Childcare Voucher Schemes
Q: I operate a small limited company and one of our employees has asked us to set up a childcare voucher scheme in order that she may pay for part of her childcare costs via a salary sacrifice arrangement?
A: Under the childcare voucher system the employee gives up the right to part of their cash remuneration in exchange for childcare vouchers. Both the childcare vouchers and the service charges made by the voucher provider are allowable expenses for Corporation Tax purposes.
The employer will continue to pay the employee their reduced salary, net of PAYE and Class 1 National Insurance on the reduced amount, and will pay the salary sacrificed for childcare vouchers direct to the childcare voucher provider. The employee can then release the childcare vouchers to their registered childcare provider.
The childcare vouchers are exempt from both Income Tax and Class 1 National Insurance up to a maximum amount of £55 per week per employed parent (i.e. not per child). Restrictions to this amount apply for higher or additional rate taxpayers. Various conditions must be met in order for the vouchers to qualify and the employment contract must be varied to reflect the salary sacrifice arrangement.
The use of a salary sacrifice arrangement may have an impact on tax credits claims, other earnings related payments or benefits and statutory payments. The employee may therefore wish to seek advice before entering into any arrangement to ensure that it is beneficial to them.
The current childcare voucher system is expected to be replaced by a new “Tax Free Childcare” (TFC) system in early 2017. Employees already registered under the current childcare voucher system when the new TFC system is launched will be able to continue to use the existing system if desired.
Rennie Welch LLP accept no liability on the basis of this article and detailed advice, taking into account individual circumstances, should be obtained before entering into any transaction.
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