Childcare vouchers

Childcare vouchers

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Limited company client operates childcare voucher scheme.  Has always used a childcare voucher provider in the past, and both the husband and wife directors joined the scheme prior to 5 April 2011, so are entitled to the maximum tax and NI free childcare amount of £243 per month. 

The client now wishes to change to directly contracted childcare arrangements, in order to save administration fees that they have to pay to the voucher company.  HMRC guidance states that for directly contracted childcare, "The same exempt amounts apply to directly contracted childcare as they do for childcare vouchers".

But is the exempt amount the £243 per month (because there was previously a voucher scheme running which both employees joined prior to 5 April 2011) or is the provision of directly contracted childcare considered to be a new arrangement, and therefore each employee (both higher rate tax payers) would only receive a maximum tax free benefit of £124 per month.  The guidance is not clear on this point.

Many thanks for any advice.

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By Steve Knowles
25th Jul 2012 17:10

Higher rate

calculation applies only to salary etc provided by the employer - presumably the directors do not draw salary to take them above the HR threshold? Investment income(dividends) is ignored for this purpose - see http://www.hmrc.gov.uk/thelibrary/employer-qa.pdf for what is included in the basic earnings assessment.

Employees who were "eligible" for an existing scheme before April 2011 are not affected by the HR restriction

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