Claiming the cost of childcare from your Limited Company

Claiming the cost of childcare from your Limited Company

If you are an employee of a Limited Company then you can claim a set amount per week, or per month, toward the care of your children.  The childcare has to be via a registered provider, and in many cases this will include private schools and pre/after school clubs.  Check with your provider to see if they accept childcare vouchers.

How much can the company pay?

Since 6 April 2011 childcare allowances have been based on your total income in the tax year (prior to that they were a flat amount per week regardless of what you earned).  The rates are as follows:

  • Basic rate – up to £55 per week
  • Higher rate (40%) – up to £28 per week
  • Top rate (45%) – up to £22 per week

The childcare allowance is available for each employee of the business, not each child, so if you and your spouse are both employees then you can each claim.

Total income in this context does not include any dividend income.  As most Limited Company contractors take a low salary with the majority of their income taken as dividends, many will be within the basic rate tax threshold and will therefore be able to claim the maximum amount.

Do I need a childcare voucher provider?

There is no need to go through a voucher provider unless you wish to save up the vouchers to use them at a later date.  This can be useful when the baby is first born, before you’re actually incurring costs.  You’ll have to pay an admin fee to the voucher provider but that will work out less than the tax you’ll save by doing it.  Then, as soon as you start incurring actual childcare costs, just cancel the vouchers, use the ones you’ve saved and start paying direct from your company.

It is important to note that a contract must be in place between your Limited Company and the childcare provider though, and payment must go direct from the company bank account.  If the company simply reimburses your expenses it becomes a benefit in kind and there are negative tax implications for you personally.

Child benefit

There have been recent changes to child benefit that you should be aware of too.  If your income, or that of your spouse, is over £50,000 then the tax return of the higher earner will claw back the child benefit and it will be repaid along with any tax due.  If you know your income is likely to be over that limit in future then you can either inform HMRC now that you don’t want the benefit, or just repay it at the end of each year (like an interest free loan).

It can be better to claim and then repay because your circumstances may change part way through a year, and you cannot backdate a claim.  So if you don’t claim but later realise you could have, you’ve lost the money.  Claiming will also mean your spouse will have their record marked as a qualifying year for pension purposes (even if they claim but then tell them they don’t want the money!)

For the most tax efficient option for your circumstances, speak to your contractor accountant who can look at your overall tax position and advise you accordingly.

 

This blog has been prepared by Intouch Accounting. While we have made every attempt to ensure that the information contained in this blog has been obtained from reliable sources, Intouch is not responsible for any errors or omissions, or for the results obtained from the use of this information. This blog should not be used as a substitute for consultation with professional accounting advisers. If you have any specific queries, please contact Intouch Accounting.

Childcare payments

Childcare payments through a Limited Company – a reminder of what you can claim

From 6 April 2011, childcare payment allowances are calculated on your income in the year.  The new rates are as follows:

  • Basic rate – up to £55 per week
  • Higher rate (40%) – up to £28 per week
  • Top rate (50%) – up to £22 per week

You need to bear in mind that childcare vouchers are based on each employee of the business, not each child.

For childcare voucher purposes HMRC, will only assess the total employment income, defined as:  salary, plus taxable benefits, less your personal allowance. It does not include company dividend payments. As most Limited Company contractors take a lower salary, with the majority of their income taken as dividends, many may be within the basic rate tax threshold and will therefore see no change.

Do the changes affect childcare vouchers and payments made through a Limited Company?

The basic criteria remain unchanged. The tax free benefits still apply only to childcare vouchers and direct payments for approved and registered childcare services. Relatives, even if they are qualified and registered childminders, are excluded from this arrangement.

A Limited Company contractor can organise childcare payments through their company in a number of ways:

  • Set up a company voucher scheme. This way the company, as the employer, issues vouchers to the contractor, as its employee. These vouchers can then be used to pay childcare providers. An advantage of these is that they can be saved up to pay for times when childcare needs are higher, such as school holidays, or saved from when the child is born until childcare is actually used.
  • Pay for childcare directly from the company – this is preferable, if possible, because it avoids any scheme admin charges. The childcare provider invoices the company directly and is paid from the company’s funds.  If the childcare costs then exceed the taxable allowance, this can be paid for personally to avoid any benefit in kind charges.

For the most tax efficient option for your circumstances, speak to your contractor account who can look at your overall tax position and advise you accordingly.

 

This blog has been prepared by Intouch Accounting. While we have made every attempt to ensure that the information contained in this blog has been obtained from reliable sources, Intouch is not responsible for any errors or omissions, or for the results obtained from the use of this information. This blog should not be used as a substitute for consultation with professional accounting advisers. If you have any specific queries, please contact Intouch Accounting.