The interaction of Employer-provided childcare vouchers and Scottish Income Tax 29 March 2018
Eligibility criteria for employer provided childcare vouchers are not devolved to the Scottish Parliament and, therefore, the basic and higher income tax rate limits apply for all employees in the UK.
The CIPP’s advisory service has been receiving several questions from members about the annual assessments for childcare vouchers in regard to Scottish employees. So for clarification, and as stated in HMRC’s EIM (Employment Income Manual):
‘Basic rate limit and higher rate limit refers to the UK rates as defined in S10 (5) and (5A) ITA 2007 (Income Tax Act 2007). This means the same limits apply for all employees in the UK.’
The 20% rate for Scotland is still being classed as the basic rate despite a lower rate of 19% being introduced for the 2018-19 tax year. Various calculations are operated around the basic rate so the earnings assessment for childcare vouchers will be unaffected as it is based on the rUK rates and thresholds.
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The Income Tax (Limited Exemptions for Qualifying Childcare Vouchers and other Childcare) (Relevant Day) Regulations 2018 9 April 2018
Regulations have been laid that set the 4 October 2018 as the date when childcare vouchers and directly contracted childcare, part of Employer Supported Childcare, will close to new entrants.
Following on from our previous updates The Income Tax (Limited Exemptions for Qualifying Childcare Vouchers and other Childcare) (Relevant Day) Regulations 2018 confirm the previous reports that 4 October 2018 will be the latest date when childcare vouchers and directly contracted childcare, provided as part of Employer Supported Childcare, will close to new entrants.
After that date, parents who are already using vouchers can continue to do so for as long as they remain with their employer, and their employer continues to offer the scheme.
As previously confirmed by HMRC the voucher scheme will need to have been activated by that date.
HMRC have provided the following update to accompany the update as it relates to the laying of the Regulations:
“Since opening the childcare service through which parents apply for 30 hours free childcare and Tax-Free Childcare more than 370,000 customers have successfully applied and are now using the service. Of these, more than 335,000 parents are eligible for 30 hours free childcare. Over 210,000 have a Tax-Free Childcare account.
Parents can apply via the childcare service for both 30 hours free childcare and Tax-Free Childcare. The application is straightforward and can be accessed via the childcare choices website.
We believe Tax-Free Childcare is a fairer and better targeted system than childcare vouchers. Through Tax-Free Childcare all families who are eligible can get support regardless of who their employer is, or whether they are self- employed, and support is based on the number of children in a family, rather than the number of parents. Tax-Free Childcare is targeted at a similar income population as childcare vouchers but will provide support to nearly 1 million more families compared to the number currently using vouchers.
… As we communicated recently, to reflect concerns about the timing of the closure of childcare vouchers and the transition to Tax-Free Childcare, the government has decided to keep childcare vouchers open for a further six months.
The Chartered Institute of Payroll Professionals
Payroll: need to know
cipp.org.uk
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