Adjusted Net Income (Tax Free Childcare and 30 free hours) - Salary Sacrifice

Hi could someone from HMRC please confirm that you can take the salary sacrifice amount from earned income as I have also been told on the phone by a HMRC rep we can't but everything I read and my understanding is you can?

Hi

Salary sacrifice enables you to exchange part of your salary for a non-cash benefit in kind from your employer, such as increased pension contributions or a car, bike etc... Adjusted net income is your total taxable income before any Personal Allowances and less certain tax reliefs If your employer deducts contributions from your gross pay before tax is calculated then you would not deduct again for the adjusted net income as the tax relief would already have been applied and your salary reduced. If the payment is taken after tax is calculated then and it is eligible for tax releif , for example payments made gross to pension schemes (that have been made without tax relief) then these would reduce your adjusted net income, which would then be used to confirm Tax Free Childcare eligibility.< Thanks

If I earn £165k, can I salary sacrifice by £70k into my pension to reduce my adjusted net income below £100k? Or does the limit of £60k annual allowance for pension per year mean my adjusted net income cannot be reduced that much?

Hi ray564k
You can see guidance on calculating your adjusted net income here:
Personal Allowances: adjusted net income
Thank you.

Hi HMRC. Can you clarify if the 'Salary sacrifice' for an electric car is counted as a deduction of the NET pay? E.g. you earn 110k per year and pay 20k salary sacrifice therefore your NET earnings are counted as 90k per year (there would then be any benefit in kind to add back onto this)?

Hi Ryan,
You would not deduct salary sacrafice car payments to calculate your Adjusted Net Income.
Salary sacrafice payments are usually deducted from your wage by your employer before they confirm your gross, taxable wage.
Thank you. 

Hi - If i have spent most of the year so far with an Adjusted Net income of over £125k, but then from this month onwards I contribute more to my pension and as such my adjusted net income is below £100k, would I then immediately become eligible for Tax Free Childcare, or is it per financial year, so Id have to wait until April 2025 to be eligible? Thanks in advance!

Hi Sam
You can see guidance here:
Tax-Free Childcare
Personal Allowances: adjusted net income
Thank you.

Hi HMRC, I have a question and I would be grateful if you can help me out. My gross salary is £106000 yearly I pay pension £2400 yearly I have a a BEV on Salary Sacrifice for £7200 yearly I also have £5000 benefit in kind Is my ANI £91400 (106000-2400-7200-5000)? Does the Salary Sacrifice bring the ANI (Adjusted Net Income) down? Thank you so much in advance

Hi Almar,
Adjusted net income is your total taxable income before any Personal Allowances and less certain tax reliefs. 
If your employer deducts contributions from your gross pay before tax is calculated then you would not deduct again for the adjusted net income.
You can find more details, and work out your adjusted net income here: 
Personal Allowances: adjusted net income
Thank you.

Hi, When calculating adjusted net income, do you use the current tax year (which will include some forecasting / predicting earnings) or last tax year? I’m on maternity leave so they will be very different figures!

Hi, I am a bit confused by salary sacrifice deductions. My company does salary sacrifice for certain things including if you buy additional holiday. The policy states that this will impact statutory sick pay, maternity pay, therefore does the amount being taken for the additional holiday on a salary sacrifice get taken into account for base salary? If you earn 90,000 and on a salary sacrifice basis have 1730 deducted for additional holiday, does that mean you adjusted income is 88270?

Hi Katherine,
It would be the figures for the tax year you are calculating the income for see:-Personal Allowances: adjusted net income
Thank you.

 

Hi Becky
We are unable to comment on specific scenarios. 
Adjusted net income is your total taxable income before any Personal Allowances and less certain tax reliefs.
‘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

If your employer deducts contributions from your gross pay before tax is calculated then you would not deduct again for the adjusted net income as the tax relief would already have been applied and your salary reduced.
If you make contributions eligible for tax relief from your net wage (after tax), for example payments made gross to pension schemes, then these would reduce your adjusted net income. 
You can find more details, and work out your adjusted net income here: 
Personal Allowances: adjusted net income
Thank you.
 

Hello there, I am trying to calculate adjusted net income correctly. I make pension contributions via salary sacrifice (6pc). These are not deducted because relief is provided at source. My employer makes an additional 15pc pension contribution (not mentioned on payslips / the P60). All goes directly into the workplace scheme. Are the employER contributions added to my net additional income (which is otherwise income, bonus and a small amount in dividends)? Or are they not part of the calculation? This makes a material difference for eligibility for childcare schemes. Thanks!

Hi,
The employer contribution is not included. You can see more information on adjusted net income here:
Personal Allowances: adjusted net income
Thank you.

I work in a commission/ bonus role i also get shares. My year to date earnings read £67k with 5 tax months left. Will I still qualify for the 15 hours so long as my end of year earnings are less than £100k? Even if my current monthly average is over £100k. My base salary is only £50k and I will be using further pension sacrifice to ensure my salary for this year falls below £100k by April. Will this be okay so long as I finish the year below 100? Thanks

Hi Fred965,
Please contact the Childcare Service team for advice.
Childcare service helpline
Thank you.