Employer supported childcare

Childcare and employer provided childcare vouchers are very popular with both employers and employees alike. If your business is in the Chesterfield area or you are employed in the area we, at Page Ivy, can advise you on the exemptions available for employer supported childcare.

Employer Supported Childcare (ESC), commonly by way of childcare voucher, is for many employers and employees a tax and national insurance efficient perk. We consider the implications of this type of benefit on the employer and employee.

ESC, which allows a limited tax and NIC exemption for employer-contracted childcare and employer-provided childcare vouchers, has been very popular with both employers and employees alike. However ESC closed to new members from 4 October 2018. The government introduced Tax-Free Childcare which is available to employees and the self employed.

Salary sacrifice

Many employers use ESC as part of salary sacrifice arrangements; for example, the employee gives up pay, which is taxable and NIC-able, in return for childcare vouchers, which are not. This may save tax and NIC for the employee and NIC for the employer. Such arrangements have proved to be attractive for many but for those on low rates of pay, such arrangements may not be appropriate.

How much childcare can be provided tax and NIC free?

The limit on the amount of exempt income associated with childcare vouchers and employer-contracted childcare for employees is determined by reviewing the estimated earnings and taxable benefits of the employee. Where the level of estimated earnings and taxable benefits:

  • is equal to or below the equivalent of the sum of personal allowances and the basic rate limit for the year, the employee will be entitled to relief on £55 exempt income for each qualifying week
  • exceeds the equivalent of the sum of personal allowances and the basic rate limit for the year as above, but falls below the limit at which tax becomes payable at the 45% rate limit for the year, the employee is entitled to relief on £28 exempt income for each qualifying week.
  • exceeds the equivalent of the additional tax rate limit for the year, the employee is entitled to relief on £25 exempt income for each qualifying week.

For those who joined the employer’s scheme prior to 6 April 2011 the weekly limit is £55 a week regardless of earnings and benefits.

Similar rules apply for NIC purposes.

Further details

The employer has to estimate the employee's tax position each year as the amount of exempt income they can receive may change throughout their period of employment.

If the ESC exceeds the amount of exempt income per week the excess will be a benefit in kind and subject to Class 1A NICs. However, with vouchers, although any excess is also a benefit in kind it is subject to Class 1 NICs via the payroll. As the tax and NIC issues are complex many employers limit their employees’ entitlement to a maximum of the exempt limit.

The exempt limit applies to the full face value, rather than the cost, of providing a childcare voucher, which would normally include an administration fee.

An employee is only entitled to one exempt amount even if care is provided for more than one child but it does not matter that another person may also be entitled to an exempt amount in respect of the same child.

Determining basic earnings

To identify the rate of tax an individual employee pays in any one tax year, an employer needs to carry out a ‘basic earnings assessment’ for any employees. Employers who offer or provide employer childcare are required, at the beginning of the relevant tax year, to estimate the ‘employment income amount’ that the employee is likely to receive during that year.

This is basically the contractual salary and benefits package (not discretionary bonuses or overtime) less the personal allowance if appropriate.

Employers must keep a record of the basic earnings assessment. These records do not need to be sent to HMRC but must be available for inspection by HMRC if required.

The employer must re-estimate the ‘employment income amount’ for each tax year.

Closure of ESC to new entrants

HMRC has confirmed that employees must have joined an ESC scheme and had the necessary changes made to their salary on or before 4 October 2018. Applying to the scheme before the deadline is not sufficient as an applicant needs to have had the necessary changes made to their salary by the deadline in order to benefit from the income tax and NICs exemption.

Employers who continue to offer ESC to new entrants after 4 October need to deduct income tax and NICs on any vouchers given and pay employer NICs after this date.

Gaps in payment

An employee can ask to stop receiving childcare vouchers temporarily whilst staying in the employer’s scheme; for example, if an employee only works during school term time and doesn’t need the vouchers during the school holidays. Basically, as long as the gap in providing the vouchers doesn’t exceed 12 months the employee can still be classed as an existing member of the employer’s scheme.

This also applies to employees who are on maternity leave, sick leave and those who wish to take a career break, provided that the total length of absence does not exceed 12 months.

Further information

HMRC has provided many questions and answers on their website to help both employees and employers and these can be viewed at https://www.gov.uk/government/publications/employer-supported-childcare

Tax-Free Childcare scheme

The government introduced Tax-Free Childcare (TFC), a tax incentive for childcare.

The relief is 20% of the costs of childcare up to total childcare costs of £10,000 per child per year. The scheme will therefore be worth a maximum of £2,000 per child (£4,000 for a disabled child). All children under 12 (up to 17 for children with disabilities) are eligible.

To qualify for Tax-Free Childcare all parents in the household must generally meet a minimum income level, based on working 16 hours a week at National Minimum Wage or Living Wages rates as appropriate and each earn less than £100,000 a year and not already be receiving support through Tax Credits or Universal Credit.

