The £100k Childcare Trap

How to reduce your Adjusted Net Income (ANI) and keep your childcare support.
The Risk: Under current rules, earning just £1 over £100,000 can cost you access to both funded hours and tax-free childcare. For many families this is a difference of over £20,000 per year.

To keep your eligibility, the specific figure you need to manage is your Adjusted Net Income (ANI). This is not just your "take-home" pay; it is a specific calculation used by HMRC.

The Golden Rule: The £100k Limit

Your Goal: Reduce ANI to £100,000 or less
Total Taxable Income − Specific Deductions = ANI

Option 1: For PAYE Employees

As an employee, your salary is fixed, but you have several "levers" to pull to lower your taxable salary or increase your deductions.

1. Pension Contributions Best Method

Increasing your pension contribution is the most efficient way to reduce ANI because you are saving the money for yourself rather than giving it away. The total amount that you, your employer, and any third parties can pay into your combined pensions is £60,000.

Method A: Salary Sacrifice

  • How it works: You agree to a lower contractual salary; your employer pays the difference into your pension.
  • Benefit: Reduces gross taxable income immediately. Saves you National Insurance (2%) and often employers pass on their NI savings (13.8%).
  • Action: Ask HR to increase your sacrifice percentage for the remaining months.

Method B: Relief at Source (SIPP / Private Pension)

  • How it works: You pay from net pay. The provider claims 20% tax relief.
  • The Calculation: You deduct the GROSS amount from your income.
  • Example: If you are £1,000 over the limit, you pay £800 into a SIPP. The government adds £200. You deduct the full £1,000 from your ANI.

2. Cycle to Work Scheme

Impact: The cost is deducted from your gross salary before tax. A £2,000 electric bike purchase reduces your taxable income by exactly £2,000.

3. Electric Car Salary Sacrifice (EV Scheme)

Impact: The sacrifice amount comes off your gross salary.
Note: You must add back the "Benefit in Kind" (BiK) value of the car (~2%), but the net effect is usually a significant reduction.

4. Buying Additional Annual Leave

Many large employers allow you to "buy" up to 5 extra days of holiday. The cost is deducted from your gross salary.

5. Charitable Donations (Gift Aid)

Formula: Donation Amount × 1.25 = Deduction Value.

Example: You donate £800. The charity claims Gift Aid making it £1,000. You deduct £1,000 from your ANI.

Option 2: For Self-Employed (Sole Traders)

1. Personal Pension Contributions (SIPP)

Make a lump sum payment into a SIPP before April 5th. Like employees, you deduct the GROSS contribution (Payment + 20% tax relief) from your total income.

2. Capital Allowances (Equipment)

If you buy equipment (computers, machinery) before April 5th, you can claim the Annual Investment Allowance (AIA) to deduct the full cost from this year's profits.

3. Review Allowable Expenses

Ensure you have claimed every legitimate expense: Professional subscriptions, use of home as office, travel costs, training courses.

Option 3: For Company Directors

Summary: Levers to Lower ANI

Method Employee Self-Employed Impact
Pension (Salary Sacrifice) ✅ ❌ High
Pension (SIPP) ✅ ✅ High
Cycle to Work / EV ✅ ❌ Med/High
Capital Allowances ❌ ✅ High
Buying Holiday ✅ ❌ Low/Med
Gift Aid Donations ✅ ✅ Moderate

⚠️ Crucial "Gotchas"

  • Savings Interest: The £100k limit includes ALL income. If you earn £99k salary but make £1,500 in savings interest, your ANI is £100,500.
  • Company Benefits (P11D): Health insurance and company cars are added to your income. Check your tax code.
CALCULATE YOUR REDUCTIONS