How every number in the calculator is derived.
Each formula is traceable to a single HMRC or GOV.UK rule. If a figure on the calculator surprises you, you should be able to find the reason here in under thirty seconds. Nothing is proprietary — this is a reference, not a black box.
Adjusted Net Income. The one number the calculator cares about.#
Every threshold on this page — the Personal Allowance taper, the High Income Child Benefit Charge, loss of Tax-Free Childcare and 30 funded hours — is gated by a single figure HMRC calls Adjusted Net Income, often abbreviated ANI. It is not the same as your salary, your P60 total, or your taxable pay.
ANI is your total taxable income for the year, minus two specific deductions that HMRC allows you to strip out: relief-at-source pension contributions (grossed up), and Gift Aid donations (also grossed up at the basic rate). The “gross-up” step is what catches most people.
ANI = total taxable income − gross pension contributions (relief-at-source) − gross Gift Aid donations − trading losses & other allowable reliefs
“Total taxable income” here means your salary, bonuses, taxable benefits-in-kind, rental income, dividends, savings interest above the allowance — everything HMRC would tax before any personal allowance is applied. The calculator lets you enter these as separate lines so you can see which ones push you into the trap.
Why the “gross-up” matters#
If you pay £800 into a SIPP or workplace personal pension on a relief-at-source basis, the provider claims £200 of basic-rate relief from HMRC and adds it to your pot. HMRC then treats the full £1,000 as your deduction when calculating ANI — not the £800 you actually paid out of your bank account.
Contributions made under a “net-pay” arrangement (most occupational schemes, including most DC workplace pensions) or salary sacrifice are deducted from gross pay before tax is assessed, so they never appear in taxable income in the first place. You do not deduct these from ANI — they are already excluded. Adding them again would double-count the relief.
This is why the calculator asks you whether your pension is salary sacrifice / net-pay or relief-at-source. Get it wrong and your ANI is off by the full amount of your annual contribution.
Personal Allowance taper. £1 of allowance lost for every £2 of ANI over £100,000.#
The full Personal Allowance for 2026/27 is £12,570. Once your Adjusted Net Income crosses £100,000, HMRC withdraws £1 of that allowance for every £2 you earn above the threshold. By £125,140 the allowance is fully gone.
PA = max( 0, £12,570 − max( 0, (ANI − £100,000) ÷ 2 ) )
The reason this hurts is arithmetic, not policy. Every additional £2 of ANI inside the taper band adds £2 to your taxable income and exposes £1 of previously tax-free allowance to 40% higher-rate tax. That £1 of lost allowance becomes £0.40 of extra tax, so the effective marginal rate on the £2 earned is 40% + (40% of £1/£2) = 60%. Add 2% employee National Insurance and you reach 62%. Every £1 gross becomes 38p net.
Key thresholds#
| ANI | Allowance lost | Remaining PA |
|---|---|---|
| £100,000 | £0 | £12,570 |
| £110,000 | £5,000 | £7,570 |
| £120,000 | £10,000 | £2,570 |
| £125,140 | £12,570 | £0 |
Once ANI reaches £125,140 the taper is exhausted and marginal rates drop back to 40% + 2% NI = 42%. This is why incomes in the £100k–£125,140 band are, in marginal terms, the most heavily taxed in the UK system — higher than the 45% additional rate.
Income tax bands. 20% · 40% · 45%.#
Once the Personal Allowance has been deducted, the remainder of your income is sliced into three bands at fixed thresholds. The calculator applies each band in sequence.
| Band | From | To | Rate |
|---|---|---|---|
| Personal Allowance | £0 | £12,570 | 0% |
| Basic rate | £12,570 | £50,270 | 20% |
| Higher rate | £50,270 | £125,140 | 40% |
| Additional rate | £125,140 | — | 45% |
The thresholds above are fixed in nominal terms — they do not rise with inflation. Because of this, every year of wage growth drags more earners into higher bands. HMRC calls this fiscal drag. It is not a quirk of the calculator; it is the mechanism by which income tax receipts rise without legislated rate changes.
Scotland has its own income tax bands and rates, set by the Scottish Parliament. The other sections of this methodology — Personal Allowance taper, HICBC, NI, Tax-Free Childcare, ANI — apply UK-wide, but this calculator does not model Scottish rates. If you are a Scottish taxpayer, the marginal rate figures above will overstate your basic-rate burden and understate your higher-rate threshold.
National Insurance. 8% up to the UEL, 2% above.#
National Insurance is charged on gross pay — not Adjusted Net Income. Salary sacrifice reduces both your income tax and your NI because it lowers gross pay at source; relief-at-source pensions reduce income tax only.
