Our experts at DSR Tax Claims know how hard it is to find good, quality information about HMRC’s tax regulations that is easy to understand, and that’s why we have created these handy guides to tell you everything you need to know. Our aim is to make life easier for our clients and that is why we want to share our expertise with you. You can also call our friendly team on 0330 122 9972 – we’re the tax experts you can trust.
What counts as qualifying childcare?
There are a number of ways you might be helping your employees with childcare costs, but whichever way you help with those costs, you will be expected to report this to HMRC and there may be additional tax and National Insurance obligations as a result. Most childcare voucher and workplace nursery schemes are exempt and employer-supported childcare usually involves some kind of salary sacrifice scheme, where the employee gives up part of their salary in return for a non-cash benefit.
The government introduced a new Tax-Free Childcare scheme in 2017 (although not all parents are initially eligible for the scheme) so if your employee starts using this new scheme, you will need to stop providing them with childcare vouchers. If this means that you will be stopping or amending a salary sacrifice arrangement, then you will need to make sure that their employment contract is also amended and payroll is changed accordingly.
Whether you are required to report these expenses to HMRC and make any additional PAYE or National Insurance calculations depends on the following factors:
- Whether you provide the workplace childcare facility yourself
- Whether your employees are expected to pay for the childcare initially and are reimbursed by you
- Whether you give your employees childcare vouchers
- Whether you contract directly with a childcare provider
- Whether your employees applied to join the childcare scheme on or after 6th April 2011.
Are there any exemptions?
Under certain circumstances, you might not have to report any childcare expenses to HMRC or make any additional tax or National Insurance arrangements.
If you provide a workplace nursery which provides places for your employees’ children, you will be exempt from any need to report to HMRC as long as the nursery has the appropriate registrations and approvals and is available to all employees. This doesn’t mean that there has to be a place for every single child of an employee (spaces can be limited and a waiting list is allowable without affecting HMRC exemption) but the eligibility criteria has to be the same for all employees. It must provide childcare for your employee’s children (or any children they have parental responsibility for) and must provide that childcare up to the maximum age allowed in its registration. It doesn’t actually have to be at your work premises – it can be at any other premises that you manage and finance as an employer but it can’t be at a private residence.
Commercial childcare or childcare vouchers
To be exempt from reporting these expenses to HMRC, the fixed amount of employee-supported childcare you provide (or the vouchers) needs to meet the same criteria as for workplace nurseries, including being available to all employees. Certain low-paid employees can be excluded from the requirement for childcare to be available to all employees – for example, if the salary sacrifice would mean that their earnings wouldn’t reach the national minimum wage.
Are there any limits to exemption?
If any employee applied to join a childcare scheme you run as an employer before 6th April 2011, the exemption limits are £55 per week or £243 a month. This means that this is the maximumthat the childcare voucher can be worth before it needs to be reported to HMRC and additional tax and National Insurance may be payable.
The rules changed on 6th April 2011 so that the exemption limit from that point onwards depends on the Income Tax rate the employee pays. The limits are as follows:
|Rate of Income Tax||Weekly exempt limit||Monthly exempt limit|
As an employer, this means you will have to carry out a basic earnings assessment to help you calculate the correct rate and you will be expected to keep certain records, even if the childcare is exempt from being reported to HMRC.
How do you report and pay this?
You will need to report any childcare you provide that isn’t exempt to HMRC and you may have to calculate and deduct tax and National Insurance in the cost of that childcare to you as an employer. How you are expected to do this depends on how you provide the childcare.
Any childcare provided above the exempt limit needs to be reported on your P11D and you need to pay Class 1A National Insurance on the amount above that exempt limit.
Any childcare vouchers provided above the exempt limit needs to be reported on your P11D and you need to pay Class 1A National Insurance on the amount above that exempt limit. There wouldn’t be any PAYE payable though.
Any childcare that is paid by your employee and then reimbursed by you
Whether you pay your employee back for their childcare bills, provide a cash allowance to cover their childcare costs or provide additional salary to cover these costs, you will need to add this amount to their other earnings and deduct Class 1 National Insurance and PAYE just as you would for their other earnings.
To report these amounts to HMRC, you first need to work out the value of the childcare you are providing. When reporting on commercial childcare or childcare vouchers, you need to report the cost of the childcare which is above the exempt limit (as detailed in the previous section). When you reimburse your employees for childcare costs that they initially pay themselves, you report the amount that you pay them back.
How can DSR Tax Claims help?
We aim to make life as simple as possible for our clients and that includes giving you the information you need to make your taxes (and your life) simpler and less stressful. Our team of experts at DSR Tax Claims are always on hand to help our clients and our excellent standing with HMRC means that we can make sure you don’t fall foul of their regulations, while claiming your maximum tax relief. We can even take care of all that paperwork and deal with HMRC on your behalf too. Call our friendly team on 0330 122 9972 – we’re the tax experts you can trust.