By Eternity Accountants Editorial Team · Reviewed by Shamayun Chowdhury, Senior Accountant · Published: 6 November 2026 · Last reviewed: November 2026 · Applies to the 2026/27 tax year
Adjustable net income is the name most people use for HMRC’s adjusted net income. It is your taxable income for the whole tax year, counted before the Personal Allowance, after taking off trading losses and the grossed-up value of Gift Aid and personal pension payments. HMRC uses it to test Child Benefit, Personal Allowance and childcare eligibility.
A pay rise or a strong trading year should leave you better off. Sometimes it does the opposite, because a quiet figure called adjustable net income crosses a line you did not know existed. It is neither your salary nor your take-home pay, and a small move above a threshold can cost you thousands.
Below, we explain what this figure is, how to calculate it in four steps, which 2026/27 limits depend on it, and the legal ways to keep it under control.
- HMRC measures adjustable net income (officially adjusted net income) before your Personal Allowance, so it is often higher than people assume.
- The Child Benefit charge begins above £60,000 and takes the whole benefit back from £80,000.
- Over £100,000, every £2 removes £1 of Personal Allowance, and nothing is left at £125,140.
- If either parent expects more than £100,000, Tax-Free Childcare and funded working-family childcare hours end.
- Rent, dividends and savings interest push the figure up; grossed-up personal pension payments and Gift Aid pull it down.
- What is adjustable net income?
- Net income meaning: before or after tax?
- How to calculate adjusted net income in 4 steps
- Adjustable net income thresholds for 2026/27
- Worked examples with real figures
- How to reduce adjustable net income legally
- Common mistakes and what HMRC does next
- Frequently asked questions
- Final verdict
What Is Adjustable Net Income?
The official HMRC label is “adjusted net income”. Plenty of people type adjustable net income or net adjusted income into a search bar, yet every version describes one number. HMRC does not charge tax on it directly. Instead, it acts as a yardstick for whether certain allowances and payments carry on.
HMRC’s guidance on adjusted net income starts from all your taxable income, before the Personal Allowance, and then subtracts a short list of reliefs. Where the answer lands decides whether an allowance is cut back or a benefit is reclaimed.
What is net adjusted income used for?
In 2026/27, your adjustable net income is tested for four things:
- The High Income Child Benefit Charge (HICBC).
- The reduction of your Personal Allowance above £100,000.
- Whether you can open or keep a Tax-Free Childcare account.
- Whether you qualify for funded childcare hours for working families in England.
Because every test uses the same figure, one change, such as a single pension payment, can affect several of them at once.
Is it the same as adjusted gross income?
No. Searching “what is adjustable gross income” usually brings up American websites. Adjusted gross income, or AGI, belongs to the US tax system and follows different rules. It plays no part in a UK return. For anyone filing with HMRC, adjusted net income is the only measure that counts.
Net Income Meaning: Before or After Tax?
Most mix-ups begin with one small word. On a payslip, “net” is the money left once tax and deductions are gone. On a tax return, net income is a different idea altogether.
Net income definition (UK tax): the total of your taxable income from every source, after trading losses and any pension contributions paid without tax relief are taken off. HMRC measures it before Income Tax is charged and before the Personal Allowance is applied.
So, is net before or after taxes? In HMRC’s world, it comes before. Your adjustable net income is always a pre-tax figure. Anyone wondering “what is net income means” on a payslip is looking at take-home pay, which is a far smaller sum.
| Term | What it covers | Before or after tax? |
|---|---|---|
| Gross pay | Your salary with nothing taken off | Before |
| Take-home pay | The amount paid into your bank after PAYE, National Insurance and pension | After |
| Net income (HMRC) | Every taxable source, less losses and pension payments made gross | Before |
| Adjusted net income | Net income, less grossed-up Gift Aid and relief-at-source pension payments | Before |
Only the bottom row, your adjustable net income, controls the Child Benefit charge and the Personal Allowance taper.
How to Calculate Adjusted Net Income in 4 Steps
A P60, a few bank statements and ten minutes are usually enough to work out your adjustable net income. This is HMRC’s four-step method, put simply:
- Total your taxable income. Count salary and bonuses, benefits in kind shown on a P11D, profit from self-employment, rental profit, savings interest, dividends, taxable pensions and income from abroad. Take away trading losses and any pension payments made gross without relief. The result is your net income.
- Take off Gift Aid, grossed up. Multiply the amount you donated by 1.25. Giving £400 means a £500 deduction.
- Take off relief-at-source pension payments, grossed up. Multiply what you paid into a personal pension or SIPP by 1.25. A £4,000 payment becomes a £5,000 deduction.
