For working parents the government has introduced an Employer Supported Childcare Scheme if you have children under the age of 16 and you currently pay for registered childcare. Directors/office holders/employees can get up to £55 a week towards their childcare free of tax provided that certain conditions are met. There are two types of childcare that you may find useful; directly contracted childcare or childcare vouchers. A third one, workplace nurseries, would apply to larger employers with nursery facilities on site.
Directly Contracted Childcare
To benefit from the directly contracted childcare scheme, your limited company should purchase a childcare place directly from a registered or approved local child-minder or nursery. Your company can then pay the amount equal to the tax-exempt limit of £55 per week or £243 per month.
The arrangement should be between the childcare provider and your limited company so the contract should be in your limited company’s name. The contract can be for any amount as long as the amount paid by your company to the childcare provider is no more than £55 a week, and this agreement is noted in the contract.
Alternatively you can operate the Childcare Voucher Scheme. There are two options available:
- Use a voucher provider (agency) to operate the scheme on behalf of you, the employer. They may charge a fee but you will still be responsible for the correct tax/NI treatment.
- You can produce and administer the vouchers yourself as long as all the conditions are met and you keep records to support your scheme.
Changes from April 2011
From this date there will be changes for anyone either joining an employer supported Childcare Scheme, or leaving their current employment and joining another employer. Those affected will be employees or directors of a limited company whose employment income, which comprises of your salary or director’s fee plus any taxable benefits such as a company car, exceeds £41,865. If this is the case your tax relief will be restricted to the basic rate only.
Please note, if your employment income, which comprises of your salary or director’s fee plus any taxable benefits such as a company car, exceeds £43,000. If this is the case your tax relief will be restricted to the basic rate only.
The changes will have no effect for anyone already in a scheme at the 5 April 2011 or for anyone subject to the lower/basic or NIL tax rates.
Changes from Autumn 2015 - delayed to 2017
The government has announced a new childcare scheme to be introduced providing 20% tax relief on child care costs up to £10,000. Further details will be announced later.
Registered or approved childcare
- Registered child-minders, nurseries and play schemes.
- Out-of-hours clubs on school premises run by a school or local authority.
Childcare provided by a relative does not count unless the relative is a registered or approved child-minder.