Employer pays childcare - tax free or not?

Employer pays childcare - tax free or not?

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We currently pay a childcare voucher company £50 per week for one of our employees who has taken a salary sacrifice of the same amount. This is all tax free and saves the employee approximately £16.50 per week in tax and national insurance.

The childcare voucher company wants to increase it's fee from 5% to 15% so we thought why can't we simply pay the childcarer directly? However when you look at IR115, page 5, this suggests that where the "Employer pays for childcare or school fees" tax and NI is "paid on full value" (ie. not tax free). Is this right? How can an employer/employee avoid tax or a tax benefit and avoid going through a voucher company?
Dave Collier

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By Dave Collier
08th Nov 2006 10:56

E18(2006) seems to clarify.
I have found E18(2006) which seems to clarify that if an employer contracts directly with the childcarer for an employees childcare that is tax/nic free up to £55pw, but if the employer reimburses an employees childcare fees that is not deductible!

Can anyone confirm this in practice? Do you simply draw up a contract with the childcarer to pay them £55 per week on behalf of employee X?

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By User deleted
08th Nov 2006 11:31

We produce our own vouchers, pay the nursery direct and then get the signed voucher returned as proof of payment, this should save your 15%.

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By AnonymousUser
08th Nov 2006 11:43

Prepare you own vouchers or contract directly with the carer
There is quite a bit on HMRC Website on this issue including details of how to set up your own voucher scheme and what needs to be included:
See:
http://www.hmrc.gov.uk/childcare/index.htm

I have set up a scheme for one employer which works well and is straightforward to operate.

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By User deleted
08th Nov 2006 15:27

Have a look at this...
http://www.hmrc.gov.uk/childcare/smechildcareguide.pdf

Very helpful guide for small businesses. Even goes so far as to give you a sample letter/contract between the business and the childcare provider, thus doing away for the vouchers.

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