Adjusted net income

Thebestcracqui

Hi there, really grateful for some advice as I’ve been reading the guidance, articles, other peoples posts and spoke to an accountant and my head just wants to explode! 

I’m trying to see if / how we can get my husbands adjusted net income to below the £100k threshold in order to continue benefiting from tax free childcare and new 15 free hrs for 2 yr olds in the next tax year, as he has recently started a new job. 

My husbands salary is £110k. 

His pension provider says ‘we need to make a declaration to HMRC on your behalf so we can reclaim basic tax relief on any contributions’. 

An example on the bottom of one of his payslips say:

This employment ytd:

Niable pay xxx

Taxable pay xxxx

tax deducted xxx

Sal ex pen pay xxx

The accountant said because of this, salary sacrifice to increase the pension contribution is the only option, and if it’s not a standard offering in his organisation, then it’s unlikely they’d make an exception. 

I’ve read other posts that don’t seem to suggest that, or maybe the childcare services look at it differently, so wondering if what he said is correct? I actually went ahead and applied for the 15 free hrs because I thought we just had to work out how much to increase his contributions to, so I’m getting myself in a bit of a tizz about it! 

Many thanks in advance 

Grumpy_chap

Thebestcracqui said:

Hi there, really grateful for some advice as I’ve been reading the guidance, articles, other peoples posts and spoke to an accountant and my head just wants to explode! 

I’m trying to see if / how we can get my husbands adjusted net income to below the £100k threshold in order to continue benefiting from tax free childcare and new 15 free hrs for 2 yr olds in the next tax year, as he has recently started a new job. 

My husbands salary is £110k. 

His pension provider says ‘we need to make a declaration to HMRC on your behalf so we can reclaim basic tax relief on any contributions’. 

An example on the bottom of one of his payslips say:

This employment ytd:

Niable pay xxx

Taxable pay xxxx

tax deducted xxx

Sal ex pen pay xxx

The accountant said because of this, salary sacrifice to increase the pension contribution is the only option, and if it’s not a standard offering in his organisation, then it’s unlikely they’d make an exception. 

I’ve read other posts that don’t seem to suggest that, or maybe the childcare services look at it differently, so wondering if what he said is correct? I actually went ahead and applied for the 15 free hrs because I thought we just had to work out how much to increase his contributions to, so I’m getting myself in a bit of a tizz about it! 

Many thanks in advance 

The comment from the Accountant seems incomplete.

Additional pension contributions via employment is probably the simplest (assuming there is enough AA available).  Salary sacrifice is the most tax efficient method of making this contribution.  As mentioned, the employer has to operate the SS scheme for that to be possible.

If additional contributions to the workplace pension are not possible, then personal contributions to SIPP may be possible.
It may be too late to make sufficient contributions to workplace pensions (as you still need NMW this pay period) and may have missed the cut off for payroll changes this month.

What is your husband's ANI at present?
 - Salary
 - Any BIK liability (company car - healthcare - etc)
 - Interest / dividend income
 - Other income, e.g. BTL
 - Less employee pension contributions (or SS reduction for employer contributions)
 - Less gift aid donations

May well be below £100k in any case.

It seems very odd that the Accountant was not able to put these figures together very quickly.

Thebestcracqui

Thank you so much for the reply @Grumpy_chap! 

I thought it didn’t line up with what I had read but I get quite confused about it all. 

None of the other additions or deductions you’ve listed above apply. 

On his payslip for last month for example, it says under gross income:
Salary: £9166
sal ex pen: -£366 
Total pay: £8800

So I think this means he is doing salary sacrifice already, and so his adjusted net income is the 8800 x 12 = £105,600?.
So am I right in thinking if he just increases the pension salary sacrifice to around £832 (x12 = 999) that would get him to the threshold? 

Many thanks! 

TylerP

In a similar position myself this year.  My son turns 3 soon and I want to ensure I can keep the 30 hours for 3 year olds.

Did you manage to figure this out?  Did you take in to account any other income such as interest, dividends, bonuses to ensure you stay under the £100k?

I've missed the deadline to increase my pension contributions (only allowed once a year at my company in April unless there's a lifestyle event).  I'm just trying to work out the optimum time to go down to 4 days a week to ensure I stay under the £100k limit.  

Dazed_and_C0nfused

TylerP said:

In a similar position myself this year.  My son turns 3 soon and I want to ensure I can keep the 30 hours for 3 year olds.

Did you manage to figure this out?  Did you take in to account any other income such as interest, dividends, bonuses to ensure you stay under the £100k?

I've missed the deadline to increase my pension contributions (only allowed once a year at my company in April unless there's a lifestyle event).  I'm just trying to work out the optimum time to go down to 4 days a week to ensure I stay under the £100k limit.  

You have to include all taxable income when calculating adjusted net income, even if it is income that gets taxed at 0%.

Gobigorgohome

We are in a very similar position. From what I gather is the increased pension contribution is the only way to do it

Dazed_and_C0nfused

Gobigorgohome said:

We are in a very similar position. From what I gather is the increased pension contribution is the only way to do it

Gift Aid contributions reduce your adjusted net income.

And working less hours 😉

MetaPhysical

Dazed_and_C0nfused said:

Gobigorgohome said:

We are in a very similar position. From what I gather is the increased pension contribution is the only way to do it

Gift Aid contributions reduce your adjusted net income.

And working less hours 😉

Clearly said tongue-in-cheek but the last point, working less hours, is so true and it doesn't "cost" as much as you might think because say you drop a day per week, that extra day will come out of your higher end income because you'll be paying less at the 40% rate - if that applies to you.  I am about to do this too.  By sacrificing that extra day's pay, it doesn't "cost me" 20% of my net salary, it costs about 6%.  BUT it reduces the NAI by 20% and drops me out of the 60% marginal rate.  By time I've paid transport costs etc it is not worth going to work for 6%.  A stupid tax system that disincentivises work!!!!!