What is adjusted net income, and why does it matter for your tax and childcare?
By Katharine, Founder, EMBR Tax
Last updated for the 2026/27 tax year · 12 July 2026
What is adjusted net income?
Adjusted net income is your total taxable income — salary, bonuses, rental income, dividends and taxable benefits — minus certain reliefs, mainly grossed-up personal pension contributions and grossed-up Gift Aid donations. HMRC uses this figure, not your salary, to test the £100,000 thresholds for the Personal Allowance taper, Tax-Free Childcare and 30 hours funded childcare in 2026/27.
In simple terms, adjusted net income starts with your total taxable income and then takes off certain reliefs. That means it is not always the same as salary, and it can be lower than many people expect.
What usually counts towards adjusted net income?
- employment income, including salary and bonuses
- taxable benefits and some benefits in kind
- rental income and some investment income
- dividends and other taxable sources of income
For example, a £95,000 salary plus a £10,000 bonus gives adjusted net income of £105,000 — over the threshold, even though the headline salary looks safely below it.
This is why headline pay can be misleading. Someone with a £95,000 salary could still end up over a key threshold once bonuses, dividends, rental income, or benefits are added in.
What can reduce adjusted net income?
- certain pension contributions
- Gift Aid donations, using the grossed-up amount
- some employer arrangements, depending on how they are structured
That is why adjusted net income is often the real number to watch, especially if you are close to the £100,000 threshold for Personal Allowance tapering, Tax-Free Childcare, or Free Childcare for Working Parents.
Why does adjusted net income matter so much near key thresholds?
A small change in adjusted net income can affect more than just your tax bill. It can affect the support you qualify for, whether you lose part of your Personal Allowance, and whether some planning opportunities are still open to you.
What is the bottom line?
If you are anywhere near a key HMRC threshold, adjusted net income is one of the first figures worth checking. It is not just an HMRC definition. It can shape what you keep, what you lose, and what actions are worth considering.
Frequently asked questions
What is adjusted net income?+
Adjusted net income starts with your total taxable income and then takes off certain reliefs. That means it is not always the same as salary, and it can be lower than many people expect.
What types of income count towards adjusted net income?+
Employment income including salary and bonuses, taxable benefits and some benefits in kind, rental income and some investment income, and dividends and other taxable sources of income.
What can reduce adjusted net income?+
Certain pension contributions, Gift Aid donations using the grossed-up amount, and some employer arrangements, depending on how they are structured.
Related guides
- How does the Personal Allowance taper work above £100,000?
HMRC reduces your Personal Allowance by £1 for every £2 of adjusted net income over £100,000. Find out how the taper works and how to plan around it.
- How can pension contributions reduce your adjusted net income for HMRC purposes?
Pension contributions can reduce adjusted net income for HMRC. Learn how net pay, relief at source, and salary sacrifice each affect the calculation.
- Can Gift Aid donations reduce your adjusted net income near the £100,000 threshold?
Gift Aid can reduce adjusted net income using the grossed-up amount, which may affect your Personal Allowance and childcare eligibility near £100,000.