A question we get often asked by our recruitment director clients' is;
'Should I be operating a childcare voucher scheme through my own limited company?'
An employer operating the Childcare voucher scheme will allow each parent paying basic rate tax, up to £55 per week or £243 per month tax free childcare for children up to the age of 15. Higher rate tax paying parents are allowed up to £28 p/wk and £124 p/mth respectively. Any vouchers exceeding this amount are subject to tax and NI and must be included on a form P11D.
So, many limited company directors who employ their spouses, have use of twice the amount of vouchers.
It works by having either a deduction in your salary (via a salary sacrifice) saving tax &NI, or having an addition to your salary, and having it as a company expense.
Care needs to be taken when coming to a decision on which option to take.
How it's done.
Your childcare provider must be registered with the OFSTED scheme. You can find out this information from the OFSTED website.
Set your scheme up IN YOUR COMPANY'S NAME through HMRC or pay for a scheme administrator such as Kiddivouchers or Edenred to do this for you.
If you choose to use a scheme administrator they will charge commission on supplying the vouchers for this but is allowed as an additional business expense. (Yet more tax savings!)
Payments MUST be made through the company bank.
The future of the Childcare Voucher Scheme.
The childcare voucher scheme is running out and no further parents can apply to join the scheme after April 2018.
You may already be aware of the Government's new 'Tax-free childcare' scheme which is being introduced from 2017. It will then be necessary for parents to decide which scheme would be more beneficial to them. There are more strict conditions with this new scheme. For example, both parents must be working and earning over a certain amount to enter the scheme.
How it works under the new 'Tax-free childcare' for every 80p paid into the scheme, the government will top this up by 20p up to a total of £10,000. For parents with lower childcare costs such as a couple of days a week, the current childcare voucher scheme may be more beneficial to them.
To conclude, in my opinion it is beneficial to enter the scheme and operate the vouchers through your limited company as long as your administration costs stay low and the costs don't outweigh the benefit. We will see what happens when the new 'Tax-free childcare' scheme is introduced next year and whether my view will change.
If you would like further information on how to set up a childcare scheme through your own limited company, please contact Cooper Curtis on 0845 303 1144 or email firstname.lastname@example.org.
Please note, all our content is for general guideline only, every case is different and we would recommend speaking to us before taking any action as a result of the content. The content was correct at the time it was published.