- Add back union or police organisation payments. If you deducted up to £100 for superannuation, life cover or funeral benefits at step 1, put it back.
Your adjusted net income calculator worksheet
An online adjusted net income calculator gives a fast estimate, but many leave out savings interest or benefits in kind. Run your numbers through this worksheet as well as any net adjusted income calculator you use:
| Line | Item | Where to find it |
|---|---|---|
| A | Pay from employment (after any net pay pension) | P60 or last payslip of the year |
| B | Benefits in kind | P11D, or payslip if your employer payrolls them |
| C | Self-employed and rental profit | Your accounts, SA103 or SA105 |
| D | Savings interest and dividends | Annual bank statements, dividend vouchers |
| E | Minus Gift Aid × 1.25 | Charity receipts or bank records |
| F | Minus personal pension paid × 1.25 | Pension provider’s annual statement |
| = | A + B + C + D − E − F | Your adjusted net income |
ISA interest and Premium Bond prizes are tax-free, so they never enter your adjustable net income. Interest from an ordinary savings account does, even when the Personal Savings Allowance means none of it is taxed.
Adjustable Net Income Thresholds for 2026/27
Four figures do most of the damage. Every one of them is tested against your adjustable net income, never against your salary alone.
| Adjusted net income | What changes |
|---|---|
| Above £60,000 | The Child Benefit charge begins: 1% of the benefit for each £200 over £60,000 |
| £80,000 and above | The charge equals the full Child Benefit received |
| Above £100,000 | £1 of Personal Allowance lost per £2; Tax-Free Childcare and funded working-family childcare hours end |
| £125,140 and above | Personal Allowance reduced to nil |
Sources: GOV.UK pages on the Child Benefit charge, income over £100,000 and Tax-Free Childcare, plus Best Start in Life eligibility, all checked November 2026.
Under the High Income Child Benefit Charge rules, the charge falls on whichever partner has the higher adjustable net income, even when the other partner is the one claiming. For 2026/27, Child Benefit pays £27.05 a week for the eldest child and £17.90 for each child after that.
GOV.UK’s guidance on Income Tax on income over £100,000 sets out the taper. From £100,000 up to £125,140, each extra £2 removes £1 of allowance. For taxpayers in England, Wales and Northern Ireland, that band is effectively taxed at 60%. Scottish rates and bands are different, so the effective rate in Scotland is higher.
Childcare support has its own cliff edge. Tax-Free Childcare eligibility ends if you or your partner expect adjusted net income above £100,000 for the current tax year. The government top-up is worth up to £2,000 a year for each child, or £4,000 if the child is disabled.
The tapered pension annual allowance relies on a separate test called “adjusted income”, which includes employer pension contributions. It only applies once threshold income passes £200,000 and adjusted income passes £260,000. Keep the two calculations apart.
Worked Examples With Real Figures
Imogen works as an employed project manager in Leicester. Her 2026/27 salary is £108,000 and she has no other income or personal pension.
With adjustable net income of £108,000, she sits £8,000 above £100,000. Half of that, £4,000, comes off her Personal Allowance, leaving £8,570. Taxing that £4,000 at 40% adds £1,600 to her bill.
Suppose she pays £6,400 into a personal pension. Her provider claims £1,600 from HMRC, so £8,000 goes in gross. Her adjusted net income falls to £100,000 and the full £12,570 allowance comes back. She also reclaims higher-rate relief on her Self Assessment return. Together, the two savings come to about £3,200, so £8,000 reaches her pension at a real cost of roughly £3,200.
Tariq is self-employed, with £66,000 of profit and £4,000 of savings interest. His partner receives Child Benefit for two children: £2,337.40 for 2026/27, or 52 weeks at £27.05 plus £17.90.
Tariq’s adjustable net income is £70,000, so he is £10,000 over £60,000. At 1% for every £200, that makes a 50% charge, about £1,169 paid through his tax return. Paying £4,000 into a personal pension (£5,000 gross) would lower the figure to £65,000 and cut the charge in half.
How to Reduce Adjustable Net Income Legally
Planning around these limits is normal. The options below are everyday reliefs, not schemes, and most must happen by 5 April 2027 to count for 2026/27.
- Pay into a personal pension. The gross contribution comes straight off your adjustable net income. Check your pension annual allowance before you pay (£60,000 for most people).
- Ask about salary sacrifice. You give up part of your salary and your employer pays it into your pension, so your taxable pay drops before HMRC sees it.
