Reward insight
CCV v TFC – Who wins?
Jonathan Watts-Lay, director, WEALTH at work, provides examples and calculations to establish the winners and losers of the benefits of using either the ‘old’ employer-supported childcare system or the ‘new’ tax-free childcare system
W hether parents are better off typically comprises qualifying childcare vouchers (CCVs) from their employer – or the new tax-free childcare (TFC) scheme, depends on many factors including how much they earn, how much they spend on qualifying childcare, whether both parents work, how old their children are, and how many children they have. Parents who think they will be better off under the old scheme have until April 2018 to register with their employer – not all employers offer the scheme – and anyone who misses this deadline will only be able to join the new scheme. Parents that are unsure if they stand to win or lose under the new tax free childcare scheme may turn to their employer for support. Many employers are now switching on to the fact that financial education can be delivered in the workplace to help employees understand their workplace savings and benefits, particularly in areas such as childcare as the tax system is complex when trying to work out if the new with the old employer-supported childcare scheme – which
dependent on certain conditions prescribed in law being met. The value of qualifying childcare vouchers provided weekly can be greater or lower than the tax-exempt amount. Tax-free childcare The new system, called ‘tax-free childcare’ (TFC), is available online. The government will contribute 20p for every 80p that parents spend on registered childcare. This is the equivalent of the 20% tax many people pay on their earnings, which gives the scheme its name ‘tax-free childcare’. The maximum government contribution per year is £2,000 per child (or £4,000 for disabled children). Parents must be in work to qualify, with each parent earning just over £100 per week, but no more than £100,000 each per year. Parents apply by opening an online account – which is available through the government website www.gov. uk – and paying into this account which is then topped up by the government. Parents then need to re-confirm their circumstances every three months. It is possible to pay in more some months, and
or old system is better in a given situation. Financial education helps employers support employees to make informed decisions to improve their financial wellbeing. Employer-supported childcare Tax relief for employer-supported childcare has been available since tax year 2005/06. Generally, employers have introduced childcare voucher schemes linked to salary sacrifice arrangements (now called optional remuneration arrangements) to use the limited tax and National Insurance contributions (NICs) exemptions. The tax-exempt amount for employer- supported childcare is determined by the employee’s employment income amount (EIA). The weekly amount of the exemption is: ● £55, where the EIA does not exceed the income tax basic rate limit for the tax year ● £28, where the EIA exceeds the income tax basic rate limit but does not exceed the income tax higher rate limit for the tax year ● £23, where the EIA exceeds the income tax higher rate limit for the tax year. Entitlement to the tax exemption is
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Issue 35 | November 2017
| Professional in Payroll, Pensions and Reward |
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