REWARD INSIGHT
less at other times, meaning parents can build up a balance in their account to cover times when they need more childcare than usual such as summer holidays. The ‘winners’ comprise: ● Basic rate tax payer families that spend more than £9,331.20 a year on childcare (see Example 1). ● Higher rate tax payer families that spend more than £6,249.60 a year on childcare (see Example 2). ● Families with lots of children, as funding is per child (see Example 3). ● Self-employed, as the tax exemption for employer-supported childcare is only available through employment (see Example 4). The ‘losers’ comprise: ● A basic rate tax payer who has access to CCVs and spends less than £4,665.60 per year on childcare. If both parents pay basic rate tax and have access to CCVs, they would need to collectively spend less than £9,331.20 on childcare to be worse off. (Example 5) ● A higher rate tax payer who has access to CCVs and spends less than £3,124.80 per year on childcare. If both parents pay higher rate tax and have access to CCVs, they would need to collectively spend less than £6,249.60 on childcare to be worse off. (Example 6) ● Anyone earning more than £100,000. (Example 7) ● Parents who live together, but only one parent is working. (Example 8) ● Families with children aged between 12 and 15. (Example 9) Examples 1. Kim and Steve are both working and are both basic rate tax payers. They spend over £9,331.20 a year on childcare, so will save more under the new scheme than the old scheme. (See ‘Basic rate tax payer calculations’). 2. Rachael and Tom are both higher rate tax payers. They spend more than £6,249.60 a year on childcare, so will save more under the new scheme than the old scheme. (See ‘Higher rate tax payer calculations’). 3. Sally and Josh are both working. One is a basic rate tax payer, and the other a higher rate tax payer. They spend over £7,790.04 a year on childcare, so will save more under the new scheme
(£5,832.00 combined) for the year. This means that they can pay for £5,832.00 of childcare, but it only costs them £3,965.76, as there is a combined tax and NICs saving of £1,866.24 (32% saving). Under TFC, £3,965.75 from the parents, added to the 20% top up from the government, will only pay for £4,957.20 of childcare (a difference of £874.80.) They are therefore better off under the old scheme, until they are spending £9,331.20 a year on childcare. ● Higher rate tax payer calculations – Assuming each parent buys £124 of CCVs each month, this is a total of £2,976.00 for the year. This means that they can pay for £2,976.00 of childcare, but it only costs them £1,726.08, as there is a combined tax and NICs saving of £1,249.92 (42% saving). Under TFC, £1,726.08, added to the 20% top up from the government, will only pay for £2,157.60 of childcare (a difference of £818.40). Parents are therefore better off under the old scheme, until they are spending £6,249.60 a year on childcare. ● Combined basic rate and higher rate tax payer calculations – Assuming the basic rate parent buys £243 of CCVs and the higher rate tax payer buys £124 of CCVs each month, this is a total of £4,404.00 for the year. This means that they can pay for £4,404.00 of childcare, but it only costs them £2,845.92, as there is a combined tax and NICs saving of £1,558.08. Under the new scheme £2,845.92, added to the 20% top up from the government, will only pay for £3,557.40 of childcare (a difference of £846.60). Parents are therefore better off under the old scheme, until they are spending £7,790.04 a year on childcare. ● Higher rate tax payers who signed up before April 2011 – Assuming parents who signed up for CCVs before April 2011, and are still with the same employer, buys £243 worth of vouchers a month (as opposed to the £124 which was introduced from April 2011 for higher rate tax payers), this is a combined amount of £5,832.00 a year. This means that they can pay for £5,832.00 of childcare, but it only costs them £3,382.56, as there is a combined tax and NICs saving of £2,449.44. Under the new scheme, £3,382.56 added to the top up from the government, will only pay for £4,228.20 of childcare (a difference of £1,603.80). Parents are
than the old scheme. (See ‘Combined basic rate and higher rate tax payer calculations’). 4. Amy and Sam are higher rate tax payers and both signed up for the childcare voucher scheme before April 2011. They spend more than £12,247.20 a year on childcare for their two children. As the new TFC system allows them to spend up to £10,000 on each child, they will be better off under the new system. (See ‘Higher rate tax payers that signed up before April 2011’). 5. Mary and James are both working and are both basic rate tax payers. They spend £5,832.00 a year on childcare and are £874.80 better off under the old scheme. This is the maximum savings difference for basic rate tax payers in favour of the old scheme verses the new scheme. (See ‘Basic rate tax payer calculations’) . 6. Joanna and Tony are both higher rate tax payers. They spend £2,976.00 a year on childcare, so are better off by £818.40 under the old scheme. This is the maximum savings difference for higher rate tax payers in favour of the old scheme versus the new scheme. (See ‘Higher rate tax payer calculations’). 7. Serena and John are both working. One is a basic rate tax payer, and the other a higher rate tax payer. They spend £4,404.00 a year on childcare, so are better off by £846.60 under the old scheme. This is the maximum savings difference. (See ‘Combined basic rate and higher rate tax payer calculations’). 8. Julie and Miles are both higher rate tax payers and signed up for CCVs before April 2011. They are still with the same employers. They spend £5,832.00 a year on childcare, so are better off by £1,603.80 under the old scheme. This is the maximum savings difference for higher rate tax payers who signed up before April 2011. (See ‘Higher rate tax payers that signed up before April 2011’). 9. Chantelle and Ross are both additional rate tax payers. They are not eligible for the new scheme, so are better off under the old scheme by £1,240.80, and £2,741.04 if they registered for CCVs before April 2011. (See ‘Additional rate tax payer calculations’). Supporting calculations ● Basic rate tax payer calculations – Assuming each parent buys £243 of CCVs each month, this is £2,916.00 each
| Professional in Payroll, Pensions and Reward | November 2017 | Issue 35 32
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