Childcare vouchers for company directors

Childcare vouchers for company directors

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I have a client who is a director of a small company. At the moment she is paid a salary below the primary threshold so does not pay National Insurance. I'll include figures for 2013/14 just to make it easier to explain my query. So, let's say she is due to be paid a total of £7,748 per annum (£149 per week) in 2013/14. If she works, say, a 35 hour week then this amounts to £4.26 per hour which is below the National Minimum Wage, thus meaning she would not be entitled to receive tax relief on the childcare vouchers.

Under the basic earnings assessment, the client falls within the basic rate band. This means the client can claim the full £243 per month... but only if she earns about the NMW. The NMW is currently £6.19 per hour, so, based on a 35 hour week, this would equate to £11,266 per annum. Deducting the childcare vouchers under salary sacrifice would only reduce the annual salary to £8,350 (£11,266 less £2,916) which is greater than the primary threshold. Thus, there will be NIC consequences.

Essentially, my question is whether increasing her salary to above the NMW is the most tax efficient way to deal with this. Personally, I think it's essentially a 'six of one and half a dozen of another' situation, but would appreciate your thoughts. Thank you in advance for your comments.

If it helps the scenario, this client draws dividends from the company which result in her being an additional rate taxpayer.

Replies (7)

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By Steve Kesby
31st Jul 2013 13:11

No

Company owner-managers (a) aren't (generally) subject to the NMW and (b) don't need to do salary sacrifice to access the benefit (excuse the pun) of exempt benefits.

Just pay her £646 per month tax/NI-free salary and £243 in exempt childcare vouchers.

The dividends aren't relevant to that assessment.

Thanks (2)
Replying to pauljohnston:
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By rebeccalouisa
31st Jul 2013 14:53

Good point RE NMW and directors!

Steve Kesby wrote:

Company owner-managers (a) aren't (generally) subject to the NMW and (b) don't need to do salary sacrifice to access the benefit (excuse the pun) of exempt benefits.

Just pay her £646 per month tax/NI-free salary and £243 in exempt childcare vouchers.

The dividends aren't relevant to that assessment.

Thanks very much for your help - much appreciated.

Thanks (0)
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By neileg
31st Jul 2013 14:03

Or...

Contract directly with the child care provider. You don't need use physical vouchers.

Thanks (1)
Replying to DJKL:
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By rebeccalouisa
31st Jul 2013 14:54

Seems like a good solution.

neileg wrote:

Contract directly with the child care provider. You don't need use physical vouchers.

Thanks for your helpful response.

Thanks (0)
Replying to DJKL:
By JCresswellTax
01st Aug 2013 09:22

This is the best way, but

neileg wrote:

Contract directly with the child care provider. You don't need use physical vouchers.

Just make sure your client does the paperwork correctly and the payments are taken from the COMPANY bank account!

This will also save the client money on childcare voucher provider fees.

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Replying to thomas34:
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By DAVID ROBERTS
17th Feb 2015 08:37

Taxable Benefit?

JCresswellTax wrote:

neileg wrote:

Contract directly with the child care provider. You don't need use physical vouchers.

Just make sure your client does the paperwork correctly and the payments are taken from the COMPANY bank account!

This will also save the client money on childcare voucher provider fees.

 

I'm assuming this would then need to be reported on a P11D, as a taxable benefit for the Director....correct?

 

Thanks!

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Replying to accountantccole:
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By DAVID ROBERTS
17th Feb 2015 16:34

Ah ha....

DAVID ROBERTS wrote:

JCresswellTax wrote:

neileg wrote:

Contract directly with the child care provider. You don't need use physical vouchers.

Just make sure your client does the paperwork correctly and the payments are taken from the COMPANY bank account!

This will also save the client money on childcare voucher provider fees.

 

I'm assuming this would then need to be reported on a P11D, as a taxable benefit for the Director....correct?

 

Thanks!

 

Only above the £243 monthly limit, I  believe!!  :)

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