Payroll insight
Assistance with childcare costs
John Harling, employment taxes specialist at PSTAX, discusses the new options available
A fter many months of waiting, the government has finally launched the new Childcare Choices website (www.childcarechoices.gov.uk) which will enable parents to pre-register for the new childcare options available to them, as well as the existing schemes. This will be the first time all the various options will be available in one place with the aim of assisting parents in making the decision that suits them the best. Included within the website is a new scheme: tax free childcare. For employers and employees alike this is a significant development, particularly in light of the fact that the traditional childcare voucher schemes, which are currently offered by most public-sector employers, are being phased out from April 2018. However, voucher schemes remain an option to new joiners right up until April 2018 and employees already in a scheme by that date will be able to continue participating if their employer continues offering this benefit. Over the coming months many employees currently taking vouchers – or considering doing so – under salary sacrifice arrangements will have to decide if this is the best option for them or if the tax-free childcare scheme provides a better outcome. So, what are the key differences between the voucher and tax- free childcare schemes? Voucher schemes are usually offered by salary sacrifice arrangements and the saving to the employee is based upon the tax and National Insurance (NI) saving available up to the limit of £55 per week/£243 a month (for a basic rate taxpayer). Importantly, employers also save NI contributions (NICs) on the lower salary. Vouchers may be obtained by one or more parents in work and apply to approved childcare for children
up to the age of fifteen (sixteen, if disabled). However, the entitlement does not increase in line with the number of children. ...voucher schemes remain an option to new joiners right up until April 2018... The introduction of tax-free childcare began on 28 April, for parents of the youngest children and will be rolled out over 2017. Under this scheme where both parents work – and both earn over £120 per week, but less than £100,000 a year – they will be able to receive assistance with 20% of their childcare costs up to a maximum of £2,000 per child per annum (£4,000 for disabled children) and this will apply to children up the age of eleven (sixteen, if disabled). Therefore, this may be a more attractive option for those with more than one child, although it should be borne in mind that to obtain the maximum assistance of £2,000 the family would have to be incurring £10,000 worth of childcare costs per child per annum. Parents will not be permitted to choose this option if they take vouchers from their employer. Also, included in the website are details of the new thirty hours free childcare offer which will be available in England for working parents of three- and four-year olds from September 2017 and which will need to be factored in by parents where relevant. Parents will be able to apply in advance of September and take advantage of this scheme at the same time as the tax-free childcare arrangement. Parents will also be permitted to benefit from
this option even if they take childcare vouchers from their employer. As if that wasn’t enough to digest, parents may be eligible for the existing fifteen hours free childcare for younger children or tax credits for lower income households, so there is quite a bit of research to do. It is clearly not a straightforward decision, as the various choices don’t involve a direct like with like comparison. The Childcare Choices website is interactive and asks for basic information, (e.g. whether the person lives with a partner, whether the partner works, the number of hours worked etc) which helps the user to making an informed choice. Employers might not wish to provide definitive advice to their employees in making their childcare choices, but a responsible employer may wish to publicise the availability of this website and inform its employees of its future intentions regarding the salary sacrifice scheme. It is also worth noting that workplace nurseries – that is, approved facilities on the employer’s premises (or financed/ arranged in association with others) – are unaffected by the changes to the rules on childcare vouchers and may continue to be provided by employers free of tax/ NICs without limit regardless of what other assistance the parents may claim. Such arrangements are extremely tax/ NICs efficient and certainly an option for employers in the public sector and elsewhere. Some public bodies already have such facilities and the phasing out of tax relief for childcare voucher schemes may make this a very attractive option for others. Parents seeking assistance are well advised to start reviewing their position as soon as possible. n
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| Professional in Payroll, Pensions and Reward |
Issue 32 | July/August 2017
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