Childcare schemes and contracting

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.

 

Qualifying conditions

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:

 

WeeklyMonthlyAnnual
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.

Good news for contractors with children: tax-free childcare has (almost) arrived

Back in 2013 the Government announced a new tax break for working parents, providing help with paying for much needed childcare.

 

In this blog we take a look at what the scheme entails, how you can take advantage of the scheme, and when it becomes available.

 

What is the Tax-Free Childcare Scheme?

Effectively, the scheme allows parents to pay into an online account in the same way as they would pay into a regular bank account. The Government also pays into this account, which is then used to pay for part or all of your child’s care costs.

 

Who can apply for the scheme?

Anyone can apply, as long as:

  • your child is aged 12 and under (or if your child has a disability, 17 and under)
  • you and your partner are in employment, and expected to both earn a minimum of £115 per week (but no more than £100,000 per year)
  • This scheme is also available to self-employed parents, who will not have to earn the same minimum amount as those who are in permanent employment

 

How does it work?

  • For every 80p paid into the account, the Government will pay in 20p
  • There’s a limit of £2,000 per child, per year (£4,000 per child, per year for disabled children) for parents receiving support towards their childcare costs
  • Anyone is able to pay into the scheme, so if you have a generous grandparent, godparent or friend, they too can contribute!
  • The money collected can only be used to pay for childcare that’s provided by a carer who is registered to receive a Tax-Free Childcare payment. Check whether your current childcare provider is registered here
  • You cannot qualify for this scheme if you currently receive childcare vouchers from your employer or if you already receive free or subsidised childcare
  • You will lose the Government’s contribution if you draw the money out rather than using it for childcare

 

When does it become available?

For some parents it will be available from Spring 2017, but others will have to wait until much later in the year as the scheme is being rolled out gradually. Those parents with the youngest children will be first in line to try it out.

 

How can you register your interest?

Register at gov.uk to ensure you’re on the Government’s radar for this scheme. You will receive an email that will let you know when you’re able to start an account.

 

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.