Childcare tax allowance

conradmum

I'm sure I've heard/read that parents can get £50 a week/month(?) tax free if it is used to pay for childcare after April 1st, but when I enquired at my work about it I was told 'the Finance Office will notify you of any changes to your tax status'. How can they know about my childcare payments if I don't tell them? Or is this something the tax credit people will deal with?

JC67

There are tax and National Insurance changes from April 2005 relating to childcare but it isn't going to be operated via your payslip. In order to qualify for the exemptions on tax and National Insurance on £50 per week of childcare, you would need to either be getting childcare vouchers or your employer would have to contract for the childcare on your behalf. It isn't easy to explain quickly but if you go to the Inland Revenue website and search for childcare it should come up with information on how the changes will work.

Hope this helps.

paulus

Your employer will be able to provide £50 per week childcare/ vouchers to its employees from 6 April 2005, without it attracting tax / NICs. Many employers are implementing via a salary sacrifice (ie reduce taxable pay by £50 per week and give tax free vouchers) which saves the employer NICs (12.8%) as well as the employee's tax and NICs on the £50. A number of providers are actively marketing this with employers, such as Busy Bees and Accor. If enough people at your workplace are interested you should try to get this introduced.

conradmum

Many thanks to both of you. I'll definitely get on to my employer about this.

nedden

If you are receiving working tax credit and/or child tax credit you can apply for the childcare element of this, when you telephone to claim this you will need an "EY" number that your childcare provider will give you and your annual amount that you pay your provider, they will then pay you up to 70% of this figure (depending on your circumstances) directly into your bank account.

If you are currently claiming income support and are returning to work when you have a return to work interview at the job centre they will help you to claim an extra amount that can be used to pay for childcare in advance, this is to assist people who otherwise wouldn't be able to afford childcare and so feel that they can't afford to go to work.

As said above the voucher scheme is only if your employer is involved and check that your child care provider accepts the vouchers!!!!

nannynick

As a childcare provider, I am investigating the possibility of accepting Childcare Vouchers. As a Nanny, I can register with the Childcare Approval Scheme and then once Approved, I can accept Childcare Vouchers.

I doubt any of my clients would qualify for the Childcare Element of Working Tax Credit (WTC), thus I feel accepting Childcare Vouchers is my best route as I hope that more companies will be offering these to their employees (given the Tax & NI savings). I plan to contact some of the companies who administer the voucher sheme over the next few days to try and find out exactly how it works and how easy it is for an employer to provide the vouchers to employees - afterall, there are bound to be some administrative costs, though these may well be counterbalanced by the reduction in Employer NI payments. Anyone know how admin charges are covered?

Using the online calculators available at voucher providers such as Care-4, I calculate that parents who pay me £200 a month for childcare, could save £82 per month by using Childcare Vouchers provided by their employer under a salary sacrifice scheme. It's almost halfing their childcare cost - can it be true? (Note: Figures are based on annual income of £40,000, Contracted Out of NI)

I am not sure if I understand the scheme correctly. Does the saving made ever actually get paid to anyone? For example, does it result in a larger paypacket due to less Tax & NI being paid on income? As the vouchers are given in place of salary (under salary sacrafice scheme) is Tax & NI calculated before or after the cost of the vouchers is taken into account?
- You can tell I'm a bit confused still about how this works.

nedden

I'm not too sure about how the voucher scheme works, however I do know that if your entitled to claim the CTC or WTC then you can and do get up to 70% towards your childcare costs, this can work out to be a lot of money! It sounds like the voucher scheme is similair, so yes it is true!

......and remember even though you, yourself are a childcare provider, if you have children of your own and you need to use a registered child care provider whether this is a registered childminder to collect them from school or an afters school club that you pay for, you can claim for up to 70% of that back via the WTC/CTC.

nedden

would this thread be more useful under the benefits/taxcredits/jobseeking forum????????

nannynick

nedden wrote:

......and remember even though you, yourself are a childcare provider, if you have children of your own and you need to use a registered child care provider whether this is a registered childminder to collect them from school or an afters school club that you pay for, you can claim for up to 70% of that back via the WTC/CTC.

Yes, I know that situation is upsetting some childminders... it appears that it may be cheaper to not care for your own child depending on the circumstances.
However, Childminders are self-employed and thus cannot use Childcare Vouchers but due to low-income, may qualify for Childcare Element of WTC. Makes me glad I'm not a childminder, as it's getting even more complex now!

nannynick

Article Link

I found the above article which may be of interest to anyone wondering how employers implement Childcare Vouchers.

1. Employer deducts agreed amount from employees earnings, passed to Voucher company.
2. Voucher company issues vouchers to same value - of which first £50 per week is Tax & NI exempt (as of 6th April 2005).
3. Voucher given to childcare provider, who then cashes voucher with voucher company.

Some concerns raised in the article:
1. Salary sacrifice is a variation of terms and conditions, thus new employment contracts needed.
2. Statutory maternity pay and statutory sick pay is based on average earnings, the vouchers would not be part of Earnings.
3. Unclear as to if salary is Gross or Net of the Vouchers, thus could affect calculations for pension, redundancy award, pay awards, bonus etc.

Murphy_The_Cat

Another thing that your employer will not like is the comission charge that the voucher provider will charge the company.

On the one hand employer will save NIC @ 12.8% on your salary sacrafice (£6.40), on the other hand he will have to pay a service charge/comission of typically 7.5 % (£3.75) and 17.5% VAT on the charge (£0.66) = £4.41.

So your boss is going to save himself £1.99 per week for A LOT of extra admin & paperwork (plus the hassle of changing t&cs, changing o/t rates, explaining to staff impementation etc)

Please don't get me wrong, it is a very good way of providing employer funded child care - just be aware that it is not as straightforward as it is presented.

Good Luck MTC

P.S. i'm sure that you are already aware of it , but you can fund your pension through salary sacrafice as well.