Relevant legislation

affecting childcare voucher schemes

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There are many HMRC guidelines regarding the use of childcare voucher schemes and the rules governing tax, salary sacrifice and salary addition so we have picked out the most relevant information for you. Remember that HMRC update their information regarding childcare voucher schemes regularly on the HMRC website, and they do not inform us, and sometimes the pages are not available. We are not tax advisors and you should always make sure that your accountant verifies that you are reporting correctly.

Childcare voucher schemes and Salary Sacrifice

There is information on  childcare voucher salary sacrifices  here along with a Government information pack in the form of a  HMRC salary sacrifice PDF. HMRC guidance and faqs for employers and employees on salary sacrifice can be found  here. The information provided on salary sacrifices cover their interaction with other forms of non-cash benefits, cash benefits and allowances including statutory maternity pay, statutory sick pay, job seeekers allowance, state pensions, working tax credits, child tax credits, maternity allowance, incapacity benefits, and other income-related benefits. Understanding the difference between  child tax credits and childcare voucher schemes  is important in understanding how to reduce childcare costs.

Important information regarding VAT treatment on benefits

A recent clarification regarding the input and output tax with the provision of childcare vouchers has been issued by HMRC. From 01/01/2012, input tax charged on the administration fees of commercial voucher providers will no longer be recoverable. No VAT is to be levied on the supply of vouchers to employees as the supply of childcare is VAT exempt. HMRC has issued guidance in  Revenue and Customs brief 28/11

Definitions of different forms of Childcare Provider

IR115  - Guidance for employees and childcare provisions by employers including childcare vouchers, directly contracted-out childcare and workplace day-care or nurseries. The IR115 document also provides information on different types of suppport for parents by their employers, definitions of different forms of childcare such as approved and registered care, and help with finding childcare providers.

HMRC Tax Guidance for Employers and Employees

1. Expenses and Benefits - a tax guide helping parents and employers understand the relationship of a variety of different benefits, remuneration and how they impact on the payment of tax:  480

2. Employers further guide to PAYE (Pay As You Earn / Income Tax) and NIC (National Insurance Contributions):CWG2

3. Class 1A contributions and benefits in kind - a helpful guide if you, as en employing company or organisation, provide benefits to your employees:  CWG5

4. Employers factsheet providing an overview of providing employer-supported childcare. This includes childcare voucher schemes, workplace nurseries and childcare from a third party. The guide also includes a frequently asked questions section with regard to childcare voucher schemes along with contact details and links to departments and other guides to help with any more queries:  CFS

5. How to help your employees with childcare - a government provided guide to help with supporting working parents by providing wither workplace nurseries / child care, other child care provision and childcare voucher schemes:  E18

6. The  monthly equivalent  for childcare voucher schemes 6th April 2006 onwards - this is the amount of income that can be regarded as tax free when using childcare voucher schemes each week.

7. Interaction of  child tax credits  and childcare voucher schemes - this guide helps you to understand whether you, as a parent, are better off using a childcare voucher scheme or working tax credits.

HMRC General Tax Exemptions

Tax exemptions are provided by the Government to reduce the tax burden. The following links are to the HMRC website to help understand childcare vouchers and exemptions in greater detail.

NIM 02413  Vouchers - non cash definition
NIM 02416  Vouchers - table of exemptions
NIM 02448  Vouchers - definitions and conditions to be met
NIM 02449  Definitions of terms in 02448
NIM 02450  Definition of a registered childcare provider 
NIM 02451  Definition of an approved childcare provider 
NIM 02452  Childcare that is unqualified
NIM 02455  Definition of a qualifying week, please note that the technical people at the Reveune say the method to work out the qualifying weeks still stands
NIM 02461  The chargeable expense
NIM 02471  How to calculate the exempt amount - the general rule and showing how to 'bank' your allowance
NIM 02472  How to calculate the exempt amount - the modified rule
NIM 02473  Shows the application of 53 weeks to 2006/7 tax year and this is the same for 2007/8 and onwards

Government Childcare Voucher Scheme

The structure to operate the childcare voucher scheme and tax legislation is well established and as long as the critical rules governing salary sacrifice, or salary addition, and voucher issue are adhered to then the system works very well and HMRC approval is pretty much guaranteed. HMRC will not pre-approve, so simply set up your childcare voucher scheme and you can then inform them you are doing the scheme, it is a purely voluntary requirement and not compulsory to inform them. It is not required to inform them you are doing a salary sacrifice either.

It is important to note that if the rules and procedures are not followed, the employer and employee may be liable for HMRC penalties. Early Years Vouchers accept no responsibility if you do not conform to the required regulations.

The information that we are linked to is Crown Copywrite and we have not altered or reproduced the information in any way and it is presented in it's original format. Information contained in the links is liable to change without notice.