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Employer Funded Childcare
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Posted in Candidates, Employers on Aug 06, 2012 by Richard Hayden
Guest Blogger, Gavin McBride of Smith McBride Chartered Accountants gives expert advice on how employer funded childcare can have tax and NIC benefits for both the employee and employer.
An employer can provide its employees with childcare vouchers or pay the childcare provider direct as long as the childcare provider is registered with the relevant authorities.
The amount that an employee can receive in childcare without having to pay tax or NICs will depend on when they joined their employer’s scheme and on the level of pay they receive from their employer.
If an employee joined their employer’s scheme on or before 5 April 2011 they can get up to £55 each week, or £243 each month free of tax and NICs.
If they joined their employer’s scheme on or after 6 April 2011 they can still get up to £55 each week, or £243 each month free of tax and NICs if their employment earnings are not more than the higher rate threshold (£43,105 gross 2012/13). If their earnings are more than the higher rate threshold then the amount they can get free of tax and NICs is reduced.
If both parents are working they are each entitled to an exempt amount of childcare i.e. for 2 basic rate tax payers, their employers could each pay £243 per month towards childcare.
There are tax and NIC benefits for both the employee and employer. For example if an employee on a £20,000 per annum salary had a child that they wanted to put into childcare, their employer could offer them a salary sacrifice of £243 per month and in return, the employer would pay direct to the child care provider £243 per month. The benefit of this being that the employee has saved tax and NIC on £243 per month on their salary which would be £77.76 per month and the employer has saved employers national insurance on £243 of salary which would be £33.53 per month. The combined tax saving is therefore £111.29 per month (£1,335.48 per year).
