Calculating adjusted net income for tax free childcare / 30 free hours

Hello, looking for some guidance on calculating adjusting net income. My taxable income for the 2023/24 financial year is £101,000. This includes a deduction of £6,000 that my employer takes from my salary before tax. Looking at guidance, I believe this means my adjusted net income for the year is £96,000 (therefore bringing me below the £100k threshold meaning I qualify for a number of chilcare support schemes). However I want to check this is correct, because it feels like my pension contributions are deducted twice - once when calculating my taxable income (as my employer takes the contributions before tax) and then counted AGAIN as a deduction from my taxable income to work out my adjusted net income? Can you advise? Thanks!

Sorry just realised this would leave my adjusted net income at £95k, not £96k if my calculations are correct. Look forward to hearing if this is right or not. Thanks.

Hi,
If the pension contributions are taken from your income before your tax is calculated then you have already received the tax releif and this would not be deducted again for the adjusted net income:
Personal Allowances: adjusted net income
Thank you.

Hi Katie Allsopp,
If your pension contributions are deducted from your wage before the tax is calculated then you have received relief for these contributions and you do not deduct again for the adjusted net income. So if your taxable income was £101,000 which is your gross income minus the £6000 pension contributions then the £101,000 is the net adjusted figure. 
Thank you.

Thank you. In that case I will make an additional private pension contribution without tax relief before end of this financial year to bring my net adjusted figure under £100k. Two questions: - I will make this additional contribution direct to my private pension (as opposed to being deducted from my pay by my employer). Do I need to declare this anywhere? - Secondly, as I’m making the contribution without tax relief, do I add 20% when deducting from my taxable income? Eg If I pay in £900 to my private pension this would actually mean I deduct £1,080 from my taxable income to arrive at my adjusted net income for the year? Thanks!

Hi Katie Allsopp,
If you are under Self Assessment you would need to declare on your tax return and it will be the grossed up figure with the 20% releif added.
If not in Self Assessment you would need to report the details to HMRC.
Income Tax: general enquiries
Thank you. 

Hi I would like some help on calculating Adjusted Net Income. I don't have all of the final figures as of yet but I can provide some hypotheticals so that I know what to do. I am subject to self assessment but I don't know how the information provided on that form correlates to adjusted net income. Can you confirm: 1. That for a childcare hours claim the information used for the period March 2024 to March 2025 is the information from the Tax Year 23/24 (because that is the most up to date information); 2. If my calculation of adjusted net income below is correct on these hypotheticals, because some of them are variable between now and April 2024? - Salary £12,570 (This amounts to £1,047.50 per month but I only receive £747.50 per month because £300 pension is deducted first. I have therefore added in the entire salary and deducted pension below plus 25%.) - Dividends £80,591 - Interest personally earned on director loans to the company £13,293 - P11D benefits £923 - Interest earned on private bank accounts £1,000 - Interest payable personally on loans for solely business purposes and normally deductible as tax relief on my self assessment (£6,176) - Personal pension payments including the 25% (£4,500) - TOTAL Adjusted Net Income £97,701 3. That the following are not included: - Pension payments made by my Employer (i.e Employer contributions) - Capital gains - Interest earned on ISA account

Hi M 22,
For childcare you will need to contact our Childcare Helpline for assistance on 0300 123 4097 open 8am to 6pm Monday to Friday. 
Childcare Service helpline
Thank you. 

Hello, Please could I have some clarity about adjusted net income. If a teacher earns £105,000 gross salary, but pays 900 per month into the teachers pension scheme from gross salary, then is the adjusted net salary £94,200 and therefore below the threshold for tax free childcare?

Hi HMRC Admin 25. I only need help with how HMRC calculates my Adjusted Net Income and whether my approach to doing so is correct. I don't need help on whether I am eligible for childcare services etc, it is just the Adjusted Net Income calculation, much the same as the Forum Member before me who received assistance. Could you please confirm the position. Thanks

Hi GL2023 2023

If the pension contributions are deducted from your gross pay before tax is calculated then this is already reflected in your P60 figure and would not be deducted again for adjusted net income.
You can only deduct if the contributions are from your net pay. 

Thank you

Hi M 22

Apologies -  yes, the calculation would be correct but with the pension contributions if these are deducted from your gross pay before tax then not deducted again for adjusted net income.
Yes, the employer contributions and ISA are not taken into account. 

Thank you

Thanks for the response HMRC Admin 5. Just to confirm two points: 1. If I have made a loan to my business, which is a capital loan and solely for business purposes, the interest payable by me on that loan is deductible for the purposes of calculating adjustable net income? (It is included as a deductible tax relief on my self assessment by my accountant.) 2. On the pension point:- My accountant puts my salary at £12,570 on my self assessment but then deducts pensions of £4,500 (£3,600 plus 25%) as relief. However I am actually paid salary at £8,970 because pension is deducted before I am paid, and I then get the extra 25% relief from the pension provider direct. So, am I right that as long as the total value that I pay into the pension plus the 25% relief is only deducted once (which is what I have done in my calculation) then this is fine.

Hi, Please can I check that income received from selling shares from a sharesave scheme does not count in any way towards adjusted net income? I understand it would be subject to CGT if over the allowance threshold but I just want to check it doesn’t impact my adjusted net income from a tax free childcare perspective. Thanks

Hi,

You would need to contact HMRC with the details of the loan to review and advise regarding adjusted net income. 

If the pension contributions are deducted from your salary before tax is deducted then this is the figure you would use for adjusted net income.  

Thank you.                                                                     

Hi HMRC Admin 2 Where do I need to contact to find that information out? Thanks

Hi M 22,

Please find the contact details here:

Self Assessment: general enquiries

Thank you.

Hi Cwood5,
You are correct the sharesave scheme does not impact the adjusted net income. 
Thank you. 
 

Hi I am struggling to contact anyone at HMRC. To clarify:- the loan interest to which I refer above and which I have deducted from my Adjusted Net Income calculation (and on which i seek clarification) is "Qualifying Loan Interest" within the definition of Section 383 Income Tax Act 2007 (ITA), it being a loan to a close company used wholly and exclusively for the purposes of the business of the company. A close company is, as I understand it, a company in which all of the shareholders and directors. This is recorded as a "Qualifying Loan Interest relief" by my accountant on my self assessment and I would therefore be grateful if you could confirm that this is similarly a relief/deductible for Adjusted Net Income purposes.

Hi M22,
To work out your adjustable net income, you add up your taxable income and subtract any 'tax reliefs'.  
Personal Allowances: adjusted net income advises that "'tax relief' means that you either pay less tax to take account of money you’ve spent on specific things, like business expenses if you’re self-employed or get tax back or get it repaid in another way, like into a personal pension".
 For this reason, qualifying load interest does not reduce your adjustable net income.
Thank you.