Companies and directly contracted childcare – how difficult can it be?

If you’re an employee (even if it is your own company), you may be able to make use of the tax relief available where the employer pays the cost of childcare directly to the childcare provider.  Both parents are entitled to use this tax relief – even if you work for the same company.

There are 5 main conditions:

  1. The child must be your child or stepchild and you must pay some or all of the child’s living costs
  2. You must have ‘parental responsibility’ but the child does not have to live with you (unless it’s your stepchild)
  3.  The childcare provider must be a qualifying one*
  4. The company has to offer this to all employees
  5. The company has to calculate the employee’s ‘relevant earnings’ in advance – the amount that is available for tax relief depends on how much the employee earns (see table below)

 

Plus, the important bit about it being ‘directly contracted’ is that the childcare provider must bill the employer directly and the employer must pay the bill – you cannot settle it personally and then reclaim it.  It is also worth noting that whilst your child may be a child forever in your mind, as far as HMRC as concerned, they are a child until 1st September following their 15th birthday.

* Examples of qualifying childcare are:

  • nursery
  • creche
  • playscheme
  • after school club
  • registered/approved childcare provider

The amount that your employer can pay (and not have additional tax or NIC to pay) is based on your tax banding, as follows:

Tax band 2014-15 limits Per week Per month
Basic < £31,866 £55 £243
Higher £31,866 – £150,000 £28 £124
Additional > £150,000 £25 £110

 

If you’re not making the most of the tax reliefs available to you, contact us and come for a tax MOT.

Telephone:  01403 211865 or our Contact Us page to send us an email

About the Author
Carolyn Burchell trained with the UK’s top firm of accountants, qualifying as a Chartered Accountant in 1996. Carolyn moved into industry in 1997 working on a number of commercial projects and managing Treasury and Credit functions before taking a career break to have a family. In 2009, Carolyn decided to enter into the stringent Chartered Institute of Taxation examination programme, qualifying as a Chartered Tax Adviser in 2012.

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