Employers – Provide Employees with Child Care and Cut your NIC Bill by over £300 per Employee?From 6 April 2005 the first £50 a week or £217 a month of childcare support you give to your employees can be given free of Tax and NIC if qualifying conditions are met. These are broadly:
- The childcare is either registered or approved
- The child is a child or stepchild of the employee who is maintained or resident with the employee and for whom the parent has parental responsibility
- You offer the support to all of your employees (although there is no minimum size of employer)
It is this last point that makes this seem unattractive for most employers as it is difficult to quantify and cater for in practice.
With a little bit of thought however, you could reap the NIC savings as an employer as well as help retain/attract key staff. Let me explain ………
Childcare from a third partyThis needs to be bought directly from a third party i.e childminder, nursery. You can set up the contract yourself, but must ensure that you keep a record of who has received the benefit and to show that the conditions for exemption are met.
Childcare VouchersVouchers for childcare can also be provided. Again these can be administered by yourself but you must ensure that the vouchers cannot be used for anything but childcare and that they cannot be transferred or sold.
POTENTIAL SAVINGSThis is interesting, as there are tax and NIC savings to be made by both the employer and employee.
The annual tax saving for a higher rate tax payer would be £1066 in tax and NIC’S. For a basic rate tax payer the saving would be £858.
Moreover employers could make savings of up to £332.80 (£2600 x 12.8%) per employee.
The £50 exemption applies to each employee, not per household or number of children. If the childcare support provided exceeds the £50 per week the excess will be liable to Tax, NIC (both employees and employers) and class 1A NIC’s for employers. However, if both carers work with the business they can both claim!
SALARY SACRIFICE! Why not offer a salary sacrifice scheme in respect of Childcare Vouchers? In the case of Childcare Vouchers the salary would be reduced by £2600 per annum. New contracts for employees would have to be drawn up for those employees participating in the scheme and details of the salary sacrifice included on the payslip as well. Care must be taken that no variation in the contract allows the employee to revert back to the original cash salary at any time as this would not be considered a true salary sacrifice and the £50 exemption would not apply.
Before considering salary sacrifice however, employees will want to carefully check that they will not be worse off. Even with the tax saving it could reduce the amount of tax credits they receive and they could end up with less money overall. The sacrifice could also jeopardise any future entitlement to work related benefits such as maternity pay, sick pay and pension benefits.
Overall though, this could be a win/win solution for employer and employee!If you would like some more in depth advice on employer- provided childcare vouchers please contact Suzanne Precious at Nunn Hayward or email her at
Suzanne@nunn-hayward.com.
