What is Adjusted Net Income and why do I need to know?

What is Adjusted Net Income? 

Adjusted Net Income (ANI) is a calculation of personal income used by HMRC to assess eligibility for certain taxes, tax reliefs, and benefits. If you are a higher or additional rate taxpayer particularly (40% and 45% for tax year 2025/26) then you need to understand: 

• what ANI is 
• which taxes and benefits ANI is relevant for 
• how to calculate ANI 
• where the thresholds lie 
• what to do if you pass those thresholds 

ANI is different to both taxable income (for most income tax purposes) and relevant earnings (for pensions purposes). 

Which taxes and benefits use ANI in their calculations? 

The main taxes and benefits that use ANI are: 

• High-Income Child Benefit Charge on child benefit payments  
• Tax-Free Childcare 
• Personal allowance income-related reduction 

High-Income Child Benefit Charge (HICBC) 

The HICBC is a tax on Child Benefit for higher earners, and began in January 2013. Initially the Government intended to make Child Benefit means-tested so that higher earners could no longer claim it. However, plans were revised so that Child Benefit remains a universal benefit, but it is taxable if the person claiming Child Benefit or their partner has income above a certain threshold.  

From April 2024, if your ANI exceeds £60,000, you may need to repay all or part of any Child Benefit received by you or your partner if you live in the same household. 

How is the HICBC calculated? 

HICBC is calculated at 1% of the Child Benefit received for every £200 of ANI over £60,000.  

If you or your partner earn £80,000 or more, the HICBC will equal the Child Benefit i.e. the benefit is fully clawed back. 

The higher earner must pay the charge, regardless of who receives the Child Benefit. Alternatively, parents can opt out of Child Benefit payments rather than receive them and pay the HICBC. 

Tax-Free Childcare 

The Tax-Free Childcare scheme began in September 2017. Eligible working parents pay into an online account; the Government tops this amount up by an amount equal to basic rate income tax (20% for 2025/2026) and this total ‘pot’ is used to pay childcare providers. The maximum amount the Government will add is £500 per child every three months, for which you would need to put in £2,000. 

Eligibility stops entirely if either parent has ANI under £10,158 or over £100,000 in the tax year. Unlike the HICBC, this creates an eligibility cliff-edge. Just £1 over the ANI threshold will disqualify a family from this scheme. 

There is an important exception to the income eligibility rules. If you are in the first year of self-employment, the rules do not apply in this ‘start-up period’. So, if you have just started a business and would otherwise qualify for Tax Free Childcare but for the income conditions, you can claim during that start-up period. 

Income related reduction to personal allowance  

The personal allowance is the amount of income you can earn without having to pay income tax. The standard personal allowance for 2025/2026 is £12,570.  

It is adjusted for each person depending on: 

• under or over payments of tax in previous years 
• employee benefits you have asked HMRC to tax by adjusting your tax code for PAYE purposes, and 
• several other factors such as Marriage Allowance 

If your ANI is higher than £100,000 in a tax year, HMRC will reduce your personal allowance by £1 for every £2 of additional ANI you earn. Once your ANI reaches £125,140, you will have no tax-free personal allowance. This means there is a slice of income where you are taxed at an effective rate of 60%. 

Thresholds

Tax or benefit	Tax loss of benefit	Initial threshold	Upper threshold	Mechanism	Filing Requirement
HICBC on Child Benefit	Tax	£60,000	£80,000	Taxed at 1% per £200 ANI over threshold until full clawback at £80,000 ANI	Self-assessment
Tax‑Free Childcare	Loss of benefit	£10,158 (per partner)	£100,000	Cliff-edge: cannot use the scheme if one partner earns £100,000+	3 monthly online declarations
Personal allowance	Loss of allowance	£100,000	£125,140	Reduction of £1 per £2 of ANI over £100,000	None – through your tax code

How do I calculate ANI? 

Your ANI is calculated by taking your total taxable income before personal allowances, with some specific deductions and additions. HMRC has instructions on how to follow their calculation process with examples here, which sets out comprehensive lists of items to include at each step. We have set out the most common items below. 

1. Calculate your taxable income. This includes: 

• Employment earnings 
• Trading income (self-employment) 
• Some benefits and pension payments 
• Savings interest and dividends 
• Rental income 

2. Calculate your net income. Deduct: 

• Gross pension contributions 
• Trading losses 

3. Gift aid deduction: 

• Gross up any gift aid donations by the basic tax rate i.e. deduct £1.25 for every £1 donated 

4. Private pension contribution deduction: 

• Gross up any relief at source pension contributions by the basic rate i.e. deduct £1.25 for every £1 you paid in 

5. Add back trade union or police organisation payments of up to £100, if already deducted to get to net income. 

What do I do if my ANI is close to, or over one of the thresholds? 

If your ANI is close to one of the thresholds, there are several things you should do. 

1. Monitor your income regularly. This is especially important if you are self-employed or your employment income is irregular due to overtime, bonuses or seasonal changes.  
2. Consider increasing your pension contributions or Gift Aid donations to reduce ANI if it helps you to retain a benefit that you value. 
3. Use HMRC’s Child Benefit tax calculator. 
4. If your ANI is over £80,000 (where the HICBC wipes out Child Benefit entirely) and you choose to stop receiving Child Benefit rather than paying HICBC, ensure you remain registered for Child Benefit. This means you or your partner will be eligible for Class 3 national insurance credits until your child is 12. 

What happens if I get any of this wrong? 

If your ANI exceeds £60,000 and you or your partner received Child Benefit in the tax year, you must complete a self-assessment tax return and pay the HICBC. Failure to do so can result in late filing penalties and interest on the unpaid tax. 

If your ANI goes over £100,000 and you continue to claim Tax-Free Childcare, you risk having to repay the government top-ups received and face penalties of up to 50% of the top-up amounts claimed. 

What are the top tips for ANI? 

Review income projections at least quarterly if you are self-employed or have uneven employment earnings. 

Consider maxing out cash and/or stocks and shares ISAs to generate tax-free interest, income or capital gains which could reduce your ANI. 

Use HMRC’s Child Benefit tax calculator if you are unsure how close you are to the lower or upper thresholds. 

Talk to an accountant about optimising your income structure. 

Need help with assessing your family position?  

At TaxAssist Accountants, we can help prepare your personal tax return and ensure all relevant reliefs are claimed.  

If you need help or assistance with your income tax affairs, call us today on  0800 0523 555 or drop us a line using our online enquiry form. 

First published 23 Jul 2025

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This article is intended to inform rather than advise and is based on legislation and practice at the time. Taxpayer’s circumstances do vary and if you feel that the information provided is beneficial it is important that you contact us before implementation. If you take, or do not take action as a result of reading this article, before receiving our written endorsement, we will accept no responsibility for any financial loss incurred.

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