A company car took away my child support: How work benefits can unexpectedly increase your taxes

I started claiming child benefit a few years after the old £50,000 limit was introduced. I was earning under the limit and my wife was earning around £5,000 part time while juggling the kids.

I received a letter informing me that I was not eligible for child benefit because my net income was over £50,000, after the values ​​of my pension and in kind (my company car, fuel and private medical expenses) had been included.

I didn’t know that my car and fuel allowance counted towards my calculated income. At the time my income was under £50,000, but the in-kind benefit pushed me above that.

I may be eligible to claim again now that the threshold is £60,000, but my work benefits have changed. What else is counted as income for these purposes?

Angharad Carrick from This Is Mone,y replies: Your situation shows how complicated the tax system has become.

High income child benefit was introduced in 2013 to claw back child benefit from households where the highest earner had an income of more than £50,000, and was abolished completely if they earned more than £60,000.

From 6 April 2024, the lower threshold has been increased to £60,000 and will now be fully withdrawn to £80,000.

In your case you were earning below the old threshold while your wife was working part-time and earning £5,000.

The elimination of child benefit is based on one parent’s individual income exceeding the limit, and not on family income.

Currently, two parents earning £59,000 each would qualify for the full amount, while a single parent earning £61,000 would not. The Conservatives said they want to change this and set child benefit at household income up to £120,000.

When the tax authorities look at your income to determine how much child benefit you should receive, they do not only look at your gross salary. Instead, they look at something called adjusted net income.

This can be income from work, but also income from other sources, such as renting a home or investments.

Crucially, as in your case, it also includes any benefits you receive while employed which are treated as taxable income. This includes items such as a company car and health insurance, which are considered taxable benefits and for which an in-kind reimbursement may be charged.

We asked three tax experts to explain the rules further.

Robert Salter, partner at Blick Rothenberg, says: The sources of income to consider when looking at adjusted gross income for child support are:

• Your gross salary (with deduction of pension contributions according to the net salary scheme)

• Other labor income (e.g. bonuses, overtime)

• Taxable benefits provided by your employer (basically everything listed on your form P11D – private medicine, company car, fuel benefit)

• Pension income (regardless of whether it concerns a private pension or a state pension)

• Profit from self-employment (if applicable)

• Investment income (e.g. dividends, rental income, bank interest)

Items then allowed as deductions include:

• Pension contributions (for example if you pay private contributions or if full tax relief has not yet been granted via form P60)

• Tax-deductible professional expenses (for example professional subscriptions or business mileage costs, where the private individual bears the costs directly)

• Costs of the bicycle-to-work scheme

This is standardized because, if you include some of the less common deductions that may be allowed when assessing adjusted net income (such as losses carried forward from a previous year and qualifying interest deductions for self-employed persons), this whole area is very can get messy.

Shaun Moore, tax and financial planning expert at Quilter, says: What counts as your taxable income can be confusing, especially if you receive benefits in kind.

Taxable income includes not only your salary, but also various benefits provided by your employer.

For example, if you have a company car and fuel for private use, the value of this benefit is included in your taxable income. This is calculated based on the list price, CO2 emissions and fuel type of the car.

Likewise, the cost of private health insurance paid by your employer is also considered a taxable benefit.

Electric cars have a lower taxable benefit rating compared to traditional petrol or diesel cars due to their environmental benefits. However, they still count as a benefit in kind and increase your taxable income, albeit to a lesser extent.

Angharad Carrick says: You should also be careful about the interest accruing on your savings.

Although in theory you have a personal allowance of £500, this will be added to your adjusted net income.

This means that if you earned €60,000, the current child benefit threshold, and had €2,000 in savings interest, you would have to pay back child benefit on the full €2,000.

This Is Money’s tax expert Heather Rogers from Aston Accountancy says: When calculating the adjusted net income, all your allowances that you may receive for tax purposes are ignored and you are asked what your income is.

Your income is taken into account, regardless of whether it may fall under a tax bracket or tax deduction.

If you have a pension, you can deduct the gross pension premiums from your income.

If you have an employment contract of €100,000 and an income of €10,000 and interest and dividend income of €2,000 and then make a pension payment, the gross value of that pension contribution can be deducted.