How to reduce your income
There are cases where you might like to reduce your income, taxable income or adjusted net income
Reducing Adjusted Net Income
Adjusted net income is total taxable income before any Personal Allowances and less certain tax reliefs.
Those with an Adjusted Net Income of £60,000 and in a household receiving Child Benefit become liable for High Income Child Benefit Charge.
Those with an Adjusted Net Income of £100,000 or more lose access to free childcare hours and tax-free childcare.
Those with an Adjusted Net Income of £100,000 or more start losing personal allowance at a rate of £2 for every £1 above the threshold. This means that at £125,140 adjusted net income, there is no personal allowance left. As a side effect, this means the between £100,000 and £125,138, for every £2 extra you earn, you take home an extra 76p due to tax and NI.
Adjusted Net Income can be reduced by reducing taxable income, making pension contributions, deducting trading losses or making a Gift-Aid donation.
Reducing Taxable Income
Taxable income mostly affects tax bandings.
PAYE Employees
Taxable income can be reduced by contributing to your workplace pension, sharing allowances between spouses and using salary sacrifice schemes.
Interest and Dividend Income
Holding investments in an ISA can avoid taxable income on interest and dividends. Spreading investments between spouses can also help use both personal savings allowances.
Reducing Income
Income can be reduced ad-hoc by buying holiday days, taking unpaid parental leave, taking unpaid leave or perhaps more permanently by moving to fewer hours or fewer days per week.