Available from 2005 onwards “employer supported childcare” is basically a way to remunerate the employees where everybody is the winner tax-wise. Where the employer is your own company the payments made towards childcare, subject meeting the conditions, are allowed as a deduction and there is no tax or NI liability on the employee that is you. This legislation recognises that employees with children under 16 may have childcare costs and they wanted to make the payment of these as tax efficient as possible.
The conditions to be met are as follows:
• The child is the employee’s child or stepchild and is maintained (wholly or partly) at his expense or is resident with the employee or is a person for whom the employee has parental responsibility
• The care must be ‘qualifying childcare’. ‘Care’ means any form of care or supervised activity not provided in the course of the child’s compulsory education. To qualify the carer must be registered which means either the nursery is Ofsted approved or otherwise the carer registered with the local authority. A person is regarded as a ‘child’ until 1 September following his 15th birthday (or 16th birthday if he is disabled, as defined) and on until the end of the week in which that date falls.
• The childcare scheme is open to all the scheme employer’s employees
If the conditions are met in respect of part only of the childcare provision (for example if the arrangements change partway through the tax year), the exemption applies to that part.
How does it work?
Broadly there are two ways in which it works: either you operate it:
• as a salary sacrifice scheme, or
• as a benefit on top of the salary
Because it should be applied to all employees, if you wish to operate as a benefit then your future employees will be following the same scheme. A salary sacrifice scheme is that is applicable to you only.
To set it up your company could either buy child care vouchers from approved childcare voucher provider or pay directly to an approved childcare provider. Opting for childcare voucher may mean paying commission to the business that is issuing the voucher.
Your company ought to pass a Board resolution approving the scheme, and you could then keep the resolution as a record for future reference should there be any enquiry.
How much can you claim?
For the tax year 2015-16 a basic rate tax payer could claim up to £55 per week or a maximum of £243 per month. For a higher rate tax payer this is reduced to £28 per week or £124 per month. Each working person (parent/guardian) is entitled to this as long as you have a child in a qualifying childcare scheme. Both parents can claim and it does not matter how many children you have, and the claim is based on the maximum payable to the employee not dependant on the number of children. So if a company has husband and wife as directors both will be able to claim subject to the maximum limit.