from your net wage and you are higher rate then you would include the grossed up contribution on your tax retrun to receive the higher rate relief due. The relief is shown on the calculation by extending the basic rate tax band. " I understand that we get the tax-relief on the higher rate, but will our net adjusted earnings decrease as a result to account for the extra 20% (on top of basic) that was already applied when you enter a SIPP contribution?
Thank you.

Hi Stafford Lake,
We work out a customer's adjusted net income figure by deducting certain figures from their net income.
We call the figure we then have their adjusted net income.
Add together the total income liable to income tax
This includes:
income from employment before tax profits from self employment,employment benefits (for example medical benefit, car benefit) pensions including State Pension,income from property,gross savings and dividends,deduct any allowable reliefs
This includes:
Professional Subscriptions,Flat Rate Expenses,Job Expenses,Payments to pension schemes that have been made without deduction of tax (a gross payment)
Trading losses (early trade loss, trade loss relief against general income, property loss relief against general income)
Qualifying loan interest payments
deduct any grossed up:
Gift Aid donations pension contributions.
Thank you. 

Hello, I have read the above and still want to clarify one thing re pension contributions for the purposes of calculating my adjusted net income re child benefit higher income tax charge. My employer tells me my pensions contributions are from my gross pay (NHS pension scheme). The above states “ Payments to pension schemes that have been made without deduction of tax (a gross payment)” are allowable deductions. Which I can deduct from my gross pay to calculate my adjusted net pay. The high income charge calculator https://www.gov.uk/child-benefit-tax-calculator lists “ pension contributions deducted from your pay (do not include contributions deducted before tax)” as an allowable deduction. These two statements seem to contradict each other. Can you clarify please? Thank you

My doubt with additional tax relief is: If you apply for additional tax relief through the HMRC website (Rather than through self return submission), will the additional tax relief reduce the adjistable net income for the current tax year?

Hi xql42 2u74u,
To give you the best advice here, we may need more information.
Please contact us by webchat or phone here:
Self Assessment: general enquiries
Thank you. 
 

Hi euro_andres,
If you are unsure whether and how to apply for additional relief through the HMRC website, we can advise you further by webchat or phone here:
 Income Tax: general enquiries
Thank you. 

Not HMRC...ISBN, the statements dont contradict. Yes, NHS pension is deducted from gross pay, to give tax releif via PAYE, i.e. its taken from gross pay, tax relief given and tax calculated after the pension payment is taken in to account. If it were taken from net pay no releif would have been given. This does not make the payment a gross payment to the pension scheme, its simply taken from gross pay, you get tax relief in the scheme, for NHS the ONLY payments to NHS pensions paid gross are Locums. Re the "child benefit calculator" this confirms the same position..."do not include pensions deducted before tax"...which NHS scheme is (except Locums). Simply...no adjustment to net adjusted income is ever required for any person, ever, to the P.60 figure where tax relief is given via PAYE for pension.

Hi ISBN978147,
Add together the total income liable to Income Tax:
This includes:
•    income from employment before tax
•    profits from self employment
•    employment benefits (for example medical benefit, car benefit)
•    pensions including State Pension
•    income from property
•    gross savings and dividends
Deduct any allowable reliefs
This includes:
•    Professional Subscriptions
•    Flat Rate Expenses
•    Job Expenses
•    Payments to pension schemes that have been made without deduction of tax (a gross payment)
•    Trading losses (early trade loss, trade loss relief against general income, property loss relief against general income)
•    Qualifying loan interest payments
Deduct any grossed up:
•    Gift Aid donations
•    pension contributions
•    do not deduct any pension payments made under net pay arrangements, these are deducted from salary before the employer provides PAYE and are therefore ignored for the purposes of calculating adjusted net income
•    add any relief claimed for payments to trade unions or police organisations
•    make a note of the resultant figure - this is the 'adjusted net income' figure.
Thank you.