Employer supported childcare

In 2009 the government announced changes to employer supported childcare and HMRC have now issued further guidance on the changes.

The amount of tax free childcare vouchers and directly contracted childcare for employees joining an employer’s scheme will be restricted in cases where an employee’s earnings and taxable benefits are liable to tax at the higher or additional rate. Anyone already in a scheme by 5 April 2011 will not be affected by these changes as long as they remain within the scheme. From 6 April 2011, employers who provide employer-supported childcare will be required, at the beginning of the relevant tax year, to estimate the level of employment earnings that their employee is likely to receive during that year, ignoring potential bonus and overtime payments, but including other known taxable benefits. If the level of estimated earnings and taxable benefits is equal to or below the equivalent of the sum of personal allowances and the basic rate limit for the year, the employee will be entitled to relief on £55 exempt income for each qualifying week. This is the same as the current amount. If the level of estimated earnings and taxable benefits exceed the equivalent of the sum of personal allowances and the basic rate limit for the year, but falls below the limit at which tax becomes payable at the additional (50%) rate limit for the year, the employee will be entitled to relief on £28 exempt income for each qualifying week. If the level of estimated earnings and taxable benefits exceed the equivalent of the additional (50%) rate limit for the year, the employee will be entitled to relief on £22 exempt income for each qualifying week. If you would like to review your childcare provision options in light of the above please do get in touch.