Tax breaks for childcare – don’t miss out!
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| Freelancers who run their own limited companies can receive a significant tax break towards the cost of childcare. By operating a simple Childcare Voucher Scheme, nearly £3,000 per year can be withdrawn from the company (or nearly £6,000 for a couple) tax free to pay towards eligible childcare. The Government has placed restrictions on any scheme started after 6 April 2011, but these can be avoided if you act now. |
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How does a Childcare Voucher Scheme Work?
Any company (including small companies typically used by freelancers) can start a Childcare Voucher Scheme. The firm gives its “employees” (i.e. the freelancer and perhaps their partner) vouchers worth up to £55 per week each to pay for eligible childcare. The employees give these vouchers to their childcare provider (i.e. nursery, playgroup, nanny etc), who contact the freelancer’s company to be reimbursed.
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Are there any conditions?
Yes. The main proviso is the childcare provider must be registered under Part 3 of the Childcare Act 2006. (The provider will be able to tell you if this is the case.) And, if the freelancer’s company has any other employees, the Voucher Scheme must also be equally available to all.
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How much can I save if I run a Childcare Voucher Scheme?
If a freelancer and their partner both receive Childcare Vouchers they will be able to draw £5,720 from their firm tax free each year. This will give them a tax saving of £2,288 if they are higher rate taxpayers, or £1,144 if both are basic rate taxpayers. These tax savings are halved if only one employee receives the vouchers.
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Where do I get Childcare Vouchers from?
There are no official Childcare Vouchers. You can make your own, and they should contain details such as the company name, the name of the employee and the value of the voucher. They should also have a unique ID number to ensure a voucher can be redeemed only once.
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Do I need to register a Childcare Voucher Scheme with HMRC?
No. However HMRC may ask to see documentation at a later date, so you will need to keep certain records.
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What records do I need to keep?
The firm operating the scheme should keep a record of the childcare provider’s approval or registration number, and the date when the approval is due for renewal. It should also keep a record of the vouchers issued and redeemed.
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What restriction is the Government introducing?
As from 6th April 2011, any employee joining a Childcare Voucher Scheme will only be able to claim tax relief at the basic rate of tax. So a freelancer who is a higher rate taxpayer will still get some tax relief, but not as much as at present. However employees who use a scheme started before that date will not be affected by the new rules, and will continue to receive full tax relief. So if you’re a higher rate taxpayer now, or expect to be in the future, you should start a scheme before the new restriction comes into force.
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