Net income that has been modified or recalculated to account for certain adjustments or changes.
Your adjusted net income corresponds to the sum of your taxable income. These include sources such as your paycheck, rental income, and earnings from freelance labour. Excluded from this overall amount are tax deductions such as carryforward losses, retirement fund contributions, and charitable donations. However, to add complexity, your Personal Allowance is included. The Personal Allowance refers to the first £12,570 of your earnings that are exempt from taxation.
What is the significance of my adjusted net income?
If your total above a certain level, it becomes necessary to file a tax return and maybe make a repayment.
If the amount exceeds £100,000
Your Personal Allowance diminishes progressively. For each £2 earned over £100,000, there is a reduction of £1 in your Personal Allowance. Once your income hits £125,140, your Personal Allowance is completely eliminated.
If you are a parent who is eligible to receive Child Benefit
If the combined sum of yours and your partner’s exceeds £50,270, you will be required to reimburse a portion of it. Furthermore, in the event that the amount exceeds £60,000, you are obligated to repay the whole sum. The payment in question is referred to as the High Income Child Benefit Charge.
If your birth year before 1938
Individuals born before to 6th April 1938 will see a reduction in their Higher Personal Allowances whenever their adjusted net income surpasses £27,700. Find further information on the Higher Personal Allowances on the HMRC website.
What is the practical use of adjusted net income?
Here is an illustration of the calculation process.
- Alan is an attorney whose whole taxable income amounts to £155,000.
- His work income amounts to £125,000, while his freelance income totals £30,000.
- He contributes an extra £3,000 to his pension.
- Alan adjusted net income is calculated by subtracting his pension payments from his total income. 152,000 pounds.
- The sum exceeds £150,000.
- Alan is required to complete a tax return.
