What Is Adjusted Net Income?

Adjusted Net Income (ANI) is a specific calculation of personal income used under UK tax rules. It represents your total taxable income before Personal Allowances, adjusted for certain deductions such as pension contributions and Gift Aid donations.

HMRC uses Adjusted Net Income to determine:

• Whether your Personal Allowance is reduced when ANI exceeds £100,000
• Whether you must pay the High Income Child Benefit Charge (HICBC)
• Whether you qualify for Tax-Free Childcare
• The calculation of Married Couple’s Allowance where applicable

ANI is not the same as your gross salary and is not necessarily the same as your taxable income for Income Tax purposes.

How Is Adjusted Net Income Calculated?

HMRC’s calculation can be broken down into four main steps.

Step 1: Calculate Your Total Taxable Income

Start with your taxable income for the tax year, including:

• Employment income, including salary, bonuses and taxable benefits
• Self-employment profits
• Rental income after allowable expenses
• Savings interest
• Dividend income
• Pension income
• Other taxable income

You then deduct applicable trading losses and certain allowable reliefs.

The result is your net income.

Step 2: Deduct Grossed-Up Gift Aid Donations

If you make charitable donations through Gift Aid, the donation is normally grossed up before being deducted from your net income.

For example:

• Gift Aid donation: £800
• Grossed-up amount: £800 × 1.25 = £1,000

The £1,000 grossed-up amount is deducted when calculating Adjusted Net Income.

Step 3: Deduct Grossed-Up Pension Contributions

Pension contributions can also reduce your Adjusted Net Income, depending on how the pension scheme operates.

For a relief-at-source pension:

• Net contribution: £4,000
• Gross contribution: £4,000 × 1.25 = £5,000

The £5,000 gross contribution is deducted from net income.

For a net-pay arrangement, pension contributions are already deducted from salary before tax, so separate grossing-up is not required.

Step 4: Calculate Your Adjusted Net Income

The calculation can be summarised as:

Adjusted Net Income = Net Income − Grossed-Up Gift Aid − Gross Pension Contributions

The resulting figure is your Adjusted Net Income for the relevant tax year.

Worked Example: Calculating Adjusted Net Income

Suppose an individual has:

The resulting Adjusted Net Income is £78,000.

Because this is below £100,000, the individual retains their full Personal Allowance under the figures provided. However, an ANI above £60,000 may result in a High Income Child Benefit Charge.

The Personal Allowance Taper and the 60% Tax Trap

For 2025/26, the standard Personal Allowance is £12,570.

Once Adjusted Net Income exceeds £100,000, the Personal Allowance is reduced by £1 for every £2 of ANI above £100,000.

This taper creates an effective 60% marginal tax rate on income within the Personal Allowance withdrawal range.

For higher earners, reducing ANI through eligible pension contributions or Gift Aid can therefore have a significant tax impact.

High Income Child Benefit Charge

The High Income Child Benefit Charge is linked to Adjusted Net Income.

Under the figures provided:

• Below £60,000 ANI: no charge
• £60,000–£80,000 ANI: partial repayment
• £80,000 or more ANI: full repayment of Child Benefit

The charge increases as ANI rises above the relevant threshold.

For 2025/26, Child Benefit is stated as:

• £26.05 per week for the first child
• £17.25 per week for each additional child

Reducing ANI through eligible pension contributions can therefore help some families reduce or eliminate the High Income Child Benefit Charge.

Tax-Free Childcare and the £100,000 Threshold

Tax-Free Childcare helps eligible families with childcare costs. Under the information provided, eligibility is lost if either parent has Adjusted Net Income above £100,000.

This makes the £100,000 ANI threshold particularly important for parents.

For example, reducing ANI from slightly above £100,000 to below £100,000 through an eligible pension contribution may help preserve access to Tax-Free Childcare.

How to Reduce Adjusted Net Income Legally

There are several legitimate ways to reduce Adjusted Net Income.

1. Pension Contributions

Eligible pension contributions can reduce ANI and may help taxpayers remain below important thresholds such as:

• £60,000 for the High Income Child Benefit Charge
• £100,000 for the Personal Allowance taper
• £100,000 for Tax-Free Childcare

The exact treatment depends on the type of pension arrangement.

2. Gift Aid Donations

Gift Aid donations can reduce Adjusted Net Income because the grossed-up donation is deducted from net income.

For example, an £800 Gift Aid donation is treated as a £1,000 gross contribution for this calculation.

3. Salary Sacrifice

Certain salary sacrifice arrangements can reduce employment income and therefore reduce ANI.

Examples can include:

• Pension salary sacrifice
• Certain childcare arrangements
• Cycle-to-work schemes
• Eligible electric vehicle arrangements

The tax treatment depends on the specific benefit and arrangement.

4. Timing of Income

For some self-employed individuals and business owners, the timing of income and certain transactions may affect which tax year income falls into.

However, this should be planned carefully and within the relevant tax rules.

Frequently Asked Questions: Adjusted Net Income

Is Adjusted Net Income the Same as My Salary?

No. Salary is only one possible component of Adjusted Net Income.

ANI can include:

• Employment income
• Self-employment profits
• Rental income
• Dividends
• Savings interest
• Pension income
• Other taxable income

Certain pension contributions and Gift Aid donations can then reduce the figure.

How Do I Find My Adjusted Net Income on My Tax Return?

Adjusted Net Income is calculated as part of the Self Assessment tax computation where applicable.

You can also review your tax information through your HMRC Personal Tax Account or ask a tax adviser to calculate it for you.

Does Paying Into a Work Pension Reduce My Adjusted Net Income?

It depends on how your pension operates.

With a relief-at-source pension, the grossed-up contribution can reduce ANI.

With a net-pay arrangement, the contribution is deducted from gross salary before tax.

With salary sacrifice, the sacrificed amount reduces employment income directly.

Check with your employer or pension provider if you are unsure which arrangement applies.

What Happens If My Adjusted Net Income Is Just Over £100,000?

Going above £100,000 can trigger the Personal Allowance taper and may also affect eligibility for Tax-Free Childcare.

If your ANI is close to the threshold, an eligible pension contribution or Gift Aid donation may reduce it below £100,000. This should be calculated before the relevant tax-year deadline to ensure the contribution is effective for that tax year.