Tax Free Childcare – Last Chance……

Since our article at the end of last year, HMRC have extended the deadline before the childcare voucher scheme is closed to new entrants. Rather than the scheme closing at the end of March 2018, HMRC extended this to 30 September 2018.

Hence the good news is that although becoming tight there is still just about time for setting up a childcare scheme. If after reading the following through you feel it would be of benefit for you then please get in touch, sooner rather than later though…

Our Original Article – Tax Free Childcare

If you pay for registered childcare, then you might be already using or be eligible to apply for childcare vouchers but the world of tax free childcare is undergoing its most significant change since they were first introduced into the tax system back in 1989.

The existing childcare voucher scheme is finally being closed to new entrants after March 2018 and its successor, the childcare account, is being phased in now.

Existing users and new entrants can choose between both at present, but with different advantages, you must act now to select the best for you as after March 2018 you won’t have a choice.

What’s the difference?

Currently there are two options for tax free childcare:

·         Childcare Vouchers

·         Childcare Account

Which option is right for you will depend on your individual circumstances, and you’ll need to make a choice as you can’t be in both! The table below gives you a quick summary as to which is available to you and which may give you more savings:

 

Old Childcare Vouchers Savings

New Childcare Account Savings

Business owner with childcare needs

Higher

Lower

Annual childcare fees of less than £3,500

Higher

Lower

Child aged over 12*

Available

Not Available

Earning more than £100,000

Available

Not Available

Disabled child over 16*

Available

Not Available

Self employed

Not Available

Available

* After March 2018

New Users Time for Action

If, after reviewing the above, you realise you would benefit from tax free childcare then you should apply immediately in all cases as this will result in a saving for you. However, if you also realise you would be better off in a childcare voucher scheme then it is even more important to act now as after March 2018 there is no choice but to enter into the alternative childcare account scheme. As the qualifying conditions for this are much tighter you may even be in a place where you don’t qualify for any tax free childcare.

The general rule of thumb a childcare voucher scheme takes around 4 months to implement, so if you want to introduce one then you need to act sooner rather than later.

You (or more precisely) your employer has until March 2018 to register and sign you up for a childcare voucher scheme.

Existing Users

If you are already part of a childcare voucher scheme and it continues to be of benefit to you then you have no action to take. However, if you do make this choice then please be aware you can’t also register for a childcare account as you can only be in one of the two schemes.

Childcare Vouchers Potential Savings

The tax and national insurance savings for each employee are achieved through a salary swap arrangement. This is where you swap some of your salary for childcare vouchers. The level of savings available are based on the rate of tax paid as shown below:

 

Employee*

Tax Saving

Employee

National Insurance Saving*

Total Employee Saving*

Basic Rate taxpayer

£583

£350

£933

Higher Rate taxpayer

£595

£30

£625

Additional Rate taxpayer

£594

£26

£620

* Annual saving per employee

In addition to the employee making a saving there is also scope for the business owner to make an employer’s national insurance saving too as shown below. Depending on the number of employees who voluntary participate could mean that the employer savings could pay for introducing and running the scheme.

 

Employer

National Insurance Saving*

Basic Rate taxpayer

£402

Higher Rate taxpayer

£205

Additional Rate taxpayer

£182

* Annual saving per employee

Next Steps

We can assist you in setting up the scheme which is fully HMRC compliant with options ranging from some basic assistance while you do it right through to managing and implementing the whole scheme for you.

So, if you’re interested or just want some more information then please contact Matt on 01604 632 116 or by email at mharrison@cottonsaccountants.co.uk to see how you can start saving.

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