- Give through Gift Aid. The grossed-up donation reduces the figure. Gifts made after 5 April can be carried back to the earlier year if you claim them on that year’s return before you file it.
- Hold savings in an ISA. Interest and dividends earned inside an ISA are left out of the calculation completely.
- Business owners can plan timing. Directors choose when dividends are declared; sole traders can time genuine business spending. Get advice first.
In practice, many clients close to £100,000 only spot the problem when they file in January, after the tax year has ended. Those who keep more of their income review their adjustable net income in February or March, while a pension top-up can still count.
Common Mistakes and What HMRC Does Next
Most errors with adjustable net income happen because one income source gets missed, or a pension is deducted the wrong way.
| Mistake | Why it happens | HMRC consequence |
|---|---|---|
| Counting salary only | Interest, rent or dividends overlooked | Child Benefit charge underpaid, with interest and possible penalties |
| Deducting a workplace pension twice | Not realising it already comes out of pay | Figure too low; HMRC amends the return |
| Forgetting to gross up | Using the amount paid rather than × 1.25 | Relief lost and more tax paid than necessary |
| Overlooking a partner’s income | Thinking the claimant pays the charge | Higher earner is liable; a failure-to-notify penalty may follow |
| Keeping Tax-Free Childcare above £100,000 | Not reconfirming after a pay rise | Government top-ups may be recovered |
If you are employed, you can pay the Child Benefit charge through your PAYE tax code rather than registering for Self Assessment. You will still need a return if you have other untaxed income, and our guide on how to pay your Self Assessment tax bill covers the payment options. Our Self Assessment tax return service can deal with both for you.
Frequently Asked Questions
What is adjusted net income in simple terms?
It is all your taxable income for the tax year, measured before the Personal Allowance, minus trading losses and the grossed-up value of Gift Aid and personal pension payments. HMRC compares it with set limits to decide whether you pay the Child Benefit charge or lose part of your Personal Allowance.
Is net income before or after tax in the UK?
For HMRC, net income is calculated before Income Tax and before the Personal Allowance, so it is not your take-home pay. The “net pay” line on a payslip does mean after tax, which is why the two terms are so often confused.
Does a workplace pension reduce adjusted net income?
Yes. With the net pay method, contributions leave your pay before tax, so your taxable salary is already lower and you should not deduct them again. Personal pensions using relief at source are deducted separately, at the amount paid multiplied by 1.25.
Do savings interest and dividends count?
Yes. Interest from ordinary savings accounts and dividends from shares are both included, even when the Personal Savings Allowance or Dividend Allowance means no tax is due on them. Anything earned inside an ISA does not count towards adjustable net income.
What is the 60% tax trap?
Between £100,000 and £125,140 of adjusted net income, every £2 earned removes £1 of Personal Allowance. Added to the 40% higher rate, that slice of income carries an effective 60% tax rate in England, Wales and Northern Ireland.
Is there an adjusted net income calculator from HMRC?
HMRC offers step-by-step guidance rather than a dedicated calculator, along with a Child Benefit tax calculator that estimates the charge. Independent calculators can help, but make sure they include savings interest, benefits in kind and grossed-up pension payments.
Final Verdict: Adjustable Net Income Is the Number to Watch
Your adjustable net income decides whether you keep Child Benefit, your full Personal Allowance and help with childcare. Calculate it before 5 April rather than after. If you sit near £60,000, £80,000 or £100,000, a gross pension payment or Gift Aid donation can legally pull the figure down and often saves more than it costs.
- Complete the worksheet above using your 2026/27 figures.
- Compare your total with the four thresholds and note how far away you are.
- Check our fixed-fee pricing, or call 0116 4030595 or email info@eternityaccountants.co.uk before the tax year closes.
✓ Child Benefit charge and allowance taper worked out for you
✓ Self Assessment prepared and filed with HMRC
Why trust this guide
- Written by the Eternity Accountants Editorial Team and reviewed by a chartered management accountant (ACMA, MAAT) with more than 15 years’ UK practice experience.
- Every figure checked against HMRC’s published 2026/27 rates and guidance.
- Covers employees, sole traders, landlords and company directors, not just one case.
- Last reviewed: November 2026.
Sources (accessed 6 November 2026)
- GOV.UK — Personal Allowances: adjusted net income
- GOV.UK — High Income Child Benefit Charge
- GOV.UK — Income Tax rates: income over £100,000
- GOV.UK — Child Benefit rates and allowances
- GOV.UK — Tax-Free Childcare: check if you’re eligible
- Best Start in Life — working families childcare eligibility
- GOV.UK — Tax on your private pension: annual allowance
