Childcare Vouchers via Your Own Limited Company
One of the main things that many people are unaware of is that your company can pay towards childcare. This is free of income tax, NI and corporation tax.
Per Week: Per Month:
Basic-rate taxpayer Basic-rate taxpayer
Higher-rate taxpayer Higher-rate taxpayer
This adds up to individual savings of up to £1000/year for standard rate tax payers.
Do I qualify?
Each working person (parent/guardian) is entitled to this as long as you have a child in a qualifying childcare scheme. Both parents can claim and it does not matter how many children you have, as it is per adult not per child.
If your partner is getting a wage through your company, then each of you will be able to claim.
If your partner is working elsewhere and is part of a childcare scheme, then it will have no impact on you setting up a scheme for you and your company.
Approved Childcare Providers
To qualify for the tax and NI benefits of the childcare voucher scheme, you need to make sure that the child carer is registered. This can mean either by Ofsted or with the local authority.
The scheme cannot be used for payments of school fees.
If the child carer is not registered, then the employer and employee are liable for the tax and NICs due on the amount paid.
Payments to a scheme
Each employee should be given this scheme on an equal basis, whether you are a managing director or a cleaner, you must have the same terms applied to the scheme.
The scheme can be applied in two ways:
As a salary sacrifice scheme- this means that you take a deduction in your pre-tax salary equivalent to the contribution to the childcare scheme. So, if you have a starting pre-tax salary of £1000/month and want to make a salary sacrifice of the full £243/month, your pre-tax will now be £757/month. You benefit because your take-home pay will only decrease by about £160/month.
As a benefit on top of the salary.
If you are a one person company, then you may as well take it as a benefit on top of your salary, but if you employ (or may in the future employ) someone else, then you should be aware of the consequences.
If you want make sure that future employees do not have this as a benefit on top of their salary, but want to maintain your take-home salary at the current level, then just give yourself a pay rise before you set up the salary sacrifice but make sure it is all documented.
How do I set things up?
The following steps should be carried out regardless of how you are going to proceed:
Have a record of details of the child (e.g. name. date of birth, childcare provider).
Make sure your childcare provider is registered.
Write a company memo for your files stating that you are starting a scheme and it is available to all employees. It is best to do this even if you are the only employee to show you have complied with the rules.
The simplest scheme is paying the childcare provider directly. This was you won’t be paying commission to a third party. Just follow these simple steps:
Write a letter to the childcare provider telling them that your company will be contributing to payments.
Make the payments (use a standing order on the company account)
Remember to get in touch with us every year to see if the allowable amount is changed.
Third Party Childcare Voucher Companies
If you want to use a third party childcare voucher company you will have to pay them a commission, so things will get more complicated and expensive. However there are advantages:
If you have a child that is not yet in nursery/childcare provider/ approved club, then you might be able to contribute to a scheme and save the contributions to use once they start.
They make take care of checking that the child carer is an approved scheme.
You will have to check with the individual voucher provider as to what they provide. Some companies won’t provide paper vouches and will only carry out electronic transfers of funds for small businesses. You will need to shop around to see what they will do for small businesses and what commission they charge.
You cannot make payments directly to the parent for them to pay for childcare.
The mounts are allowable for corporation tax deductions. Please account for them in your books as part of the wage costs.
There are no NI and PAYE implication as long as you are within the thresholds specified by the law.
No need to show on a payslip.
If you qualify for tax credits and are offered childcare vouchers this may affect your tax credits payments.