Adjusted net income

[Uppermid]

Sorry if this is a stupid question but what is adjusted net income? Is this the same as the net pay on the pay slip ie the amount received each month?

I always assumed that we would lose child benefit this month as dh earns over the threshold in his gross salary, but now I've looked into it it seems its not the gross figure. So how do I work it out?!

If anyone can answer me in English I would be very grateful!

Hi Uppermid. This is what HMRC say about how adjusted net income is calculated. I work in accounts and frankly think it's as clear as mud.

"Adjusted net income is calculated in a series of steps. The starting point is ?net income? which is the total of the individual?s income subject to income tax less specified deductions, the most important of which are trading losses and payments made gross to pension schemes. This net income is then reduced by the grossed-up amount of the individual?s gift contributions and the grossed-up amount of the individual?s pension contributions which have received tax relief at source. The final step is to add back any relief for payments to trade unions or police organisations deducted in arriving at the individual?s net income. The result is the individual?s adjusted net income."

Oh, and you will not lose your child benefit this month - my understanding is that you will carry on receiving it, and then your OH will need to do a self assessment tax return later in the year. Any overpayment of child benefit will be recouped via the SA. So if you can, I would put any child benefit received into a separate account until you are sure how much of it is yours to keep :)

Just found this on adjusted net income which is much more helpful.
www.hmrc.gov.uk/adjustednetincome/

I always assumed that we would lose child benefit this month

Nobody loses child benefit (due to earnings).

You can elect not to receive it (but you only have 2 days left to do that), but I have not yet seen a good reason why anyone should. If there is any possibility that your Adjusted Net Income in 2012/13 or 2013/14 will be less than £60,000 you definately don't want to elect not to receive it.

Thanks guys, I'm just as confused though! I have DH's P60 from last year in front of me - what figure(s) am I looking at? How (in English) do I work out the Adjusted Net Income?????

MrA - if DH is over the limit we would lose it, whether straight away or in however many months time when we have to pay it back - I have set up a SO so it goes into a different account each month just in case - we can't afford to suddenly pay back £1.5k if I get it wrong

Thanks guys, I'm just as confused though! I have DH's P60 from last year in front of me - what figure(s) am I looking at? How (in English) do I work out the Adjusted Net Income?????

That depends on how his pension contributions are paid (including any AVCs which may be paid on a different basis to his main contribution).

If they are taken from his gross salary or paid via salary sacrifice use the figure shown as "Pay", "Gross Pay", "Taxable Pay", "Taxable Gross" or any other combination of the words Gross, Taxable and Pay.

If they are taken from his net pay FILL IN A TAX RETURN YOU ARE THROWING AWAY 25% OF YOUR PENSION CONTRIBUTIONS. The start point for ANI will be the Gross or Taxable Pay figure mentioned above less the relevant pension contributions multiplied by 1.25.

You then need to take off any other allowable expenses (Gift Aid - grossed up, underpaid mileage allowance, professional subscriptions, uniform, laundry, use of home...) and add on any dividend or savings (grossed up) or other income.

MrA - if DH is over the limit we would lose it, whether straight away or in however many months time when we have to pay it back

If you have to pay it back it will not be until January 2014 for CB received next week, and January 2015 for CB received from March this year (although you might have to pay some in July 2014 if they get the legislation sorted out).

OK, I've just spoken to HMRC. They've explained it!

Your Adjusted Net Income in your gross income less pension contributions, professional subscriptions and salary sacrifice (ie childcare vouchers, unforunately not cycle to work scheme!)

Thats helped me massivly, I hope it helps someone else too.

For the avoidance of doubt, last year's P60 is irrelevant: any clawback is based on the current year's earnings so if earnings are variable due to commission, bonus, shift work etc. and near the £60k limit you won't know if you should be claiming in April 2013 until April 2014!

This calculator on gov.uk is really useful - you put in salary, pension, gift aid details etc. and it tells you what your (estimated) tax charge will be. You can also play with it to see the effect of increasing pension contributions / gift aid payments.

www.gov.uk/child-benefit-tax-calculator

OK, I've just spoken to HMRC. They've explained it!...