How does this relate to ESC?

ESC closed to new entrants on 4 October 2018. ESC continues to be available for current members if they wish to remain in it or they can switch to the new scheme but parents cannot be in both the ESC scheme and the TFC scheme at the same time.

Employees need to advise their employer in writing (for example, by email) within 90 days if they start receiving TFC, so their employer can stop giving them vouchers and directly contracted childcare with income tax and NICs reliefs. Employees are not able to return to an employer’s ESC scheme once they have left.

How we can help

If your business is located in the Chesterfield area and you would like to discuss childcare in further detail, please do not hesitate to contact us at Page Ivy.

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After completing her A-Levels in 2017, Rebecca started her career in accounting by joining the Page Ivy team. Since then she has completed levels 2 and 3 of the AAT qualification and is currently studying towards level 4.

In the office, Rebecca works with our clients to assist them in preparing their VAT returns, assists with Xero Cloud-based bookkeeping and Accounting and is also trained in all matters of payroll.

In her spare time, Rebecca likes to, spend time with her friends and family, train dogs and more recently, has started to learn Spanish.

Since school Charlie has always had an interest in accountancy and followed up on his career aspirations by joining Page Ivy in 2017.

After three years of studying, Charlie is nearing completion of his AAT level 4 qualification and is looking to start his ACCA training imminently.

Charlie deals with the preparation of Limited Company, Sole trader and Partnership accounts along with preparing VAT and MGD returns.

In his spare time, Charlie enjoys watching football and spending time with his partner, friends, and family.

Danielle joined the Page Ivy team back in 2013 as an AAT Trainee, now qualified she is responsible for managing our Payroll  Bureau.

Her role includes processing weekly, bi-weekly, and monthly payroll runs, corresponding with HMRC on behalf of our clients,  preparing and submitting CIS 300 returns, assisting clients with all areas of payroll, HR, and Administration.

In her spare time, Danielle enjoys climbing, spending time with family and friends, and going on long country walks with her partner and dog.

Declan is the newest member of the Page Ivy team, starting with us in 2020.

Declan is currently studying towards level 2 of his AAT Apprenticeship and in the office, is getting to grips with data entry and analysis.

In his spare time, Declan enjoys country walking with his family and dog, sports events and more recently, learning to play the piano!

Megan joined our team in 2014 and has been ensuring that the Page Ivy office runs smoothly ever since.

Her role includes managing the team and their diaries,  handling client queries, and assisting with Administration.

Megan is a Xero certified Payroll advisor, meaning that when Danielle is on leave, Megan is on hand to run our payroll department.

Megan has two children, Isabella and Felicity, who like to keep her busy! In her spare time, she likes to keep fit, spend time with her family and online shop!

Abby started her career in accounting in 2009, working for a small practice in Chesterfield, alongside studying for her AAT qualification.

After three short years, in 2012 the opportunity arose to become Director of Page Ivy Accountants and she hasn't looked back!

Building long-lasting client relationships are of utmost importance to Abby, she has a passion for providing a high level of customer service and ensuring that our clients feel valued.

Abby is responsible for overseeing the preparation of VAT returns and MGD return prepared by the Page Ivy team; along with providing personal tax advice to a wide range of clients.

 

In her spare time, Abby enjoys, traveling, reading, and going to the gym.

Edward joined the team as a school leaver in 2012.  From here he went on to study Business Administration, AAT, and finally progressed on to complete his  ACCA qualification 2019.

Edward is a knowledgable, pro-active Senior accountant, who prides himself on providing high quality, in-depth, technical advice in a manner that is easily understood by his clients.

He is responsible for the preparation of Sole trader, Partnerships, and Limited Company accounts. As well as monthly and quarterly management accounts and conducting business reviews.

In his spare time, Edward likes to spend time with his friends and family,  spending time in his local pub and watching Derby FC collect 3 points.

 

Gareth started his career in accountancy in 2002. Since then he has worked in both small and medium-sized accountancy practices, working with a variety of clients from small businesses to advising quoted companies on Corporate Tax compliance and specialist claims, such as for Research and Development allowances. He places high importance on technical expertise, believing this to be essential to ensure clients can be safe in the knowledge they are fully compliant with HMRC’s requirements while minimising their tax liabilities. This is reflected in him being a fully qualified member of the Chartered Institute of Taxation, and a fellow of the Institute of Chartered Accounts in England and Wales.

He joined Page Ivy in 2012, since then he has taken responsibility for overseeing the preparation of clients Sole Trader, Partnership and Limited company accounts, as well as clients personal Self Assessment Tax Returns.

Alongside Abby he hopes to continue to develop both the technical expertise within the firm, and see the business continue to grow from strength to strength.

Outside of work Gareth has served as deputy leader of the town council, enjoys eating out, and fishing.

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