Childcare Vouchers: cut childcare costs by £1,000/year Discussion Area

elpico

onlyroz wrote: »

I'm assuming that amount covers more than one child because it seems tremendously expensive. Is your wife in a particularly high-flying career? And how long before your eldest starts school?

Thanks for responding! - yeah its for my 2 little ones. Youngest is 1 and eldest is 3, he will be going to school in sept 2014, and once my youngest hits 2 the costs will start to drop.

I'm also paying fully into the vouchers but we've no clear idea if we'll be worse off if my wife will increase to 3 days/week.

onlyroz

Are you claiming the early years funding for your eldest? This should give you 15 free hours a week. If it seems like you're going to just about break-even if your wife does the extra day then the decision would be based on whether it would help her career progression.

rpc

It looks like you will be about the same.

Additional childcare costs 978-614=364/month or 4368/year

Additional gross salary 7k/year -> 4760/year assuming normal 20% tax and 12% NI.

So you would be 392 better off per year (and then account for any more/less expenditure from your wife being at work and not looking after children - petrol, food, activities, etc).


re: the NI discussion - the voucher schemes do pay off as long as the employee stays a member for long enough. Some companies either don't see this or aren't prepared to play the long game. It takes about 20 months for the NI savings to cover the cost of 12 months unfunded vouchers.

WalletFullOfMoths

Hi, I don't know if you can help clarify a specific situation regarding childcare vouchers? It's long and complicated to explain...

I've applied for vouchers via my employer whilst I was on mat leave. Prior to going on mat leave, I was a higher rate tax payer. I will be reducing my hours when I return to work, which will make me a lower rate tax payer so I should, as I understand it, be entitled to £243/month in vouchers (rather than £143/mth if I was a higher rate payer).

However... I will be taking my accrued holiday (1 month's worth) immediately after my mat leave and before returning to work, meaning I will get full-time pay for that 1 month only. Because the holiday happens to fall across the end/start of the tax year and therefore my salary on the 6th April will be higher rate, my employer has told me that I will be considered a higher rate tax payer for the coming year and am therefore only entitled to receive £143 in vouchers each month regardless of my new contract for the rest of the year on lower hours/pay. They claim this is how HRMC determine whether I am higher or lower rate tax payer.

This can't be right, surely? It seems wrong to miss out on vouchers simply because I have taken my holiday at the start of the tax year. I can't find any reference to it on the HRMC website.

Can anyone help?

onlyroz

This is from HMRC:

The basic earnings assessment

When do employers have to carry out the basic earnings assessment?

If you join your employer’s scheme on or after 6 April 2011, your employer should carry out a basic earnings assessment when you first join the scheme and then annually at the start of the subsequent tax year. The assessment remains valid for the whole of the relevant tax year.
The annual assessment cannot be deferred until later in the year when final information on taxable benefits provided to you is reported by your employer on a Form P11D. It is an assessment made on the basis of information available at the start of the tax year or when you join the scheme.
If your employer does not carry out a basic earnings assessment, you will not be entitled to any tax relief on the childcare support you receive.

Can I self-assess my own tax position at the start of the year?

No. Childcare vouchers and directly-contracted childcare are employer-provided benefits and the employer is responsible for carrying out the basic earnings assessment if you join a scheme on or after 6 April 2011.
Your employer may ask you to help prepare the assessment, but he will still have to adopt it and take responsibility for it.

Why can’t the earnings figure from the previous year’s P60 be used for the basic earnings assessment?

The basic earnings assessment should reflect the expected earnings for the forthcoming year rather than the year just gone.

What if I have a second employment that my employers know nothing about - will I have to tell them?

No. The employer who is offering to provide childcare vouchers or directly-contracted childcare should set your basic earnings assessment only from information on your employment with them, not with anyone else.

What does the basic earnings assessment do?

The basic earnings assessment establishes the estimated level of your relevant earnings for the tax year. This is needed for your employer to set the monetary value of childcare vouchers or directly-contracted childcare provided to you which are subject to tax relief.

