February 27th, 2018
Tax efficient childcare voucher scheme to close for new entrants from 6 April 2018
Currently, your company can pay up to £243 per month (in total, not per child) per qualifying employee for child care.
No income tax or NI is payable on the benefit and the company can claim the expense against income. This huge tax advantage for parents is coming to an end for new schemes
If both parents earn a wage from the company then you are both entitled to claim this amount as long as the child is in qualifying childcare.
Rules:
1. Child carer is registered – usually means Ofsted approved or registered with local authority. This can include:
- nurseries
- nannies
- au pairs
- creches
- childminders
- out of school clubs
- extra-curricular activities (such as music lessons, karate, football..)
- holiday clubs or schemes
- activity holiday companies including Activate Sport, Barracudas, Camp Beaumont, XUK Activity, XUK Excel
- qualifying childcare offered by schools
2. The scheme only applies to children until 1st September after their 15th birthday (16th birthday if child is disabled)
3. Scheme is not available to pay for school fees
4. Must be available for all employees
Practicalities:
1. You can produce your own childcare vouchers. There is no model or template for what a childcare voucher looks like but at a minimum it would be sensible to include your company logo, contact details and the information that it is a childcare voucher.
2. Childcare vouchers are distributed each month and the employee can then use those vouchers to pay their childcare provider.
3. The childcare provider can then redeem the voucher directly from you.
3. Make the payments to the childcare provider from the company account (set up a standing order or direct debit arrangement)
The Future:
Tax-free childcare will replace the above scheme. This will be open to self-employed people who were unable to benefit from the childcare voucher scheme. Existing schemes will run alongside the new scheme.
- You will open an online account which you pay in to cover the cost of childcare with a registered provider.
- For every 80p paid in the government will top up with 20p. The government will cap their contribution at £2,000 per child per year.
- The scheme is available for children up to 12 (17 for disabled children).
- Parents must be working, earning over £50 per week and not more than £150,000 per year.
- The scheme is available to all, including self-employed parents.
- To support newly self-employed parents, there will be a ‘start-up’ period introduced. during this, self-employed parents won’t have to earn the minimum income level (£50 per week).
- Parents, other family members and employers (taxable in the normal way through the payroll) can contribute to your online account. Payments in are flexible.
- If circumstances change, or you no longer wish to pay in to the account, funds can be withdrawn. The government will retain its corresponding contribution.
Please note, if you apply for Tax-Free Childcare, you won’t be able to get:
- Child Tax credit
- Working Tax credit
- Universal credit
- Childcare vouchers from your employer
It is vital that you check how this will impact your personal situation before opening a tax-free childcare account. The government website provides a calculator to help you make this decision https://www.gov.uk/childcare-calculator. If circumstances change, parents will be able to switch from tax-free childcare to tax credits.
If I already receive childcare vouchers from my employer am I better off switching to the new scheme?
The answer is, it depends on how much you earn, how much your childcare costs are, and how old your children are.
The new scheme is only available to children up to the age of 12, childcare voucher schemes are open up to the age of 15.
The new scheme does not provide any national insurance savings and also stipulates that both parents must be working.
As a rule of thumb, Tax-Free Childcare will be more beneficial if you have more than one child as the tax savings are per child per year.
Childcare vouchers will probably be most beneficial if one or more parents earn more than £100,000 or if one parent doesn’t work.
