How an organization automotive may take away your youngster profit
I started claiming child benefit a few years after the old £50,000 cap was introduced. I had been earning below the cap and my wife was earning around £5,000 part-time while she juggled the kids.
I received a letter advising I was not eligible for child benefit due to my net income being over £50,000 after pension and benefits in kind values – my company car, fuel and private medical – were factored in.
I was not aware my car and fuel benefit counted towards my calculated income. At the time my income was below £50,000 but the benefit in kind values pushed me above.
I may be eligible to claim again now the threshold is £60,000, but my work benefits have changed. What else is included as income for these purposes?
Child benefit charge: The Government starts to claw back child benefit from those earning over £60,000
Angharad Carrick, of This Is Mone,y replies: Your situation shows just how complicated the tax system has become.
The high-income child benefit charge was introduced in 2013 to claw back child benefit from households where the highest earner had an income above £50,000, and withdrew it completely when they earned over £60,000.
From 6 April 2024, the lower threshold increased to £60,000 and it is now withdrawn fully at £80,000.
In your case, you were earning below the old threshold while your wife worked part-time earning £5,000.
Child benefit removal is based on just one parents’ individual income breaching the limit, rather than household income.
Currently, two parents earning £59,000 each would be eligible for the full amount, while a single parent earning £61,000 would not. The Conservatives said they want to chnage this and assess child benefit on household income up to £120,000.
When the tax office looks at your income to assess how much child benefit you should receive, they don’t just look at your gross salary. Instead, they look at something called adjusted net income.
This can include income from employment but also from other sources like renting out a property or investments.
Crucially, as in your case, it also includes any benefits that you receive if you’re employed, which are treated as taxable income. This includes things like a company car and medical insurance, which are considered taxable benefits and can incur a ‘benefits in kind’ charge.
We asked three tax experts to explain the rules further.
Benefit in kind: Company cars are included in taxable income and can affect your child benefit
Robert Salter, partner at Blick Rothenberg, says: The income sources which you would need to consider when looking at adjusted gross income for child benefit purposes are:
- Your gross salary (with pension contributions under net pay arrangements deducted)
- Other employment income (e.g. bonuses, overtime)
- Taxable benefits provided by your employer (basically anything reported on your Form P11D – private medical, company car, fuel benefit)
- Pensions income (whether a private pension or state pension)
- Self-employment profits (if any)
- Investment income (e.g. dividends, letting income, bank interest)
Items which would then be allowable as a deduction include:
- Pension contributions (e.g. where you make contributions privately or where full tax relief hasn’t already been provided via the Form P60)
- Gift aid subscriptions
- Tax deductible business expenses (e.g. professional subscriptions or business mileage costs, where the individual is covering the cost of these directly)
- Cycle to work scheme costs
This is standardised because, if you include some of the less usual deductions which might be allowable in assessing adjusted net income (like losses from a previous year carried forward and qualifying loan interest relief for the self employed) this whole area can become very 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 provided for private use, the value of this benefit is included in your taxable income. This is calculated based on the car’s list price, CO2 emissions, and fuel type.
Similarly, the cost of private medical insurance paid by your employer is also considered a taxable benefit.
Electric cars have a lower taxable benefit valuation compared to traditional petrol or diesel cars due to their environmental advantages. However, they still count as a benefit in kind and will increase your taxable income, though to a lesser degree.
Angharad Carrick says: You also need to be careful about the interest accrued on any savings you have.
While you theoretically have a £500 personal allowance, 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 owe child benefit back on the full £2,000.
This Is Money’s resident tax expert Heather Rogers of Aston Accountancy says: Calculating adjusted net income ignores all of your allowances that you might get tax-wise and asks, what is your income.
It looks at what your income is, regardless of whether it might be covered by a tax band or tax allowance.
If you have a pension, you can deduct gross pension contributions from your income.
If you have an employment of £100,000 and an income of £10,000 and interest and dividend income of £2,000, then make a payment into a pension, then the gross value of that pension contribution can be deducted.
