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What tax free childcare assistance can I provide to my staff?

8 September 13 | By: Jas Jhooty

Child Care

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.

Exempt Childcare

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: -

  • 20% taxpayer – £55pw
  • 40% taxpayer – £28 pw
  • 50% taxpayer – £22pw

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:-

  • be the employee’s child or step-child, maintained at the employee’s expense
  • be resident with the employee who has parental responsibility for them

Qualifying childcare

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 and Wales for children up to and including 7 years.
  • In Scotland for children up to and including age 16.
  • In Northern Ireland for children up to including 12.
    Registered childcare within the United Kingdom consists of:

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;

  • The Early Years Register
  • The General Childcare Register – compulsory part
  • The General Childcare Register – voluntary part.

Schools – care provided by the governing body of a school is approved if it takes place:

  • outside normal school hours (this means the normal hours of compulsory education adopted by the school as appropriate for the age of the child)
  • on school premises or
  • on premises that are covered by the inspection of the whole school activity by Ofsted or the equivalent inspection body for certain independent schools

Other care providers

  • a domiciliary worker or nurse from an agency registered under the Domiciliary Care Agencies Regulations 2002 providing childcare in the child’s home
  • a person approved in accordance with the Tax Credits (Approval of Child Care Providers) Scheme 2005 to provide care in the child’s home or on other domestic premises.
  • an approved foster carer under the Fostering Services Regulations 2002. (The care must be for a child who is not a foster carer’s foster child.)

In Wales only:

  • a childcare provider registered by the National Assembly for Wales (through the Care Standards Inspectorate for Wales)
  • out-of-school-hours childcare, provided by a school on the school premises, or by a Local Authority
  • a person approved under the Approval of Child Care Providers (Wales) Scheme 2007 providing childcare in the child’s home or if several children are being looked after, in the home of one of the children
  • a domiciliary worker or nurse from an agency registered under the Domiciliary Care Agencies (Wales) Regulations 2004 providing childcare in the child’s home by a foster carer under the Fostering Services (Wales) Regulations 2003. (The care must be for a child who is not a foster carer’s foster child.)

In Scotland only:

  • a childcare provider registered by the Scottish Commission for the Regulation of Care
  • out-of-school-hours childcare clubs registered by the Scottish Commission for the Regulation of Care
  • childcare provided in the child’s home by, or introduced through, childcare agencies, sitter services and nanny agencies which are required to be registered.

In Northern Ireland only:

  • childcare registered by a Health and Social Services Trust
  • out-of-school-hours childcare, provided by a school on the school premises, or by an Education and Library Board or
  • a person approved under the Tax Credits (Approval of Home Child Care Providers) Scheme (Northern Ireland) 2006 providing childcare in the child’s home.

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:

  • parent
  • step-parent
  • foster parent
  • grandparent
  • aunt or uncle
  • brother or sister
  • whether by blood, half blood, marriage or civil partnership.

Childcare provided by relatives can be qualifying childcare in the following circumstances:

  • the relative is a registered or approved childcare provider
  • the care is provided away from the child’s own home
  • the care is provided to non-related children in addition to the related child or children.

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.

And Finally

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.

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