Written by Oroni Chowdhury · Published: November 2026 · Last reviewed: November 2026 · Applies to the 2026/27 tax year
A modest pay rise should leave you better off. Yet for thousands of families, crossing a line they have never heard of means repaying Child Benefit, losing childcare support or paying an effective 60% rate of tax. That line is adjusted net income, and most people only discover it when a tax bill arrives.
This guide explains what the figure includes, how to work it out in four steps, which thresholds it controls in 2026/27, and how it fits into your Self Assessment return, with worked examples and a simple worksheet.
- It starts with all taxable income: salary, profits, rent, savings interest and dividends.
- Gift Aid and relief-at-source pension payments are deducted after grossing them up by 25%.
- The Child Benefit charge starts at £60,000 and takes the full amount back at £80,000.
- Personal Allowance shrinks by £1 for every £2 over £100,000 and disappears at £125,140.
- Either parent going over £100,000 ends Tax-Free Childcare and working-parent funded hours.
- For 2026/27, the £60,000 and £80,000 Child Benefit charge thresholds and the £100,000 Personal Allowance and childcare limits stay the same, while the Married Couple’s Allowance income limit rises to £39,200.
What Is Adjusted Net Income?
Adjusted net income is a calculated figure, set out by HMRC in its official guidance, that takes your total taxable income for the year and subtracts a few specific reliefs. You will not find it on a payslip or P60, which is why so many people get it wrong.
Not your salary, not your take-home pay
Your salary is only one part. The figure also counts self-employed profits, rental profits, savings interest, dividends and taxable benefits. It is measured before tax, so it is not what lands in your bank account. Someone earning £55,000 with £8,000 of rental profit is already above £60,000 on this measure.
Why HMRC uses it
HMRC needs one consistent figure to decide who keeps certain allowances and benefits. Using total income after specific reliefs stops people avoiding the limits simply by taking income in a different form, while still rewarding pension saving and charitable giving.
The Thresholds Adjusted Net Income Decides
These are the figures for 2026/27. Each one is tested against your own figure, not your household total.
| Threshold | What happens |
|---|---|
| £60,000 to £80,000 | High Income Child Benefit Charge of 1% of Child Benefit for every £200 over £60,000; 100% at £80,000 |
| Over £100,000 | No Tax-Free Childcare or working-parent funded hours if either parent expects to exceed it |
| £100,000 to £125,140 | Personal Allowance of £12,570 reduced by £1 for every £2 over £100,000 |
| Over £39,200 | Married Couple’s Allowance (born before 6 April 1935) starts to reduce |
The Personal Allowance figures come from the government’s published rates and allowances, and the childcare limit from the Tax-Free Childcare eligibility rules, which count worldwide income.
The 60% band between £100,000 and £125,140
Between £100,000 and £125,140, you lose £1 of Personal Allowance for every £2 of extra income. For higher-rate taxpayers in England, Wales and Northern Ireland, that produces an effective Income Tax rate of 60% on this slice. In Scotland, where income in this range falls in the 45% advanced rate band, the effective rate can reach 67.5%. National Insurance comes on top where it applies, and the whole effect is driven by adjusted net income.
How to Work Out Adjusted Net Income: 4 Steps
HMRC sets out the calculation in four steps. Here is what goes into each one in plain English.
Step 1: Find your net income
Add up your taxable income for the tax year: employment pay, self-employed profits, rental profits, savings interest, dividends, taxable benefits and pension income. Then take off eligible reliefs, such as trading losses and pension contributions paid gross where you claim the tax relief yourself. Leave relief-at-source contributions out at this stage, because they come off separately in step 3. What remains is your net income for this calculation.
Step 2: Deduct grossed-up Gift Aid
Take off the gross value of any Gift Aid donations. Gross up by multiplying what you paid by 1.25, so £800 donated becomes £1,000.
