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PTP's Tax Tip No.17 ' Childcare vouchers for directors

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13th Jun 2005
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Q: My clients are a married couple who are both full time directors of their family company. They have a two year old child who attends a local nursery. Can they benefit from the new childcare tax exemption?

A: Yes they can ' from April 2005. The company can give vouchers or make direct payment to the nursery of up to £50 per week for each parent. So a total of £5,200 pa could be paid by the company (and will be allowed for corporation tax) without any personal tax or NIC cost for the directors. The company should offer a child care scheme to employees generally, although can impose a salary sacrifice condition.

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By David Franks
06th Feb 2006 15:00

Childcare confusion
I have asked my local tax office and the national helpline the following question. I don't think they even understood what I was talking about!

In view of the legislation where an employer can pay £50 a week without the receipient being taxed, please advise on the following:

What about self employed people? Can they claim the £50 a week as an expense on profits if a receipt from a registered provider can be shown? I am told not, though no one can explain why or why the slef emplyed are being penalised.

Secondly, in a company where in reality the director is also the employee, can the director pay the childcare for the benefit of the employee, when the employee is themself? No one I spoke to knew what a separate entity was, so I gave up on this question too.

Please help!

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Tim Good profile image
By Tim Good
07th Feb 2006 11:20

Only for employees
The childcare exemption is only available to employees, so the self-employed cannot benefit. The same is true of other exempt employee benefits (eg provision by employer of a mobile phone).
A one man company with a sole director employee can indeed make the provision of exempt childcare to its employee.

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By David Franks
07th Feb 2006 22:12

Seems unfair
Tim, my problem with this system is that it is discriminatory against the self employed. Surely the purpose is to assist all working parents, not just people who have incorporated their business or are an employee. With your example of the mobile phone, I know the point you are getting at, but as a self employed person I can claim the business use of my mobile against my profits. However, I cannot claim the cost of my childcare.It seems mad that if I had an employee I could pay £50 to a childcare provider on their behalf, but not on behalf of myself. This anomaly is costing me £1040 a year.

I have arranged to discuss it with my MP. I doubt it will get me anywhere, but I can rant and get it off of my chest!

Thanks for your help.

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By Stuart Holmes
03rd Oct 2005 15:31

Minimum salary for employee
In the case of a small company/personal srvice company operated by a director/shareholder, is there a minimum salary that should be paid to the director/employee so that he qualifies for the vouchers?

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By Petergedwards
13th Jun 2005 20:59

Impact on Childrens Tax Credits
Is their not an effect on a claim for the childcare element of children's tax credit in that the value of the vouchers has to be deducted from any claim for childcare costs, reducing or even cancelling out the benefit of receiving this form of income for a director(even though non-taxable and non-nicable income)?

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Tim Good profile image
By Tim Good
13th Jun 2005 21:18

Too right ...
The interaction between employer supported childcare and tax credits is now well documented. Very many directors will of course not be entitled to tax credits because of the level of their income. But if they are, then Peter is correct. This is also why employers must be very careful about offering childcare support to employees on tax credits.

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Tim Good profile image
By Tim Good
04th Oct 2005 19:02

No minimum necessary
There is no need for the director to be paid a minimum salary (and directors with no service contract do not need to be paid the national minimum wage). In theory the childcare vouchers could be the sole form of remuneration for the director.

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