Childcare costs can be very expensive and any help is welcomed, particularly where you can benefit from that help tax-free. There are various routes by which this is possible.
Government tax-free top-up scheme
Under the Government scheme, you can open an online account and deposit money which is used to pay for your childcare. For every £8 that you deposit in the account, the Government will add a further £2, to a maximum of £2,000 per child per year. The maximum top-up is doubled to £4,000 for disabled children. This top-up is tax-free.
The money in the account can only be used to pay for approved childcare, such as childminders, nurseries, nannies, after-school clubs and play schemes. The childcare provider must be signed up to the scheme.
To benefit from the scheme, you (and your partner if you have one) must be working or on statutory leave, and you must expect to earn at least the National Living or Minimum Wage for your age for 16 hours a week on average over the next three months. At the current NLW, this is £1,853.28. You can also use the scheme if you are self-employed.
You cannot benefit from the top-up scheme if you, or your partner, earn more than £100,000 a year.
Workplace nurseries
If your employer provides you with a place in a workplace nursery, you can enjoy the benefit of this tax-free, as long as conditions governing the tax exemption for workplace nurseries are met. There is no financial limit on the tax-free benefit.
The exemption remains available if the benefit of a place in a workplace nursery is made available under a salary sacrifice scheme.
Employer-supported care
Employer-supported care is childcare provided by someone where the contract is between the employer and the childcare provider, and the employer meets the costs. The benefit is tax-free up to your exempt amount.
You have one exempt amount, which applies to both employer-supported care and employer-provided childcare vouchers. This is £55 per week if you joined the scheme before 6 April 2011. If you joined the scheme after this date but on or before 4 October 2018, the exempt amount depends on your marginal rate of tax. It is £55 per week if you are a basic rate taxpayer, £28 per week if you are a higher rate taxpayer and £25 per week if you are an additional rate taxpayer.
If you joined such a scheme on or before 4 October 2018, you can continue benefitting from the exemption as long as your employer continues to provide the care. However, the exemption is lost if you sign up for the Government tax-free scheme.
The exemption remains available if the care is provided under a salary sacrifice scheme.
Employer-provided childcare vouchers
The tax exemption for employer-provided childcare vouchers operates in a similar way to that for employer supported childcare and shares the same tax-exempt amount. To benefit, you must have joined the scheme on or before 4 October 2018. However, you cannot benefit from the exemption and also the Government tax-free scheme.
The exemption remains available if the care is provided under a salary sacrifice scheme.
For help and advice please contact us.