Step 3: Deduct grossed-up relief-at-source pension contributions
Take off the gross value of qualifying contributions paid under a relief-at-source arrangement. Your provider normally claims basic-rate relief from HMRC and adds it to your pot, so multiply what you paid by 1.25. If £4,000 leaves your bank account, the provider adds £1,000, so you deduct £5,000, not £4,000.
Step 4: Add back certain relief
If you deducted relief for payments to a trade union or police organisation in step 1, add it back. For most people this step makes no difference.
What is left is your adjusted net income. For most employees with no Gift Aid or personal pension, it is simply total taxable income.
How Pension Contributions Change Your Adjusted Net Income
Pensions cause more confusion than any other part of the sum, because the type of scheme decides where the contribution goes and whether you gross it up.
| Pension type | How it works | Effect on the calculation |
|---|---|---|
| Net pay arrangement | Taken from pay before tax by your employer | Already excluded from taxable pay; do not deduct again |
| Relief at source | Paid from taxed income; provider adds 20% | Deduct at step 3, grossed up by 1.25 |
| Salary sacrifice | You give up salary; employer pays in | Lowers your pay, so it is never part of income; do not deduct again |
| Paid gross, relief claimed yourself | Rare; you claim relief on your return | Deduct at step 1 |
Not sure which type of pension you have? Your workplace pension documents will say, or you can ask your employer or provider. With a net pay arrangement, contributions come out before Income Tax. With salary sacrifice, you give up part of your contractual salary in return for an employer contribution. Personal pensions and SIPPs usually work on relief at source, but confirm this with your provider before you work out your adjusted net income.
Her adjusted net income is £68,000 − £1,000 − £3,000 = £64,000. That is £4,000 over the Child Benefit threshold, so the charge would be 20% of the Child Benefit paid to her household.
Adjusted Net Income Calculator: A Fill-In Worksheet
You do not need special software. Use your P60, payslips, rental figures and bank statements, and fill in these six lines for the tax year.
| Line | What to enter | Your figure |
|---|---|---|
| A | Taxable employment income: taxable pay from your P60, already after any net pay or salary sacrifice pension | £ |
| B | Other taxable income: profits, rent, interest, dividends, benefits | £ |
| C | Qualifying deductions, entered as a positive figure: eligible trading losses and pension contributions paid gross where you claim the relief yourself | £ |
| D | Gross Gift Aid: the amount you donated × 1.25 | £ |
| E | Gross relief-at-source pension: the amount you paid × 1.25 | £ |
| F | Adjusted net income (A + B − C − D − E) | £ |
Enter every line as a positive number. The formula on line F does all the subtracting, so nothing gets deducted twice.
If line F sits close to £60,000 or £100,000, check each line carefully, because a few hundred pounds either way can change the result.
Worked Examples
If he pays £8,000 into a relief-at-source personal pension, his provider adds £2,000 of basic-rate relief, making a £10,000 gross contribution. That brings his adjusted net income down to £100,000.
Depending on his circumstances, he may claim a further £2,000 of higher-rate relief, and getting his full Personal Allowance back saves around another £2,000 of Income Tax. Together, these benefits make the £10,000 contribution cost him well under its £8,000 cash outlay, although the exact figure depends on his overall tax position.
Under the standard rules, the government adds up to £2,000 a year for each eligible child through Tax-Free Childcare, rising to £4,000 a year for an eligible disabled child. The other scheme conditions still apply, such as the child’s age and both parents’ work and income.
GOV.UK confirms that working-parent funded childcare hours also stop if either parent expects to exceed £100,000 on this measure.
Adjusted Net Income and Your Self Assessment Return
Your Self Assessment return gathers the income and relief figures HMRC needs to work out your tax. That means entering employment, property, savings, dividend and other income, plus qualifying Gift Aid and pension contributions. If the High Income Child Benefit Charge applies, you also report the Child Benefit details. HMRC then uses these entries to make the adjustments, including any reduction in your Personal Allowance.
