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Posted Tue, 22 Aug 2023 14:30:06 GMT by
Hi, Suppose salary is £180k. To reduce Net Adjusted Income (NAI) to £100k to qualify for 30hrs free childcare, one pays £80k pension contribution. This, however, leads to breaching the current Annual Allowance by £20k. I understand tax must be paid on this excess pension contribution of £20k. But the question is how this excess contribution is treated for NAI purposes. 1) Could you clarify which one is true when salary is £180k and pension contribution is £80k: a) Net Adjusted Income is £100k. That is, excess contribution has no effect on NAI. b) Net Adjusted Income is £120k. That is, pension contribution reduces NAI only up to the Annual Allowance limit. Let me tag on two other questions if I may… Could you also clarify: 2) Employer’s contribution to my pension has no relevance for NAI. 3) Employer’s contribution to my pension is part of my Annual Allowance (currently 60k). Many thanks! Kind regards, Aron
Posted Tue, 29 Aug 2023 13:53:40 GMT by HMRC Admin 19

You are correct that the employers contributions are not taken into account for NAI and that employer contributions count towards the Annual Allowance. The contributions above the Annual Allowance would Put the NAI at £120000.

Thank you.

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