PART 2: TAX
From April 2007 the registration of childcare changed as a result of the Childcare Act 2006, such that qualifying childcare can be care given by a provider who has voluntarily registered with Ofsted, so increasing the choice employees have as to where employer supported childcare can be utilised. In contrast to vouchers the provision of a subsidised workplace nursery place attracts complete tax and NI relief as long as the employer ‘wholly or partly manages’ and ‘wholly or partly funds’ the provision of care. COPYRIGHT © 2021 THE CHARTERED INSTITUTE OF PAYROLL PROFESSIONALS To achieve maximum savings at minimum cost for the employer and employee voucher schemes have predominantly been delivered via salary sacrifice, the savings in employer’s NICs being used to fund the administrative costs of the voucher scheme. Schemes set up so that vouchers are purchased by the employee as a deduction from net pay and shown as such on the payslip, do not qualify for the exemption as this is not an effective salary sacrifice as the employer is not providing the childcare support, it is being purchased by the employee. Following a change to the law for women due to have or adopt a baby on, or after, 5th October 2008 childcare support (vouchers or a subsidised nursery place) must continue to be provided by the employer at its cost throughout the full 52 week maternity leave period. From April 2011 tax relief on childcare support (vouchers or directly contracted care) was restricted to basic rate. For employees who newly join a childcare voucher scheme from 6th April 2011 employers must assess their earnings (contractual wages or salary, including taxable benefits in kind but excluding bonuses and overtime) at the start of the tax year and where those earnings exceed the basic rate limit (the sum of the personal allowance and the basic rate band) the relief will be restricted: • to £28 per week for higher rate taxpayers, and • when earnings exceed £150,000, to £25 per week for additional rate taxpayers (£22 per week prior to 6th April 2013). No recalculation is required if circumstances change mid-year. Employees in receipt of childcare support before 6th April 2011 may continue to receive £55 per week relief regardless of their earnings until they join a childcare scheme at a new employer or have not received vouchers for more than 52 calendar weeks (perhaps as a result of being on maternity leave). Where vouchers over the exempt amount are provided the excess is taxed via the P11D but subject to Class 1 NICs through the payroll for vouchers and Class 1A via the P11D for directly contracted childcare. Workplace nursery tax/NICs relief is still unlimited. No printing, copying or reproduction permitted. From 6th April 2017, with the introduction of a different higher rate threshold in Scotland employers were originally advised to establish who is a Scottish taxpayer and apply the appropriate threshold when calculating the amount of relief an employee is entitled to. Later, Scottish taxpayers were informed that the restrictions to basic rate relief on childcare vouchers would apply at the rUK threshold of £50,270 (was £50,000, originally £45,000) and not the Scottish threshold of £43,000. This principle has continued to apply since April 2018 when new Scottish rates and thresholds were implemented. Welsh Income Tax rates and thresholds remain the same as rUK and hence are unaffected by any differences.
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