Adjusted Net Income - Cycle to Work Salary Sacrifice

Yea is my understanding. As does increasing your pension contributions

https://www.gov.uk/guidance/adjusted-net-income#what-adjusted-net-income-is

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

-trading losses
-donations made to charities through Gift Aid - take off the ‘grossed-up’ amount
-pension contributions paid gross (before tax relief)
-pension contributions where your pension provider has already given you tax relief at the basic rate - take off the ‘grossed-up’ amount

From my understanding, nope, your salary is still the same as previous, it's just that the salary sacrifice is deducted from gross, rather than net, so it reduces your taxable salary, but not your adjusted salary for child allowances and so on, if you're over 50k, they'll still take a percentage of that annually via a self assessment, if you're over 60k, then you just don't get it.

It's a crap system for this, as it doesn't take into account household income, but that's the way they have it.

Maybe this confirms it....
https://www.gov.uk/guidance/salary-sacrifice-and-the-effects-on-paye

Tax and National Insurance contributions exemptions on non-cash benefits
Exemptions on benefits in kind do not apply to salary sacrifice schemes. The only benefits you do not need to value and do not have to report to HMRC for a salary sacrifice arrangement are:

-payments into pension schemes
-employer provided pensions advice
-workplace nurseries
-childcare vouchers and directly contracted employer provided childcare that started on or before 4 October 2018
-bicycles and cycling safety equipment (including cycle to work)

So if I did a salary sacrifice for a new laptop, this would be a benefit-in-kind and contribute to my taxable income. But bikes are excluded.

I thought CB it was based off gross income per parent rather than net, so you can't use pension / bike to work to get you under the 50k threshold

Edit - ignore me, others have provided a much clearer answer

so you can’t use pension

You can. In calculating your adjusted net income you deduct your pension contributions (but not the ones your employer makes). So if you increase your pension contributions, your adjusted net income goes down.

I am wanting to find out if salary sacrifice affects the income you start from in this calculation.

As above pension and salary sacrifice are both deducted for calculation of child benefit (OH is a tax advisor).

*edit* to clarify it was childcare vouchers (pre 2018) when I did it, can't say to other forms of salary sacrifice.

well if you it doesn't count I'm in for a nasty letter from Mr Taxman in the future.

I was told by an accountant friend it is deductible.

the salary sacrifice is deducted from gross

Yep, your gross salary is after salary sacrifice. If that salary sacrifice has been used to obtain a taxable benefit, like laptop, that has to be added onto your taxable income. However, bikes on the cycle to work scheme are excluded from this

3 to 2 then that it can reduce your adjusted net income...

Been surprisingly difficult to find a definitive answer on this

the HMRC child benefit charge calculator specifically tells you not to include cycle to work deductions when calculating your adjusted income.

https://www.gov.uk/child-benefit-tax-calculator/y/1/2022/no/65000.0/yes

Well this is a bugger. Im in the same boat as DT78, was convinced my c2w will be reducing my net income this year but there’s well evidenced points above on either side.

the HMRC child benefit charge calculator specifically tells you not to include cycle to work deductions when calculating your adjusted income.

Yes, because you've already taken it off in the previous step?

Your "salary before tax" is what's left after salary sacrifice? It is your reduced salary that you are taxed on.... the whole point of salary sacrifice is to reduce your salary so you pay less tax and NI

the HMRC child benefit charge calculator specifically tells you not to include cycle to work deductions when calculating your adjusted income.

Hangon, that’s because c2w is not an allowable deduction, it’s already been deducted before you enter your net income.

Edit: yep. As per dmorts above.

so..... it is deductible right?

so….. it is deductible right?

No, because it's already "deducted". It reduces your salary before tax.

E.g. Your employment contract says your remuneration is £50k pa. You agree to a salary sacrifice scheme of £2k pa. Your salary before tax is therefore £48k.

Then depending on what is done with that £2k, it might come back in under "taxable benefits", e.g. a gym membership. However cycle to work is not a taxable benefit

For the original question

If I do a salary sacrifice scheme like cycle to work, does this reduce my adjusted net income?

The answer is yes, you can salary sacrifice to reduce net income...just don't take it off again as a deduction.