Help with calculating adjusted net income for childcare

Nilly141

Hi all,

I am very confused about how to calculate my adjusted net income for the end of the current tax year. This is the very first tax year where I know I'll be very close.

From agonising over the guidance and various forums and Q&As, I believe the below is how to calculate it, but I don't know if any of this is changed by the fact that I have various things deducted through salary sacrifice. I have put my questions at the bottom, but would hugely appreciate any help over where you think (if anywhere) I may have gone wrong.

Employment income:

- Basic pay over the year (before deductions, before tax/NI and student loan etc): £80,897.37

- From this basic pay, I make all of the following deductions through salary sacrifice: all of my workplace pension contributions for the year (5%, at £4,044.86), as well as the following benefits in kind for the year: payments for travel insurance (£111.06), enhanced PMI cover (£645.46) and enhanced life insurance cover (£14.81). The total of these deductions is £4,816.21. I believe you deduct these because they are done through salary sacrifice, and then (for the benefits in kind), you add these back on later.

- I understand that this means my taxable employment income, for the purposes of this calculation, is £76,081.16. This is what appears on my final payslip and so I imagine it will be the figure that will turn up on my P60 for the year.

Additional income:

- I have the following benefits in kind: the travel insurance, enhanced PMI and enhanced life insurance mentioned above (total £771.35), as well as core PMI cover which is funded by my employer but doesn't appear on my payslip. My firm have told me this is £1,210.07 for the year, and will appear on my P11D along with the total £771.35 of benefits above. This therefore means my total benefits in kind, that I believe will appear on my P11D, is £1,981.42.

- I also have the following: profit on UK land and property (£18,006), foreign property income (£3,454), bank savings interest (£381.19, excluding interest from cash ISAs and my personal savings allowance). 

Total benefits in kind and additional income is therefore £23,822.61.

Pension contributions and charitable donations:

- As mentioned above, I don't think I re-deduct pension contributions, as these were already deducted from my basic pay through salary sacrifice. I also don't think I gross-up the value of my contributions, as again, this was done through salary sacrifice and reduces my taxable income, thereby already giving me the tax relief.

- I have made a total of £815.90 of gift aid donations this year (grossed up from £652.72).

Doing the calculation

Therefore, I think the calculation is done as follows: 

Taxable employment income (£76,081.16), plus benefits in kind and additional income (£23,822.61), less donations (£815.90). Total adjusted net income is therefore £99,087.87.

My questions:

I know the above is a lot, but my questions are essentially "did I get the calculation right?", and if not, any advice you might have on any of the below questions would be super appreciated!

(1) Is my taxable income figure correct? In particular, was I correct to deduct the salary sacrifice figures at that point, including workplace pension contributions, given they were all done through salary sacrifice and therefore (I understand) should be deducted from your basic pay to get your taxable pay? Obviously this is why I didn't re-deduct pensions again later on in the calculation.

(2) Am I correct to have not 'grossed up' my pension contributions, given they were taken off my basic pay through salary sacrifice and therefore reduce my taxable income, meaning I have already been given tax relief at source?

(3) Have I gone wrong anywhere in calculating my benefits in kind to go on my P11D?


Thanks so much! N

TheSpectator

1)  you get no further relief on SS pension contributions, your taxable pay already reflects the net taxable position. However I think you may have erred in your taxable interest as you say "bank savings interest (£381.19, excluding interest from cash ISAs and my personal savings allowance". The personal savings allowance is not a deduction from income but a nil rate band. All of the interest is taxable and needs to be included when working out your ANI.

2) Correct, as above.

3) Difficult to say if the BIKs will be correct, not quite understanding the point of the SS benefits if they are then added back on as taxable income.

Nilly141

TheSpectator said:

1)  you get no further relief on SS pension contributions, your taxable pay already reflects the net taxable position. However I think you may have erred in your taxable interest as you say "bank savings interest (£381.19, excluding interest from cash ISAs and my personal savings allowance". The personal savings allowance is not a deduction from income but a nil rate band. All of the interest is taxable and needs to be included when working out your ANI.

2) Correct, as above.

3) Difficult to say if the BIKs will be correct, not quite understanding the point of the SS benefits if they are then added back on as taxable income.

Thanks so much. So:

- On (1), are you saying that my calculation is correct, including re. the pension position, and that the only problem from your point of view is the savings interest calculation? I was told by HMRC on the phone (and also read in a couple of other places) that interest from a cash ISA is non-taxable and non-reportable on your self-assessment, so you don't include it for this calculation; it's just the amount of reportable savings interest that would go on your self-assessment, and yes, for those purposes the personal savings allowance is irrelevant.

- On (3), yes, the BIKs are deducted from my salary, through salary sacrifice, on my payslip. However, on my P11D, my employer reports the sum total of those BIKs. For example, my travel insurance benefit amounted to £94 in deductions from my salary last tax year, but £94 was put on my P11D for travel insurance. The same happened in the 2022/23 tax year, where the total deductions for travel insurance was £53, and that amount was put on my P11D.