Shows how much use it is calling HMRC for advice.

Any salary sacrifice scheme reduces your ANI, but some schemes will result in a benefit which will increase it. However an eligible cycle to work scheme will not be a benefit so WILL reduce your ANI (as will eligible pension and other schemes).

And they have completely missed out that all benefits on your P11D increase your ANI, and Gift Aid (grossed up) decreases it.

Obvioulsy I know last years P60 is irrelevant - I was looking for a guide - sheesh!

Yes- clear as MUD- Stephanie at HMRC said it was your net income but this sounded wrong so I called again and was told it was wrong! Adjusted net income is gross income minus expenses, professional subscriptions and pensions. And nothing else. NOT childcare vouchers. As for cycle to work I didn't ask- but maybe I'll buy a bike! (65% off now as my marginal tax is now 65% which is ludicrous)....

oops also minus charitable donations- so another approach is to give to charity...

bike scheme no use- just checked that one- like childcare vouchers it is a deduction and a benefit so no effect in total...

"...NOT childcare vouchers..."

That is misleading. If you purchase childcare vouchers through a salary sacrifice scheme (as most people do), then by definition the sum is not included in your gross salary and therefore is not included in your Adjusted Net Income.

You are overthinking this, individual taxpayers are not expected to and have no need to understand the regulations that apply to Employment Income which run to hundreds of pages.

If you are on PAYE and have no other income, allowable expenses or charges, your Adjusted Net Income is simply the Total Pay figure on your P60 plus the total value of benefits on your P11D.

"like childcare vouchers it is a deduction and a benefit so no effect in total..."

No, eligible childcare schemes and eligible Cyle to Work schemes are NOT benefits subject to Income Tax. Your employer knows whether their schemes are eligible and is responsible for correctly reporting them on your P11D.

Gah- this is so damn confusing. A seriously looking at paying someone to answer the damn question for us but who to trust when no two people give the same answer?

I would advise anyone on higher rate tax to pay an accountant to ensure they are not paying tax they shouldn't be.

HMRC will give you information about what tax is due. They won't help you manage your affairs by telling you how much pension contributions etc. you should pay to reduce your tax bill (or CB clawback). However you might find this calculator and the information on this and linked pages helpful.

Bear in mind that when you ring up HMRC with a general enquiry you are talking to someone in a call centre with a script: they don't actually understand how it all fits together.

Thanks MrA

Sorry to add to this - but I'm just looking at calculating my husbands NAI. I don't find the calculator totally useful as there's no mention of Childcare vouchers. SO! My question - when inputting my husbands gross salary into the calculator do I add on his car allowance, and exclude Childcare and pension? OR,do I add car allowance and Childcare and input the pension in one of the later questions?? OR something entirely different?! TIA

"Sorry to add to this - but I'm just looking at calculating my husbands NAI. I don't find the calculator totally useful as there's no mention of Childcare vouchers."

That's because your husbands gross salary has already been reduced by the amount of the childcare vouchers (assuming they are provided under a salary sacrifice arrangement).

Yes you need to add car allowance and any other payment he receives.

Pension comes in later, work through the form.

Better still, wait until he receives his P60 and P11D then you can use the right numbers (as long as you work out which of the various methods of treatment his pension contributions come under).

Thanks for coming back. The total figure on the right of his payslip looks like they've taken out final salary pension and Childcare - then on the other side they show Ni and tax resulting in his net pay. So his net adjusted pay is the one on the right? Can't wait for P60 as his works benefits window is only open for another couple of weeks and we're looking to pay more into pension and Childcare vouchers and just trying to work out how much.

As it is clearly important that you get this right it is impossible for me to be sure enough that I have all the information I need to give you the right answer. It seems that your DH is on some kind of flexible benefits scheme so his employer should be able to provide the information you need.

Just like to confirm, if my salary plus bonus is £50,100 and my pension is £1,700. Net adjustment will be less than £50K.

Currently, I am I am pay-as-you-earn tax (PAYE). Do you think I still need register for Self-Assessment for the tax return because I still claim child benfit or I don’t need to do soon because adjust net income is less than £50k?