On the 5th October 2018, a new Tax-Free Childcare Scheme was launched, meaning that any new applications for tax relief on childcare need to be made direct to the government. This article explains how childcare schemes work for Limited Company contractors, both prior to and after this change.
Tax-Free Childcare post-October 2018
From 5th October 2018 onwards, parents will be able to apply for a new childcare scheme – Tax-Free Childcare. The Government will pay £2 for every £8 you pay to a childcare provider via your online account, up to a maximum of £2,000 per year. You will not be eligible if you or your partner earns £100,000 or more per year.
As a contractor this means that you are individually responsible for organising your childcare tax relief, with no involvement from your Limited Company.
To qualify for the Tax-Free Childcare Scheme, the following conditions must be met:
- You must have parental responsibility for the child you are claiming childcare for
- Only registered childcare providers are approved under the scheme. These include nurseries, crèche facilities, registered childminders, play schemes and out-of-hours clubs run by a school or local authority
- If the provider of childcare is a relative, they will have to be registered and run an approved business which offers childcare to other children
- Payments made outside the childcare scheme won’t qualify for tax and NI exemptions. This includes cash paid to employees to cover childcare costs and invoices issued in the employee’s name but paid for by the company
- The childcare scheme covers children up to age 15, or 16 if the child is registered disabled
If you signed up to a childcare scheme prior to October 2018
Those who signed up to a scheme prior to 5th October 2018 can still continue to use this as long as the employer still runs the scheme and they are still an employee. With an existing direct agreement, the Limited Company pays the provider for the childcare costs on behalf of the employee. The amount that is paid to the childcare provider is detailed in an agreement between the employer (Ltd Company) and employee.
If you joined before the 6 April 2011, the company could contribute £55 per week or £243 a month, which is exempt from income tax and national insurance, while gaining corporation tax relief through the company.
Any joiners after this date would depend on the taxpayer and whether they are a basic rate, higher rate or additional rate taxpayer:
|Basic rate taxpayers||£55||£243||£2,916|
|Higher rate taxpayers||£28||£124||£1,484|
|Additional rate taxpayers||£25||£110||£1,325|
Any direct agreement after the 5th October 2018 will be treated as an employment benefit and declarable on the P11d.
If you’re an Intouch client and you need help with any tax matter, just contact your Personal Accountant. If you’re not already with us and would like to find out more about how Intouch can help you contract through your Limited Company, just contact us on 01202 901 385.
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.