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.