It is calculated by adding together your basic earnings and some other components (explained in 'Earnings and benefits to be included in the basic earnings assessment' below), plus any taxable benefits that your employer provides to you.
Your employer will also work out the aggregate of 'excluded income' which includes the basic standard personal allowance for the year (£8,105 in 2012-13), unless your earnings and benefits total £150,000 or more. Excluded income is explained in more detail under the heading 'Earnings and benefits which should be taken into account in calculating the aggregate of any excluded amounts for the purposes of the basic earnings assessment'.

Your employer may also include the level of the Blind Person’s Allowance (£2,100 in 2012-13) if you have a visual impairment which means that you are a registered blind person. You may need to tell your employer that you are a registered blind person if you want the amount of the Blind Person’s Allowance excluded.

I am a registered blind person but I have never claimed the Blind Person’s Allowance from HMRC. Can I still ask my employer to treat it as excluded income?

It does not matter that you have not claimed this allowance, you can still ask your employer to treat this as excluded income if they do not already know that you are a registered blind person.
Your employer will compare the resulting amount of relevant earnings to the income tax bands to set the level of tax relief you are entitled to for the year. For example, taking someone who has no excluded income other than that covered by the basic personal allowance:
Basic earnings £25,000 + taxable benefits £4,800 - personal allowance £8,105
Relevant earnings = £21,695
For most employees, in the year 2012-13, tax relief is available on the following amounts of relevant earnings:

 not exceeding £34,370 - up to £55 per week
 greater than £34,370 but less than £150,000 - up to £28 per week
 £150,000 or more - up to £22 per week

If your relevant earnings were similar to the example above, you would be entitled to tax relief on childcare vouchers or directly-contracted childcare of £55 per week.
For completeness, in 2012-13 the calculation for an employee who is a registered blind person would be:

Basic earnings £25,000 + taxable benefits £4,800 - personal allowance £8,105 - blind person’s allowance £2,100
Relevant earnings = £19,595

My understanding of the above is that the company should do an assessment of whether you will breach the higher rate threshold in 2013-2014. If they assess that you will not, then you will get the full £243 in vouchers. Otherwise you will be entitled to the £124 in vouchers.

Hartley10

Hi all, hope you can help. I have applied to join my employers childcare voucher scheme and thought that the maximum I could get each month was £124. However i have been told that i can in fact get £243 despite being a higher rate taxpayer. Because my basic salary (41,013) is below the threshold my performance related bonuses are not taken into consideration. I also have a company car (BIK-£5,465) which is taken into consideration but the voucher scheme operators are still adamant that i can get the higher amount - anyone know if this is correct ?

onlyroz

Hartley10 wrote: »

Hi all, hope you can help. I have applied to join my employers childcare voucher scheme and thought that the maximum I could get each month was £124. However i have been told that i can in fact get £243 despite being a higher rate taxpayer. Because my basic salary (41,013) is below the threshold my performance related bonuses are not taken into consideration. I also have a company car (BIK-£5,465) which is taken into consideration but the voucher scheme operators are still adamant that i can get the higher amount - anyone know if this is correct ?

I don't think that bonuses are included in the basic earnings assessment. However, the taxable benefits are included. See the above.

WalletFullOfMoths

Thanks onlyroz, that's very helpful. I will go back to my employer and ask again.

rpc

Your basic salary is not below the threshold because of the BIK. For you, 40% tax starts somewhere around £37k. Presumably you have a tax code of 264 or thereabouts? That modifies the threshold.

The employer will do the assessment and should come to the conclusion you are only entitled to the lower amount of vouchers.

WalletFullOfMoths

"I don't think that bonuses are included in the basic earnings assessment. However, the taxable benefits are included. See the above."

For what it's worth, my employer includes the average of my last 3 bonuses but excludes taxable benefits when evaluating my tax band for the childcare voucher scheme.