Big changes are on the way for childcare-related tax benefits, with potentially significant implications for employers.
From autumn 2015, the government’s new Tax-Free Childcare scheme will cover 20 per cent of annual childcare costs of up to £6,000 per child. Open to families where both parents work and each earns less than £150,000, the scheme will save them £1,200 per child. All children under 12 and children with disabilities under the age of 17 will be eligible.
Under existing arrangements, employer-supported childcare offer employers various benefits. For example, employers can provide vouchers that employees use to pay childcare providers, worth up to £55 per week or £243 per month. By swapping taxable pay for vouchers, employees pay no tax or national insurance on the vouchers and employers can save up to £402 in national insurance per year per employee receiving vouchers.
Members of existing schemes will be able to choose whether to join Tax-Free Childcare or stay in their old scheme. However, they will not be able to join an employer-supported childcare scheme for the first time once Tax-Free Childcare is introduced. Workplace nurseries will not be affected by Tax-Free Childcare.
Employers thinking about providing childcare support for their employees may wish to take action now, so that they can put in place NIC-efficient schemes before autumn 2015, when this option would no longer be available. Those who already provide childcare support may find it helpful to review their schemes, to ensure that it is maximising tax and NIC-efficiency.
For further details or to arrange a free, no obligation meeting, please contact a member of our Tax-Free Childcare team.
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