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News
March 2011
Childcare Support Changes
Businesses are reminded that the rules on employer-supported childcare will change for higher and additional rate taxpayers from 6 April 2011.
The new rules will apply to the following types of employer-supported childcare:
- childcare vouchers provided to the employee by their employer for qualifying childcare.
- an arrangement where an employer arranges directly with a registered provider to offer qualifying childcare to employees.
Both forms of employer-supported childcare are currently free of tax and national insurance contributions on the first £55 per week and, at present, higher rate taxpayers benefit from at least double the amount of income tax relief received by basic rate taxpayers.
The changes HM Revenue & Customs (HMRC) is introducing from 6 April mean that any new entrants to such schemes from this date will receive the same level of tax relief, regardless of earnings.
Employees already in a scheme prior to 6 April will receive their current level of tax savings unless they leave the scheme or are no longer eligible to participate.
From 6 April, employers will need to assess employees’ basic employment earnings for the coming tax year, including pay and taxable benefits but excluding potential bonus and overtime payments. An assessment will also be required when an employee joins the scheme other than at the start of a new tax year.
The basic employment earnings figure, after deducting the employee’s personal allowance, sets the amount of employer-supported childcare on which the employee receives tax relief, with the end result that all employees will receive relief equivalent to basic rate relief at 20 per cent on £55.
The maximum value of exempt income in the form of childcare vouchers or directly contracted childcare from 6 April, for new joiners of such schemes, is set out in the table below.
|
Basic rate (20%) |
Higher rate (40%) |
Additional rate (50%) |
Weekly |
£55 |
£28 |
£22 |
Monthly |
£243 |
£124 |
£97 |
Annual |
£2,915 |
£1,484 |
£1,166 |