- Child Benefit charge: if it applies, you must pay it. You can do this through Self Assessment, and employed people may be able to pay it through their tax code using HMRC’s online service instead.
- Gift Aid and pensions: enter Gift Aid and relief-at-source contributions in the reliefs section so that they reduce the figure and give higher-rate relief.
- Other income: rental profits, untaxed interest and dividends often push people over a threshold without them noticing, and these usually need reporting.
If you are near a threshold and have more than one source of income, our online Self Assessment accountants can check the figures before you file.
Ways to Reduce Adjusted Net Income
There are legitimate ways to bring the figure below a threshold. Which suits you depends on your circumstances, so treat these as options to discuss, not advice.
- Pension contributions: personal or salary sacrifice contributions reduce the figure, within your annual allowance.
- Gift Aid: donations reduce it once grossed up, as long as you pay enough tax to cover the Gift Aid claimed.
- Salary sacrifice: an eligible arrangement, such as swapping contractual salary for an employer pension contribution, can lower taxable pay and therefore adjusted net income. Check the scheme terms and any taxable benefits involved before you rely on it.
- Timing: where you genuinely control it, receiving a bonus or dividend after 5 April moves it into the next tax year.
For more on the Child Benefit side, read this guide to the High Income Child Benefit Charge.
Common Mistakes When Working It Out
Most errors come from leaving something out or counting it twice.
| Mistake | Result | Fix |
|---|---|---|
| Using salary only | Figure too low; charges missed | Add rent, interest, dividends and benefits |
| Deducting salary sacrifice again | Figure too low | Start from taxable pay on the P60 |
| Not grossing up Gift Aid or pensions | Figure too high; relief lost | Multiply what you paid by 1.25 |
| Forgetting a bonus or one-off payment | Threshold crossed without warning | Recheck after any extra income |
| Using household income | Wrong person pays the charge | Test each partner separately |
FAQs: Adjusted Net Income
What does adjusted net income mean?
It is your total taxable income for the tax year, less certain reliefs such as grossed-up Gift Aid and relief-at-source pension contributions.
Is adjusted net income before or after tax?
Before tax. It is based on taxable income, not on the money you receive after tax and National Insurance.
Does salary sacrifice reduce it?
Yes, because it lowers your taxable pay. It is already reflected on your P60, so you should not deduct it a second time.
Do dividends and savings interest count?
Yes. All taxable income counts, including dividends and interest, even where some of it is covered by an allowance.
Does Gift Aid reduce it?
Yes. The grossed-up amount, which is what you paid multiplied by 1.25, is deducted.
How do I find my adjusted net income?
It is not printed on your P60. Use the worksheet above, or check the tax calculation from your Self Assessment return.
Is there an official adjusted net income calculator?
HMRC explains the method rather than offering a single calculator, so the six-line worksheet in this guide is a simple way to work it out.
What if my income goes over £100,000 during the year?
You lose part of your Personal Allowance, and Tax-Free Childcare and funded hours can stop. Review the figure before 5 April, while there is still time to act.
Final Verdict: Adjusted Net Income in 2026/27
The figure is total taxable income less grossed-up Gift Aid and certain pension contributions. It decides the Child Benefit charge from £60,000, the Personal Allowance taper from £100,000 and childcare support above £100,000. Work it out before 5 April, include every income source, and report it correctly on your return.
- Fill in the worksheet for 2026/27 using your latest payslips and income records.
- If you are close to £60,000 or £100,000, review pension or Gift Aid options before 5 April.
- Get a fixed-fee quote for your tax return at Get a Quote, call 0116 403 0595 or email info@taxreturnaccountants.uk.
Why trust this guide
- Calculation method taken from HMRC’s published guidance on the calculation.
- Thresholds checked against the government’s 2026/27 rates and childcare eligibility rules.
- Four worked examples and a worksheet you can use with your own figures.
- Last reviewed: November 2026.