Tax Cliffs & Extra Work Lab · Methodology

How the calculation works

Compare the annual household cash effect of extra employment earnings with a current position after selected UK tax, pension, family-support and work-cost interactions for 2026/27.

Return to calculator

Included

England, Wales, Northern Ireland and Scottish non-savings Income Tax bands
Employee Class 1 National Insurance
Relief at source, net pay and salary sacrifice pension methods
Adjusted net income after gross pension contributions
2026/27 Child Benefit and the High Income Child Benefit Charge
Tax-Free Childcare using entered eligible bills
A user-entered value for working-parent free childcare
User-entered extra travel, work and childcare costs
Cash retained and an optional per-day result

Outside this method

Student-loan deductions
Universal Credit and other means-tested benefits
Savings, dividend and foreign-income tax
Gift Aid and other adjusted-net-income deductions
Employer National Insurance
Pension annual allowance and relevant-earnings checks
Childcare minimum-earnings, age, disability and reconfirmation rules
A valuation of time, career progression or future pay

Calculation

Core formulas

Adjusted net income

ANI = employment income + other entered income − gross pension contribution

This is a simplified adjusted-net-income estimate; the full HMRC calculation can include other income, deductions and gross-ups.

Employee National Insurance

NI = 8% × earnings from £12,570 to £50,270 + 2% × earnings above £50,270

Salary sacrifice reduces the earnings used for NI in the model; net pay and relief at source do not.

High Income Child Benefit Charge

Charge = Child Benefit × min[100%, floor((higher earner’s ANI − £60,000) ÷ £200) × 1%]

The higher of the two entered adjusted net incomes is used, with whole one-percentage-point steps.

Tax-Free Childcare top-up

Top-up = min(20% × entered eligible bill, £2,000 × eligible children)

The amount is set to zero if either partner's entered adjusted net income is above £100,000.

Extra accessible household cash

Scenario cash after tax, NI, pension, support and costs − baseline household cash

Pension funding is shown separately because it is not accessible cash.

Cash retention rate

Extra accessible household cash ÷ extra gross earnings

The percentage can be negative where abrupt support loss and entered costs exceed the extra net pay.

Timing convention

When cash flows occur

Both scenarios cover one full 2026/27 tax year. The current scenario includes the existing gross pension contribution. The comparison adds the entered employment earnings, additional pension contribution and extra annual costs. Monthly payroll timing and the timing of tax-code changes, refunds and childcare reconfirmations are ignored.

Limitations

What the result cannot establish

The calculation is deliberately narrower than a tax return and cannot establish actual adjusted net income where other reliefs or income types apply.
Relief-at-source cash assumes all additional Income Tax relief is successfully claimed.
The childcare value is supplied by the user and is removed as one annual amount when the £100,000 ceiling is crossed.
Tax-Free Childcare is approximated as 20% of the entered gross eligible bill and does not model quarterly payment timing or the higher disabled-child cap.
A pension contribution that improves a threshold result may still breach annual-allowance, money-purchase or relevant-earnings limits.
The calculation does not decide whether extra work is personally or financially worthwhile.

Reference tests

Numerical checks

Case	Inputs	Expected result
National Insurance main rate	England; £40,000 employment income; no pension or other income	£2,194.40 employee NI before rounding
Child Benefit charge midpoint	£70,000 adjusted net income; one child	50% of entered 2026/27 Child Benefit is charged
Childcare ceiling	Baseline ANI £95,000; scenario ANI £105,000; £8,000 eligible bills; one child	£1,600 modelled Tax-Free Childcare top-up before and £0 after
Salary-sacrifice NI effect	£60,000 employment income; £10,000 gross salary sacrifice	Income Tax and employee NI use £50,000 employment pay in the model

Evidence

Sources

GOV.UK — Income Tax Personal Allowance and basic-rate limit, 2026/27 GOV.UK — National Insurance rates HMRC — Adjusted net income HMRC — High Income Child Benefit Charge threshold HM Treasury — 2026/27 Child Benefit rates GOV.UK — Free Childcare for Working Parents eligibility GOV.UK — Tax-Free Childcare eligibility