Adjusted net income
In this section:
  • Adjusted net income
  • You are here:
  • Home >
  • Adjusted net income

Adjusted net income

Some people need to calculate their 'adjusted net income' because it can affect the amount of tax you have to pay. Find out if you are affected, what adjusted net income is and how to work it out.

On this page:

Who is affected by adjusted net income?

Your adjusted net income will affect your tax if any of the following apply. You are liable to the:

  • income-related reduction to the Higher Personal Allowances - where you born before 6 April 1948 and have an adjusted net income of over £27,000 (tax year 2014 to 15)
  • income-related reduction to the Personal Allowance - where you have an adjusted net income over £100,000 (regardless of your date of birth)
  • High Income Child Benefit charge - where you have an adjusted net income above £50,000

Personal Allowance

The High Income Child Benefit charge - the basics

Top

What is adjusted net income?

Adjusted net income is total taxable income less certain tax reliefs, for example for:

  • trading losses
  • donations made to charities through Gift Aid
  • pension contributions paid gross (before tax relief)
  • pension contributions where your pension provider has already given you tax relief at the basic rate

Top

Work out your adjusted net income

Work out your adjusted net income by following steps one to four below.

Step one - work out your 'net income'

Add up your taxable income.

Include things like:

  • income from employment (including any company benefits)
  • profits from self-employment
  • taxable social security benefits
  • pensions (including the State Pension)
  • savings, dividend and rental income

Taxable and non-taxable income

Take off any tax reliefs that apply like:

  • payments made gross to pension schemes - those have been made without tax relief
  • trading losses, for example trade loss relief or property loss relief

Tax relief on pension contributions

Helpsheet 227 - Losses (PDF 60K)

This is your 'net income'

Your net income is then adjusted - steps two to four below.

Step two - take off Gift Aid donations

If you made a Gift Aid donation, take off the 'grossed-up' amount - what you paid plus the basic rate of tax.

So, for every £1 of Gift Aid donations you made, take £1.25 from your net income.

Giving to charity through Gift Aid

Step three - take off pension contributions

If you made a contribution to a pension scheme where your pension provider has already given you tax relief at basic rate, take off the 'grossed-up' amount - what you paid plus the basic rate of tax.

So, for every £1 of pension contribution you made, take £1.25 from your net income.

Tax relief on pension contributions

Step four - add back tax relief for payments to trade unions or police organisations

Tax relief of up to £100 is available if you make payments to a trade union or police organisation for superannuation, life insurance or funeral benefits.

If you took off an amount for this type of payment at step 1, add it back.

Top

Adjusted net income - examples

Charles - born between 6 April 1938 and 5 April 1948 and income above £27,000, income-related reduction to Personal Allowance

For 2014 to 15, Charles' total taxable income is £40,000, made up of:

  • pensions (including State Pension) - £25,000
  • bank interest - £10,000
  • dividends - £ 5,000

There are no further adjustments to Charles' total income, so this is his net income.

Charles makes Gift Aid donations of £1,000. He can take £1,250 off his net income - £1,000 plus £250, the value of the basic rate tax.

Charles' adjusted net income is £38,750 - £40,000 less £1,250.

Charles' adjusted net income is used to work out his Personal Allowance.

Personal Allowance and adjusted net income (PDF 40K)

Bill – income-related reduction to Personal Allowance, income over £100,000

For 2014 to 15 Bill's taxable income is £115,000, made up of:

  • income from self-employment - £85,000
  • income from property - £20,000
  • bank interest - £10,000

Bill makes private pension contributions without tax relief of £10,000.

Bill's net income is £105,000 - £115,000 less £10,000.

There are no further adjustments to Bill's net income, so this is his adjusted net income.

Bill's adjusted net income is used to work out his Personal Allowance.

Personal Allowance and adjusted net income (PDF 40K)

Clara - High Income Child Benefit charge

Clara's total taxable income is £60,000, made up of:

Income from employment - £55,000
Bank interest - £5,000

Clara makes private pension contributions without tax relief of £4,750.

Her net income is £55,250 - £60,000 less £4,750.

Clara makes Gift Aid donations of £1,000. She can take £1,250 off her net income - £1,000 plus £250, the value of the basic rate tax.

Clara's adjusted net income is £54,000 - £55,250 less £1,250.

Clara's adjusted net income is used to work out her High Income Child Benefit charge.

The High Income Child Benefit charge - the basics

Top