What are the current rules?
Currently, a limited company can pay up to £243 per month in childcare vouchers to a qualifying employee.
This is treated as a tax-free benefit with no income tax or NI payable and the Company can claim the cost as an allowable expense for Corporation Tax.
If both parents earn a wage from the Company then both parents are both entitled to claim this amount as long as the child is in ‘qualifying childcare’.
In order to be classified as ‘qualifying childcare’ the following rules must be met:
· The child carer must be registered with either Ofsted or a local authority but it includes nurseries, nannies, crèches, childminders etc. as well as out of school clubs and extra-curricular activities.
· The scheme only applies to children until 1st September after their 15th birthday (16th birthday if child is disabled)
· Scheme is not available to pay for school fee.
· The benefit must be available for all employees
New rules from October 2018…
The current childcare voucher scheme will be replaced with ‘tax-free childcare’ from October 2018. However, existing childcare voucher schemes established prior to October 2018 will be allowed to run alongside the new scheme.
Self-employed individuals will be eligible to benefit from the new ‘tax-free childcare’ who were previous unable to benefit from the childcare voucher scheme.
The new scheme will require individuals to set up an online account which can then be used to pay childcare costs to a registered provider.
For every 80p paid in the government will top up with 20p, limited to a government contribution of £2,000 per child for year. Therefore, the maximum you can contribute per child, whilst obtaining full government contributions is £8,000 per year, generating total costs of £10,000 per child.
However, there are various rules to the new scheme which are:
- The scheme is only available for children up to the age of 12 (17 for disabled children).
- Parents must be working, earning over £2,600 per annum but not more than £150,000.
- Parents, other family members and employers (taxable in the normal way through the payroll) can contribute to your online account. Payments in are flexible.
- If circumstances change, or you no longer wish to pay in to the account, funds can be withdrawn. The government will retain its corresponding contribution.
However, if you apply Tax-Free Childcare, then you will not be eligible for Child Tax Credit, Working Tax Credit, and Universal Credit, or to receive Childcare vouchers from your employer.