NI = 8% × max(0, min(gross, £50,270) − £12,570) + 2% × max(0, gross − £50,270)
The Primary Threshold (below which no NI is due) is aligned with the Personal Allowance at £12,570. The Upper Earnings Limit (the point at which the main rate drops to 2%) is aligned with the higher-rate income tax threshold at £50,270. At £105k the effective employee NI rate is therefore roughly 4.5% of gross — not 8%.
The calculator does not attempt to model employer NI, Class 2/4 self-employment NI, or voluntary contributions. It is employee Class 1 only.
High Income Child Benefit Charge. Child Benefit clawed back between £60,000 and £80,000.#
If at least one person in the household earns more than £60,000 of Adjusted Net Income, Child Benefit is progressively withdrawn — 1% of the benefit for every £200 of ANI above £60,000. By £80,000, the entire benefit has been clawed back.
Clawback = CB × min( 1, max( 0, (ANI − £60,000) ÷ £20,000 ) )
In plain English: 1% of Child Benefit is withdrawn for every £200 of ANI over £60,000. The charge is assessed on the highest-earning individual in the household, not on household income — so a couple each earning £59,000 keeps the full benefit, but a single earner on £75,000 loses three-quarters of it.
Child Benefit rates — 2026/27#
| Children | Weekly | Annual |
|---|---|---|
| Eldest / only child | £27.05 | £1,407 |
| Each additional child | £17.90 | £931 |
| Two children | — | £2,337 |
| Three children | — | £3,268 |
Because the clawback is levied as an income-tax charge (not a reduction of the benefit itself), its marginal-rate effect stacks on top of the income tax and NI you are already paying. A parent of two in the £60k–£80k band faces a marginal rate of 40% + 2% NI + (£2,337 ÷ £20,000) = approximately 53.7%. For three children it rises to around 58.3%.
Families who believe they will always earn over £80,000 sometimes opt out of Child Benefit entirely to avoid the charge. This is reversible, but if the opt-out is registered before the first child reaches age 12, the non-earning parent can lose National Insurance credits that count toward their State Pension. The calculator flags this when relevant; the safe default is to claim the benefit and pay the charge rather than opt out.
Tax-Free Childcare & 30 funded hours. Lost entirely the moment ANI exceeds £100,000.#
Unlike the Personal Allowance, which tapers, these two childcare entitlements disappear at a hard cliff. The day one parent’s Adjusted Net Income exceeds £100,000, the household loses both schemes in full — regardless of how much the other partner earns.
Tax-Free Childcare#
For every £8 the household pays into a Tax-Free Childcare account, the government adds £2, up to a cap of £2,000 per child per year (£4,000 if the child is disabled). Eligibility is lost if either partner has an expected ANI over £100,000 in the current tax year.
TFC top-up = min( £2,000, 0.25 × annual childcare spend ) // per child, per year eligible only if max(ANI₁, ANI₂) ≤ £100,000
30 funded hours (England only)#
Eligible working families in England get 30 hours per week of government-funded early education for children aged 9 months to school age, across 38 weeks of the year (during term time). The income cap is the same £100,000 ANI trigger, applied per parent. Extended schemes in Wales, Scotland and Northern Ireland use different rules; this calculator does not model them.
A single £1 of ANI — a £1 pay rise, a small bonus, taxable interest above the savings allowance — can trigger the loss of up to £12,000+ of childcare support per year for a London family of two under-fives. The only lever that restores it is reducing ANI back below £100,000, typically through additional pension contribution.
Pension relief. Why £1 in a pension can be worth 60p to 71p in tax.#
A pension contribution reduces Adjusted Net Income by the gross amount — for every £1 you put in, £1 comes off your ANI. In the 60% marginal band this means the contribution saves 60p of tax immediately, on top of investing for retirement. For families with young children the saving can rise to 71% once childcare cliff effects are included.
Relief-at-source (SIPP, most personal pensions)#
You contribute from post-tax income. The provider reclaims basic-rate (20%) relief from HMRC automatically. Higher- and additional-rate relief is claimed through Self-Assessment, typically as a rebate after the tax year ends.
Net cost of £1 gross contribution = £1 − (40% + 20% PA taper) = £0.40 + 2% NI saved only under salary sacrifice
Salary sacrifice / net-pay#
Contributions come out of gross pay before tax or NI is assessed. You save income tax and employee NI (and sometimes a share of the employer NI saving, if your employer passes it on). No Self-Assessment reclaim is needed — the relief is automatic.
Relief-at-source and salary sacrifice arrive at the same ANI. The difference is whether you save NI on the contribution (sacrifice does, relief-at-source does not) and whether relief is automatic (sacrifice) or claimed back via Self-Assessment (relief-at-source). The calculator models both explicitly.
