‘adjusted net income’ for tax free childcare

[Lagoo132q]

Hi everyone,

I was wondering if anybody could help me with the question below as we have spoken to hmrc several times and have gotten conflicting advice.

My partners pension is paid through their employer and is a relief at source scheme. AVIVA claims tax relief from HMRC at the basic rate of 20% to top up employee pension contributions.

When working out the ‘adjusted net income’ for tax free childcare can they remove their pension contributions? They are a 40% tax payer.

[someone]

Doesn't this answer it:
https://www.gov.uk/guidance/adjusted-net-income

Adjusted net income is total taxable income before any Personal Allowances and less certain tax reliefs, for example:

pension contributions paid gross (before tax relief)


So the answer is yes, remove the gross pension contribution - i.e. the relief at source value from the payslip plus the tax relief that AVIVA claims. (they will receive some additional relief as a result of being a 40% taxpayer, either as a tax code adjustment or a refund when they submit their tax return, that isn't relevant to the adjusted net income calculation)

[kbmtraining]

Yes, your partner can deduct their gross pension contributions when calculating adjusted net income for Tax-Free Childcare.

Since their Aviva pension is a Relief at Source (RAS) scheme, contributions are made after tax, and Aviva claims 20% relief from HMRC. However, as a 40% taxpayer, they are entitled to further relief, which is claimed via Self Assessment or a tax code adjustment.

How to Adjust for Pension Contributions?

For Tax-Free Childcare, adjusted net income is:

Total taxable income – gross pension contributions

Since pension contributions were made after tax, they must be grossed up (multiplied by 100/80) to reflect the full pre-tax amount.

Example:

1. Salary: £60,000
2. Pension contributions (net): £4,000
3. Gross pension contributions: £4,000 × 100/80 = £5,000
4. Adjusted net income: £60,000 - £5,000 = £55,000

This lower income figure helps with Tax-Free Childcare eligibility.

Next Steps:

1. Confirm net contributions.
2. Gross up by multiplying by 100/80.
3. Use this gross figure in Tax-Free Childcare calculations.