Can a pay rise leave you worse off? Benefits and payments that can be hit when you earn more

Getting a pay rise or earning more money usually means you'll have more cash to splash on treats and things you like.

But in some cases, bigger pay slips mean losing financial support that can be more valuable than the increase in earnings.

Sometimes just an extra £1 can mean you receive less support, which could be worth hundreds of pounds.

This 'benefits cliff edge' is something to bear in mind when managing household budgets.

Here's what you need to know.

Universal Credit

Some people can earn a certain amount before Universal Credit payments will start to reduce.

For 2026/27, this monthly work allowance is:

• £427 if you receive help with housing costs through Universal Credit

• £710 if you do not receive help with housing costs.

After you cross these thresholds, for every £1 you earn, your Universal Credit payment normally falls by 55p.

These allowances apply where you or your partner are responsible for a child or young person, or have a health condition or disability that affects your ability to work.

It means that if you earn an extra £100 a month above your work allowance, your Universal Credit could fall by around £55.

You would therefore still have around £45 more but will have to take account of Income Tax and National Insurance.

As your earnings continue to rise, your Universal Credit payment can eventually fall to zero.

Child Benefit

Child Benefit is another payment that you will start to lose after breaching a certain threshold.

For the 2026/27 tax year, the High Income Child Benefit Charge starts when an individual's income goes above £60,000.

The £60,000 applies to individual income, rather than household income.

So if you and your partner have children and one of you earns more than £60,000, that person may have to pay the charge.

It means that for every £200 of income above £60,000, you repay 1% of your Child Benefit.

Once adjusted your income reaches £80,000, the tax charge is equal to the full amount of Child Benefit you receive.

You can still claim Child Benefit and pay the charge rather than opting out. This cam be worthwhile because claiming can also provide National Insurance credits which count towards State Pension entitlement.

For 2026/27, Child Benefit is:

• £27.05 a week for the eldest or only child

• £17.90 a week for each additional child.

That means a family with two children could receive more than £2,300 a year before any High Income Child Benefit Charge is taken into account.

Certain pension contributions and Gift Aid payments can reduce adjusted net income, which may affect whether you have to pay the charge.

Free childcare and the £100,000 cliff edge

For working parents, the main income threshold to be aware of is £100,000.

Working parents in England can get up to 30 hours a week of free childcare for 38 weeks of the year for children aged from nine months to four years.

However, you will not qualify if either you or your partner expects to have adjusted net income of more than £100,000 during the tax year.

This isn't a gradual reduction.

If your adjusted net income is £99,999, you can qualify, but if it goes above £100,000, you can lose eligibility.

That means a relatively small pay rise could potentially result in a much larger increase in childcare costs.

And it's not just the 30 hours, the same £100,000 threshold is also applied to tax-free childcare.

You can't claim Tax-Free Childcare if you or your partner's expected adjusted net income is over £100,000 for the tax year.

Tax-Free Childcare can provide up to £2 for every £8 a parent pays towards childcare, subject to the scheme's limits.

Parents approaching the £100,000 threshold should keep an eye on bonuses, taxable benefits and other income that can all matter.

Income Tax cliff edge

It isn't a benefit, but there is another important income threshold that can make a pay rise surprisingly expensive.

If your adjusted net income goes above £100,000, your Personal Allowance starts to be withdrawn.

For every £2 of income above £100,000, you lose £1 of your £12,570 Personal Allowance.

The allowance disappears completely once adjusted net income reaches £125,140.

This can create a very high effective marginal tax rate on income between £100,000 and £125,140.

It's particularly relevant when combined with the £100,000 childcare threshold.

A parent earning just under £100,000 could therefore need to think carefully about the impact of a bonus or pay rise if it pushes their adjusted net income over the threshold.

Carer's Allowance

Carer's Allowance has a specific earnings limit, making it another benefit that workers need to watch if they receive a pay rise.

For 2026/27, you can earn up to £204 a week after allowable deductions and still qualify for Carer's Allowance.

That is equivalent to around £10,608 over 52 weeks, although Carer's Allowance uses a weekly earnings test rather than simply checking annual salary.

If you are offered overtime, a bonus or a pay rise, it's important to check whether it takes you above the weekly limit.

Certain deductions can be taken into account, including Income Tax, National Insurance and some pension contributions.

If you're close to the earnings limit, check how your earnings are calculated.

Council Tax Reduction

Council Tax Reduction, sometimes called Council Tax Support, can also be affected when your income increases.

Your local council runs its own scheme, and the amount of help available can depend on factors including your income, savings, household circumstances, children and where you live.

This means a pay rise could reduce the amount of Council Tax support you receive.

In some cases, the change may be gradual. In others, your council's scheme may have specific income bands or thresholds.

If you receive Council Tax Reduction and are considering a pay rise, promotion or increase in working hours, check your local council's rules.

Pension Credit

Older workers receiving Pension Credit also need to be careful about changes in income.

For 2026/27, Guarantee Credit tops up weekly income to:

• £238 a week for a single person

• £363.25 a week for a couple.

If your income rises, Pension Credit can fall.

You will need to report changes including starting or stopping work and changes to income or expenses, especially if it takes you over these weekly income limits.

Note that losing Pension Credit can potentially affect eligibility for other valuable support linked to receiving the benefit.

And your savings can also impact Pension Credit.

If you have more than £10,000, the rules treat every £500 above £10,000 as providing £1 a week of income for the purposes of the calculation.

For example, £11,000 in savings would be treated as producing £2 a week of additional income.

What should you do before accepting a pay rise?

If you're receiving benefits or other income-related support, there are a few steps worth taking before agreeing to a promotion, overtime or salary increase, especially if you are approaching relevant thresholds such as £60,000 or £100,000.

It sounds technical but adjusted net income is not always the same as your salary, certain pension contributions and Gift Aid payments can reduce taxable income without reducing your salary.

If you receive Universal Credit or several forms of support, your best route is to use a benefits calculator to compare your situation before and after the pay rise.

Because schemes vary between councils, check your own council's rules rather than relying on a national figure.

If you have young children and are approaching £100,000 adjusted net income, calculate the potential impact on your funded childcare and Tax-Free Childcare.

A one-off bonus can sometimes push your income over a threshold even if your basic salary does not.