How do you calculate adjusted net income?

To calculate adjusted net income, you will need to look at a taxpayer’s total taxable income, before personal allowances, and then deduct any trading losses, gift aid donations, gross pension contributions and pension contributions where the pension provider has already provided tax relief at the basic rate.

Calculating the adjusted net income amount is necessary if any of the following apply:

  • A taxpayer is liable to an income-related reduction to the personal allowance – when their adjusted net income is over £100,000 (regardless of their date of birth);
  • A taxpayer is liable to the High Income Child Benefit charge – when their adjusted net income is above £50,000.

It is worth noting when reviewing a client's taxable income that if certain thresholds are exceeded the personal allowance may be withdrawn completely. For example, if a client decides to draw-down a significant lump sum from their pension pot, the payer may deduct 40% Income Tax, but this may not cover all the taxes due. If the amount tips their annual income over the required limit (£125,000 for 2019-20), perhaps for the first time, and their personal allowance is lost, additional taxes may fall due the following January.

Posted in Income Tax

Exeter Accountant MJ Smith & Co

Celebrating 25 years of excellence.

Free 1st Meeting
Fixed Fees
Free Support!

Find out more

Client Portal Login

Forgot Password?

Latest News

The meaning of goodwill

Goodwill is a term we hear about often, but interestingly, is rarely mentioned in legislation. In fact, the term 'goodwill' …
Read More

Taxation of miscellaneous income

There are special rules, known as the miscellaneous income sweep-up provisions, that seek to charge tax on certain income. This …
Read More

When are scholarships taxable as benefits?

The holder of a scholarship is exempt from a charge to Income Tax on income from a scholarship when receiving …
Read More