PAYROLL INSIGHT
ESC, TFC, BEA, CAN, OpRA, etc
Jill Smith MCIPPdip, CIPP policy manager, provides (almost) an ABC of the changes affecting childcare provision
T ax-free childcare (TFC) has now been rolled out to all eligible parents and though there are no ‘regulatory’ obligations for the employer there are still processes that need to be completed. To assist employees, employers could also consider forms of non-regulatory assistance that could be provided. For those employers still offering employer-supported childcare (ESC), there are also still requirements for payroll to factor in. ESC delay Ministers have delayed scrapping ESC vouchers by six months after an intervention by the Democratic Unionist Party. The childcare voucher scheme was due to be closed to new entrants from April 2018 but the new TFC system introduced by the government has suffered a succession of problems, so the period will be used to address the issues. The Income Tax (Limited Exemptions for Qualifying Childcare Vouchers and other Childcare) (Relevant Day) Regulations 2018 (SI 462 2018) sets 4 October 2018 as the cut-off date for new entrants. TFC From April 2017, the government introduced TFC, which is a new method of providing parents with ‘tax relief’ on childcare costs. The relief is given as a 20% top-up to savings in an online account that qualifying parents can set up for each eligible child. Parents can open
an online account and use it to pay into it to cover the cost of childcare with a registered provider. The maximum top-up is £2,000 on funds of £10,000 for each account in each tax year (double these amounts for a disabled child).
l both or lone parents must not be in receipt of any support through tax credits, universal credit or ESC l parents must not be additional rate taxpayers. The registration process checks the individual’s eligibility for the scheme and at regular reconfirmation points parents will be asked whether they expect to earn an amount equal to, or above, the minimum income level for the forthcoming quarterly entitlement period. They do not have to report precise earnings as HMRC assesses earnings accurately by using information from the pay as you earn (PAYE) system. Employer assistance? There is no specific role for employers in this scheme although some may assist employees by providing information about the scheme (see https://bit.ly/1Hh1gWt). Employers could also arrange to make payments into employees’ childcare accounts from net pay or as additional payments. Deductions from payslips would be after tax instead of salary sacrifice and, unlike ESC, for employers there would be no National Insurance contributions (NICs) relief. Employers could also choose to contribute towards childcare costs, though this may be considered a benefit in kind. As we know, TFC will eventually replace directly contracted childcare and childcare vouchers. Workplace nurseries are not affected. Until October 2018, employees can continue to claim childcare vouchers or use directly contracted childcare provided by their employer. After October
...TFC system introduced by the government has suffered a succession of problems...
The total amount in the account can exceed £10,000 to enable parents to manage all the childcare costs in one place. Only one account per child is allowed, although HM Revenue & Customs (HMRC) has indicated that other family members or employers can also pay into the accounts. This new scheme is available to working families where each partner earns less than £100,000 a year and is not in receipt of tax credits or universal credits. Each partner must also earn more than the equivalent of sixteen hours a week at the current national living wage. There are four key criteria that will determine whether a child is eligible for TFC: l children must be under the age of twelve (or under seventeen if the child has a disability) l both or lone parents must be in paid work
| Professional in Payroll, Pensions and Reward | May 2018 | Issue 40 18
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