Adjusted Net Income

[A0001]

Hi

Filling in a tax return for the first time as potentially DH and I are due to pay tax on child benefit.

I cannot get my head around adjusted net income.

Essentially, DH's salary is £42k
Also, gets pension of 12k

So, over £50k

However, he pays tax on his £42k and pays into a company pension, and pays for childcare vouchers

He also pays tax on his occupational pension

After tax, pension contributions and childcare vouchers are taken off his salary, and his tax taken off his occupational pension, his 'income' is well under £50k

HMRC says to work out Adjusted Net Income by taking 'income from employment' as a first step. To me, that means net not gross (salary = what you are paid; income = what you've actually received)

Bet that isn't right though, is it?

Can someone explain it in really simple terms, pls?

Income from employment is gross, not net - so £54k for your DH. If your DH paid more than 4K into his pension then there’ll be no child benefit to pay back.

There’s a calculator here:

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

Adjusted income for your DH will be gross income less pension contributions, less childcare vouchers (assuming they are via salary sacrifice).

Ok thanks

So, it’s less childcare vouchers? Any reason the calculator doesn’t ask for value of these to deduct?

But not less tax, is that right?

I presume it asks for taxable gross income? Childcare vouchers that are salary sacrificed would be a taxable deduction to income, if that makes sense?

Well, this is why I’m confused.

On the guidance notes it says... (sorry, this is long)

Step 1 - work out your ‘net income’
Add up your taxable income.

Include things like:

money you earn from employment (including any benefits you get from your job)
profits you make if you’re self-employed including from services you sell through websites or apps
some state benefits
most pensions (including the State Pension, company and personal pensions and retirement annuities )
interest on savings and pensioners bonds
dividends from company shares
some rental income
income from a trust
Take off any tax reliefs that apply like:

payments made gross to pension schemes - those that have been made without tax relief
trading losses, for example trade loss relief or property loss relief
This is your ‘net income’.

Your net income is then adjusted - steps 2 to 4 below.

Step 2 - 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.

Step 3 - 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’.

Step 4 - 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.

So, doesn’t say anything about childcare vouchers...

Okay, but it does say 'add up your taxable income. Childcare vouchers under a recognised scheme are a taxable deduction to income, because you sacrifice salary to receive childcare vouchers instead, thus reducing your taxable income, so you can legitimately deduct them at step one.
Sorry for the bolds, but hope this makes it easier to understand. Check with your employer if you're unsure.

No, the bold has helped, thank you very much.

Really appreciate the help.

Easiest way is to look at the P60s from both employment and pension. It's P60 gross pay that matters. Only deduct pension contributions from P60 if they're not already deducted against tax on his payslips. HMRC work from P60s too so any differences will trigger them to investigate.