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Latest Article: Top tips of the week
Posted by: Imber on May 20, 2015

 

Set this up soon because changes are on the way this autumn which may make this less tax advantageous. However, if this is set up beforehand then it will therefore be an existing arrangement and will therefore be allowable for the foreseeable future beyond this autumn.

 

The following are exempt from Income Tax and National Insurance contributions (NIC).

 

  • Childcare
  • Childcare vouchers

 

Employers have to carry out an assessment of the employee’s earnings to work out the exempt amount for employees who join schemes on or after 6 April 2011.

 

From autumn 2015 – Tax-free childcare

 

  • Available to the self-employed and employees whose employer does not provide employer-supported childcare
  • Managed via parents' on-line account
  • Government top-up of 20p for every 80p paid to a maximum of £2,000 per child (for an £8,000 injection by parents)
  • Both parents must be working the equivalent of 8 hours at the National Minimum Wage: just over £50 a week at current rates
  • Upper earnings ceiling: ineligible if either parent earns over £150,000 pa
  • Covers all children up to age 5 (or up to age 16 for disabled children)
  • Not available if parents claim tax credits or universal credit

 

Directly contracted childcare (also known as other childcare) and Childcare vouchers

 

Two measures were introduced in the 2011 Finance Act that affect employer childcare schemes from 6 April 2011:

 

  • A reduction in childcare relief for higher earners
  • Childcare vouchers and other childcare: changes affecting salary sacrifice and national minimum wage.

 

Reduction in childcare relief for higher earners

 

£55 per week applies to both childcare vouchers and directly-contracted childcare.

 

For those joining schemes on or after 6 April 2011, the level of the tax exemptions are limited as follows:

 

  • for employees assessed as basic rate taxpayers, £55 per week;
  • for employees assessed as higher rate taxpayers, £28 per week;
  • for employees assessed as additional rate taxpayers, £25 per week (£22 per week before 6 April 2013).

 

Does not include dividend income.

 

Childcare vouchers

 

Where an employer provides vouchers which employees use for childcare.

 

  • If an employee joined a scheme on or before 5 April 2011 the first £55 per week will be exempt from tax and NICs
  • For employees who join a scheme on or after 6 April 2011 more complex rules apply

 

General rules

 

  • Must be made available to all staff
  • A child qualifies up to 1 September following their 15th birthday, or 1 September following their 16th birthday, if they are disabled. The child must be the child or stepchild of the employee or a child for whom the employee has parental responsibility
  • Registered or approved childcare only
  • Covers nursery and childcare. Also thing like; after school activity and school trips.

 

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