If your child is starting nursery in summer term 2027, you might be thinking: I've got plenty of time, I'll worry about childcare funding next year. But here's what catches a lot of parents out — when you apply for funded hours in February 2027, HMRC checks your Net Adjusted Income for the 2026/27 tax year. The one that started this month. The one you're already in.
Which means if your income tips over £100,000 this year, you won't qualify — even if you'd have been comfortably under next year.
The same applies if your child is starting in September 2026 or January 2027. The eligibility check always looks at the current tax year's projected income at the point you apply, so the groundwork gets laid now, not later.
If you're currently on parental leave, this is worth paying attention to, because you're actually in a stronger position than you might think — and it's worth understanding why before that window closes.
What is Net Adjusted Income, and why isn't it the same as your salary?
Net Adjusted Income is the specific figure HMRC uses to assess eligibility, and it includes more than most people realise. Think of it as a test tube: certain things pour in at the top, and certain things take away from the bottom.
What adds on: salary for the months you're actually paid it, bonuses (gross, in full), benefits in kind like private medical or travel insurance, savings interest and dividends outside of an ISA, and any other taxable income.
What takes away: pension contributions through salary sacrifice or personal contributions to a SIPP, and Gift Aid donations grossed up.
That final number is what HMRC looks at. Both parents need to be individually under £100,000. And if either crosses the line, you lose the funded hours entirely — not partially, all at once, for that application period.
Why parental leave is actually a strategic window
If you're on parental leave right now, your Net Adjusted Income for 2026/27 is likely to be lower than a normal year, because you're receiving SMP or a reduced salary for part of it. That's genuinely useful. But whether you can access funded hours also depends on timing — specifically, when you return to work relative to the term start dates.
The funded hours system runs in three terms: September, January, and April. To apply, you need to be back at work or returning within 30 days of your application. So if your child starts nursery in September 2026, you'll need to apply in late July or August and be back at work, or returning imminently. For January 2027, the application window opens in November 2026. For summer term 2027, it opens in February 2027.
In each case, eligibility is checked against your projected Net Adjusted Income for the tax year you're in at the point of application — which for all three of those windows is 2026/27.
The things worth checking now
Pension contributions during parental leave: Your employer must continue paying pension contributions at your normal rate even while you're on SMP. Many don't — not usually deliberately, but because payroll systems default to applying the percentage to what's actually being paid out rather than your normal salary. It's worth checking your payslips and asking payroll to confirm. People have been owed thousands back.
Benefits in kind: Private medical insurance, travel insurance, dental cover — if these are payrolled benefits rather than salary sacrifice, they add to your Net Adjusted Income. Small amounts matter close to the threshold.
Savings interest: Interest earned outside of an ISA is taxable and counts towards your Net Adjusted Income. Moving savings into a cash ISA (up to £20,000 per tax year) takes future interest out of the calculation entirely.
Pension contributions on return: If your income on return will put you near £100,000, salary sacrifice through your employer is usually the simplest lever — it reduces your Net Adjusted Income before HMRC even sees the number. If payroll timing is tight, a personal pension contribution made before 5 April 2027 will also count for this tax year.
Don't forget Tax-Free Childcare
Funded hours and Tax-Free Childcare are applied for through the same government portal, and both require Net Adjusted Income under £100,000. Tax-Free Childcare adds up to £2,000 per year on top of the funded hours — for every £8 you pay in, the government adds £2. It's worth applying for both at the same time, and you can start using Tax-Free Childcare before the funded hours age kicks in.
Where to start
The most useful thing you can do right now is calculate your projected Net Adjusted Income for 2026/27 — factoring in the months on leave, the months back at work, pension contributions, and any benefits in kind. That number tells you exactly where you stand.
My free guide walks through how Net Adjusted Income works and what affects your eligibility.
If you'd rather work through your specific numbers with someone, a Childcare Strategy Session gives you a personalised spreadsheet built around your exact income profile — return-to-work timing, pension contributions, benefits, all of it — plus a call to walk through the options together.
👉 Book a Childcare Strategy Session here
This post is educational guidance to help you make informed decisions — it's not regulated financial advice.