Why 71% is achievable#
In the £100k–£125,140 band, a £1 gross pension contribution saves:
- 40p in higher-rate income tax on the £1 itself
- 20p in restored Personal Allowance (the £1 comes out of ANI, so 50p of PA is restored, taxed at 40%)
- 2p in employee NI (salary sacrifice only)
- Up to ~9p via restored HICBC (parent of two, if contribution brings ANI below £80,000)
A parent of two earning £105,000 who contributes £5,000 gross via salary sacrifice typically nets 71p back per £1 — and restores Tax-Free Childcare + 30 hours if ANI crosses back under £100,000.
Worked example: £105,000, two children. Every step the calculator takes.#
Below is the full chain the calculator follows for a single earner on £105,000 gross salary with two children and no additional income, pension contribution or taxable benefits. All figures rounded to the nearest pound.
-
Compute Adjusted Net Income
No pension or Gift Aid deductions, so ANI equals gross taxable income.
ANI = £105,000 − £0 = £105,000
-
Apply the Personal Allowance taper
ANI is £5,000 above the £100,000 threshold, so £2,500 of allowance is withdrawn.
PA = £12,570 − (£5,000 ÷ 2) = £10,070
-
Slice taxable income into bands
Remaining taxable income is £105,000 − £10,070 = £94,930.
Basic (20%) = £37,700 × 20% = £7,540 Higher (40%) = £57,230 × 40% = £22,892 Income tax = £7,540 + £22,892 = £30,432
-
Compute National Insurance
NI is charged on gross (£105,000), not ANI.
NI main = 8% × (£50,270 − £12,570) = £3,016 NI upper = 2% × (£105,000 − £50,270) = £1,095 NI = £3,016 + £1,095 = £4,111
-
Compute HICBC
ANI is £45,000 above the £60,000 HICBC threshold, so the clawback is complete.
HICBC = £2,337 × min(1, £45,000 ÷ £20,000) = £2,337
-
Check childcare cliff
ANI exceeds £100,000 — Tax-Free Childcare and 30 funded hours are both lost. The calculator flags this as an opportunity cost (not a cash tax bill), because its value depends on how much childcare the household is using.
TFC + 30 hrs = Lost // opportunity cost up to ~£12,000/yr for a London family of two
-
Net take-home & effective rates
Sum the cash deductions; the calculator shows each separately in the results panel.
Total cash cost = £30,432 + £4,111 + £2,337 = £36,880 Net take-home = £105,000 − £36,880 = £68,120 Marginal rate = 40% + 20% (PA) + 2% (NI) = 62% // on next £1 — HICBC already fully clawed at £80,000
At £105,000 with two children, the next £1 of pre-tax salary converts to ~38p of net take-home. A £5,000 pension contribution via salary sacrifice costs roughly £1,900 out of pocket — £5,000 into your pension for £1,900 of net income foregone. If the contribution brings ANI below £100,000, restoring Tax-Free Childcare and 30 funded hours can add thousands more. That is the arithmetic behind every recommendation the calculator makes.
Assumptions & limits.#
The calculator is deliberately narrow. It answers one question — “what is the effective marginal rate on my next pound of income, and what would pension contribution do to it” — and declines to answer many adjacent ones.
What is modelled#
- Employee PAYE income: Class 1 NI, PAYE income tax, PA taper, relief-at-source and salary-sacrifice pensions.
- HICBC for 1–3 children at 2026/27 rates.
- Tax-Free Childcare & 30 funded hours as cliff-edge losses above £100k ANI.
- England / Wales / Northern Ireland only.
What is not modelled#
- Scottish rates & bands. A Scottish taxpayer’s figures will not match.
- Self-employment (Class 2/4 NI, trading profits, simplified expenses).
- Dividend, savings, and capital gains tax beyond their effect on ANI.
- Marriage Allowance, Blind Person’s Allowance, and other personal adjustments.
- Student Loan Plan 1/2/4/5 or Postgraduate Loan repayments.
- Lifetime pension allowance or tapered annual allowance — the calculator assumes your gross contribution falls within the standard £60,000 AA.
Rounding & precision#
Intermediate calculations are carried at full precision. Displayed values are rounded to the nearest pound, except for marginal rate percentages (one decimal place). Rounding can cause totals in the results panel to differ from hand-recomputed sums by £1–£2 on edge cases; the underlying engine is correct.
When to consult a professional#
This calculator is a reference tool for decisions you understand. It is not tax advice. Any situation involving the tapered annual allowance, share schemes with unusual vesting, non-UK residency, or a material sum of non-PAYE income should be taken to a chartered tax adviser or accountant before action.