The employer supported childcare voucher scheme, officially known as the Childcare Voucher Scheme, was introduced in 2005; it was amended in 2010 with affect from April 2011. The scheme is designed so that one or both parents save tax and NI on childcare costs, allowing them to pay childcare expenses by using electronic vouchers.
The vouchers cover childcare up to 1 September after the child’s fifteenth birthday (sixteenth if the child is disabled).
The Childcare voucher scheme can save parents over £1,000 a year on childcare as it enables parents to pay for childcare out of pre-tax salary, thus saving tax and NI on the amount used for childcare.
Basic Rate tax payers (and higher/top rate tax payers who joined before 5 April 2011) can pay for up to £243 of childcare with vouchers each month (£55/week). This is PER PARENT, so two working parents could get £486 a month in Childcare Vouchers.
From 6 Apr 2011, new joiners to a Childcare Voucher Scheme paying higher/top rate tax had their allowance capped, bringing all tax payers roughly the same maximum tax gain. The new limits are:
|Rate of Income Tax||Weekly exempt limit||Monthly exempt limit|
The employer registers on to the scheme with a registered provider. Parents are then given access to the employer’s scheme and register themselves onto the scheme.
The employee will then decide on the value of monthly vouchers (maximum £ 243 a month). The employer will receive an invoice for the amount from the voucher agency and this will be either deducted or added to the employee’s salary, depending on the scheme the employer operates.
Once the employer has made payments towards the Childcare Vouchers on the employee’s behalf, the vouchers will then be made available to the employee to make an electronic payment to the child minder or nursery.
The Childcare Voucher Scheme looks fairly straightforward on paper but there are a number of conditions.
Joining a Childcare Voucher Scheme may impact on personal tax, especially if you are a limited company contractor.
Both employee and employer must comply with the conditions that apply to the National Minimum Wage Act.
The scheme may well impact on employee’s eligibility to Working and Child Tax Credit. The number of children the employee has does not impact on Tax Credits, however, as the limits are the same whether there is one child or more.
Childcare Vouchers are not specific to an individual child and have a twelve-month expiry date. It is advisable therefore to look at whether your childcare costs are likely to increase within twelve months, and if they are, to apply for the maximum allowance then.
DNS can help with:
DNS will look after your Childcare Voucher Scheme for you for as little as £180 per annum. It is important to look at it as part of an overall tax planning strategy.
Simply fill in the Subscribe form and our sales team will get back to you. Alternatively, telephone your account manager to discuss the matter further.
CHILDCARE VOUCHER SCHEME FAQS
Childcare Voucher Schemes are a Tax- and NI-free way to meet all, or some, childcare costs. Vouchers are supplied by the employer to the employee to pay for childcare. Vouchers are a non-taxable benefit that is processed through payroll. Salary sacrifice, salary addition and flex benefits packages are normally the way the vouchers are accounted for. It is a quite flexible system but the method of your scheme if you are an employer and whether you should join it as an employee should be carefully considered, preferably by your accountant as part of ongoing tax planning.
Yes. Childcare costs that you pay for directly or by vouchers is not included in tax credit calculations. Reducing employees’ cash pay may also affect their entitlement. DNS will calculate how much Childcare Vouchers will affect your Working and Child Tax Credit entitlements, or you can call the Tax Credits helpline on 0845 300 3900.
Registered and approved childcare includes registered childminders, nurseries and play schemes, including out-of-hours clubs on school premises run by a school or local authority, approved providers, for example, an out-of-school-hours scheme. Approved childcare in the child’s home includes a registered childminder or another registered person such as a domiciliary worker or nurse from a registered agency.
The records an employer keeps should include evidence that the scheme is offered to all staff where appropriate (e.g. promotional material for your scheme or your staff handbook); details of carer(s) used, including their registration or approval numbers and when their registration or approval expires; evidence that you have informed participating employees in your childcare voucher scheme that they must inform you of any changes in the registration or approval status of their child’s carer, and records showing that the qualifying conditions have been met.
Electronic vouchers are credited to an online account which the employee accesses to pay the carer via the Internet or telephone. For electronic vouchers, employees are provided with an online account to manage their own Childcare Voucher funds. Paper vouchers are posted direct to the home address of the employee, which they hand to the carer as payment themselves.
Although the Childcare Voucher Scheme (which is operated as a tax and NI efficient benefit) must be generally available to all employees, this does not mean that all employees must participate. Some employees cannot participate, such as those without children in qualifying childcare (some people choose to ask a friend or family member), those that do not earn enough, or those who already benefit from Working and Child Tax Credits and it is not considered advantageous for tax purposes for them to join.
It is up to the employer how the Childcare Voucher Scheme is administered; and the way the scheme is administered may or may not be advantageous to the employee. To take advantage of the tax and NI exemption the scheme must comply with the HMRC guidelines.
No, not if you operate a salary sacrifice scheme handled through payroll, as it will not be a benefit in kind.
You can either telephone your account manager at DNS to discuss, or go to the HMRC website and take a look at the following documents:
Yes, vouchers can pay a single carer or multiple carers so long as the employee has requested the funds then vouchers can be issued to a number of registered carers.
From April 2011, new joiners to Childcare Voucher Schemes are better off by the following amounts:
|Rate of Income Tax||Weekly exempt limit||Monthly exempt limit|
HMRC state that you can claim for childcare costs as soon as your child is born, and you can then save the vouchers to go towards future approved childcare costs. A parent can request vouchers for a particular carer, or request funding to an account if the childcare provider is unknown and/or save the allowance to use later in the same tax year.
No, regular school fees cannot be paid with Child Care Vouchers, but after-school activities are allowable.
No, vouchers are valid for 12 months, so they can be used at a later date.
If both parents are employed then both parents are eligible to receive vouchers even if they work for the same employer.
Receiving Childcare Vouchers can affect entitlement to Working and Child Tax Credits although by reducing salary with a salary sacrifice Childcare Voucher Scheme, it may entitle the tax payer to a higher element of the Working Tax Credit, in turn reducing entitlement to the Childcare element of the credit. There’s a calculator on the HMRC website www.hmrc.gov.uk/calcs/ccin.htm to look at the figures, or contact your account manager at DNS to discuss further and go through the figures.
No. The tax and NI contribution exemptions only apply to the benefits an employer gives to an employee, so self-employed people are not eligible.
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