Basic tax assessments
Basic tax assessments are only required to be undertaken for employees who signed up to the childcare voucher benefit on or after 6th April 2011. Employees who were already a member of childcare voucher scheme before 6th April 2011 will not be affected. They will retain their level of tax relief until:
- they leave their current employment; or
- leave the employer’s childcare scheme; or
- receive no employer-supported childcare for a continuous period exceeding 52 weeks
- their child no longer receives qualifying childcare; or
- no longer have a child qualifying for the tax relief, for example, they are older than the upper age limit specified.
If any of these events take place, then these employees must be assessed under the new rules which require employers to carry out a basic earnings assessment to establish the estimated level of relevant earnings for the tax year. This then determines the level of childcare vouchers employees are entitled to tax and N.I exempt. If the employer does not do this, the scheme will no longer meet the conditions required by HMRC and employees will not be eligible for tax relief.
Employers must carry out basic earnings assessments when the employee first joins the scheme and then annually at the start of the subsequent tax year. The assessment remains valid for the whole of the relevant tax year. The annual assessment cannot be deferred until later in the year when final information on taxable benefits is reported on a P11D. It is an assessment made on the basis of information available at the start of the tax year or when you join the scheme. Earnings figures from the previous year’s P60 cannot be used for the basic earnings assessment, as the basic earnings assessment has to reflect the expected earnings for the forthcoming year rather than the year just gone.