Let’s set the scene. You have children under 16 and they take time away from your business day with having to keep them “entertained/occupied” and dealing with their day to day needs. The time you spend with them means less time working which helps with the care of your children. So what do you do? I know, you can get a nanny, au pair, put them in after school clubs and get other people to do as much as possible so giving you back your time. (You can tell I don’t have children.)
Of course these costs must be tax allowable because if you don’t have childcare provision, then you can’t work so much, and if you can’t work so much then you are not earning the money to pay tax to the government? Aren’t they?
Unfortunately, if you are a sole trader, then at the moment you are unable to claim any tax relief for your child care costs. However, don’t stop reading. If you trade as a limited company, then the news is a little better, although the nanny, au pair & domestic help are still not tax deductible.
The difference between a limited company and sole trader comes is in the form of child care vouchers that the employer can give an employee. If you run your own limited company, you will be on the payroll even as a director/shareholder. The employer can give the employee up to £55 per week in the form of vouchers to be used for qualifying childcare. These vouchers do not attract tax or national insurance and are an allowable expense of the company. Win win. It is £55 per week per employee, not per child. Of course, if the husband and wife worked for the limited company and are on the payroll, then there can be two lots of vouchers. Triple win.
Of course, there are rules.
- The scheme must be open to all employees;
- The vouchers cannot be used to pay for school fees or extra classes that relate to the educational curriculum;
- The child carer must be registered – usually with Ofsted approval or registered with the local council;
- The scheme applies to children until the 1st September after their 15th birthday (16th birthday if the child is disabled).
What is often asked is how can a small company run a voucher scheme? There are three options:
- Contract with a childcare voucher company to operate the scheme for you. This is the simplest option, but they will charge a commission. A few providers are Care-4, Edenred, childcare Vouchers, Sodexo;
- The limited company could issue their own designed vouchers which are given to the care provider and they then “cash them in” directly with the company;
- Make payments to the childcare provider directly from the company bank account via standing order or direct debit. This would need to be closely monitored by the company to ensure the amount does not go over £55 per week on a cumulative basis.
Now, when something is not broken, people dabble and try to fix it. The scheme was supposed to change in Autumn 2015 but change is pipped for “early 2017” for tax free childcare. An online account will be opened for money to be deposited by parents, grandparents and indeed any interested party in order to support childcare. The government would then contribute to the account. For every 80p paid in by individuals, the government would add 20p to a cap of £2000 per child per year. The good news is that the scheme is available for the self-employed as well as employed workers. Both parents must be earning between £50 per week up to a maximum of £150,000 per year. Of course, there is a downside – this scheme is only available for children up to 12 years old (17 if disabled).
The winners for the tax-free childcare are the self employed and couples who earn less than £150K a year and also parents with more than one child and high childcare costs as help goes up with the number of children.
The old style of scheme is still available to set up and once in that scheme, it can carry on running even when the new form is available. It is a case of watch this space for the new scheme as things are bound to change before its launch.
The information contained in this document is of a general nature and is not intended to address the circumstances of any particular individual or entity. Although we endeavour to provide accurate and timely information, there can be no guarantee that such information is accurate as of the date it is provided or that it will continue to be accurate in the future. No one should act on such information without appropriate professional advice after a thorough examination of the particular situation.