Most parents right now are focused on getting their application in for funded childcare hours before the summer term starts on 1 April 2026. But I’ve had so many confused messages about this recently:
If your net adjusted income tips over £100,000 at any point in the 2025/26 tax year, your eligibility for funded hours and tax-free childcare disappears. Instantly, not gradually or partially – it’s an all-or-nothing cliff edge. And because you’re applying in February or March, that means everything you earn between now and 5 April 2026 counts, including a bonus you might not have factored in yet.
It’s such an opaque system and I’d hate for you to miss out on funded hours until September simply because you didn’t know. So let’s look at what’s actually going on, and what you can do about it.
First things first: what actually is “net adjusted income”?
This is where it gets confusing, because net adjusted income isn’t the number on your payslip, it’s not your base salary or your take-home pay. It’s the figure HMRC uses to decide whether you qualify, and it includes more than most people realise.
Your net adjusted income is broadly:
Your total taxable income – that’s salary, bonuses, overtime, commission, dividends, rental income, bank interest, benefits in kind (like a company car or some private medical insurance), and any other taxable earnings.
Minus pension contributions (personal contributions and salary sacrifice), gift aid donations (grossed up), and trading losses.
That final number is what HMRC looks at. And for both parents, it needs to be under £100,000 individually.
The problem: it’s not just about your salary
Here’s the scenario I keep running into: A parent has a base salary of, say, £85,000. Comfortably under the threshold. No problem, until you add in the annual bonus paid in March, an RSU that vests, some bank interest, and a benefit in kind they didn’t realise counted. Suddenly they’re at £102,000 and they’ve lost everything.
And I do mean everything. This isn’t just about losing the 30 funded hours, there’s a double whammy here that most people don’t realise:
You lose your funded childcare hours, which depending on your setup could be worth up to £9,000 per year including the £2,000 tax-free childcare.
You also lose your personal tax allowance: for every £2 you earn over £100,000, you lose £1 of your £12,570 personal allowance. This creates the infamous 60% tax trap, where you’re effectively paying 60% tax on income between £100,000 and £125,140.
So crossing that £100k line doesn’t just cost you childcare funding, it hits you from both sides.
The good news: it’s not too late
This is the bit I really want you to hear, because there’s still time to do something about it before the tax year ends on 5 April 2026.
Pension contributions are usually the most powerful lever. If you know a bonus is coming in March, salary sacrificing part or all of it into your pension before it hits your payslip can bring your net adjusted income back under £100,000. Personal pension contributions work too, the grossed-up amount is deducted from your income.
Gift Aid donations also reduce your net adjusted income. The grossed-up value of charitable donations made through Gift Aid is deducted from your total, so if you’re close to the line, this can help tip you back under.
Salary sacrifice arrangements for other benefits eg electric car schemes, cycle to work, additional pension can also make a difference depending on your employer’s setup and timing.
The key is acting before the income lands, not after. Once it’s on your payslip, your options narrow.
The timeline that matters
Let me lay this out clearly, because the dates are everything:
Now to March 2026: Work out your projected net adjusted income for the full 2025/26 tax year. Include everything – bonuses, variable pay, all of it.
February/March 2026: Application window opens for summer term funded hours. Your eligibility is checked against your current tax year income.
31 March 2026: Deadline to have your application confirmed for summer term.
5 April 2026: End of the 2025/26 tax year.
If your net adjusted income is over £100,000 when you apply, you won’t get funded hours for the summer term. The next opportunity? September 2026. That’s five months of full childcare costs you didn’t need to pay.
Who does this catch out?
In my experience, it’s rarely the people earning well over £100k who get caught – they already know they’re above the threshold. It’s the ones who are close. The professionals earning a solid salary plus variable income – sales roles that come with commission, people with performance bonuses, anyone with RSUs or savings interest on a higher cash balance (ready to buy a property for example) they haven’t fully accounted for.
I also see it with parents who’ve recently returned to work after parental leave, where a partial year’s income looked fine but a full year pushes them over, or couples where one partner has just had a pay rise.
In the last five weeks, I’ve helped 8 families audit their income, calculate their exact position, and put a plan in place to make sure they qualify before the deadline.
Every single one of them said the same thing about being relieved that it was now clear, and questioned why it seems so complicated. That’s exactly why I’m writing this blog post. I don’t want you to be the parent who finds out in April that a bonus cost you a term’s childcare funding.
Don’t guess, know your net adjusted income number
If you’re anywhere near the £100,000 threshold – or if you’re not sure whether you are – please don’t leave this to chance. The difference between getting this right and getting it wrong is potentially thousands of pounds.
I have a few remaining slots for my Childcare Finance Strategy Sessions. We’ll look at your exact numbers, calculate your net adjusted income, and make sure you’re in the strongest possible position to qualify before the deadline.
👉 Book your Childcare Finance Strategy Session here
Not quite ready for a call? Start with my free guide to understanding your childcare entitlements:
Disclaimer: My day-to-day work is financial coaching for high earners who don’t yet feel sorted with their money. This standalone childcare strategy service grew out of sheer demand – it’s educational guidance to help you make informed decisions, not regulated financial advice.