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.
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.