How to Stay Safe from HMRC
8 September 13 | By: Jas Jhooty
With a government consultation currently underway on a new scheme for tax-free childcare, we thought we should take this opportunity to remind you of what the current rules are.
Childcare is defined as any form of care or supervised activity other than a child’s compulsory education. The costs of a child’s normal education (including nursery school fees for pre-school children) cannot be exempted.
The legislation exempts childcare costs from taxation for all costs associated with childcare being provided on employer-provided premises and also more limited exemption of the first £55 per week for other types of childcare (including childcare vouchers). NB from 2011/12 there is a restriction to basic rate tax relief only, on the costs of childcare (other than that made available on employer-provided premises) provided to any new joiners to a childcare scheme. From 6th April 2011 employers have to estimate what the marginal tax rate for a new joiner to a childcare scheme at the start of the tax year and limit tax free relief to: -
Employees are only entitled one exemption irrespective of the number of children they want to claim for. However if they have a qualifying partner they will also be entitled to claim the exemption for the same child from their own employer.
Child and parental relationship
For the exemptions, the legislation defines that a person is a child up to 1 September following their 15th birthday, unless they are registered disabled, when they are defined as being a child until 1 September following their 16th birthday.
The child must also:-
The rules seek to ensure that only childcare which meets nationally recognised standards will attracts the exemptions from income tax and NICs. In general terms the childcare must be registered with or approved by the relevant authorities. The rules are complex because different statutory powers apply to England, Wales, Scotland and Northern Ireland.
Childcare provided away from the child’s home must be registered.
In England only:
A person registered under Part 3 of the Childcare Act 2006 – This will include persons on the following registers operated by Ofsted;
Schools – care provided by the governing body of a school is approved if it takes place:
Other care providers
In Wales only:
In Scotland only:
In Northern Ireland only:
Outside the UK
Childcare provided outside of the United Kingdom cannot generally be accepted as “qualifying childcare” as it is outside of the jurisdiction of UK inspection and registration. The only exemption to this is childcare provided by a person approved under a Ministry of Defence accreditation scheme abroad
Childcare that is not “qualifying childcare”
“Qualifying childcare” does not include care provided by a relative of the child in the child’s own home. This includes relatives who are registered or approved childcare providers. For these purposes a relative means:
Childcare provided by relatives can be qualifying childcare in the following circumstances:
How emTax can help?
The rules for implementing a tax-free childcare scheme are quite complicated, especially if you are thinking about introducing childcare vouchers as a part of a salary sacrifice scheme.
If you require any assistance in this or any other employment tax matter please do not hesitate to contact us.
You may be interested to read our article on Corporate away days that has just been published in this month’s Purely Payroll magazine. You can view the article here.