Cost of Childcare continues to rise
The Day Care Trust have recently published the findings of their 2011 survey of Childcare Costs, and it is no surprise to any working parents that costs are on the up.
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Employer's FAQs
- Can Directors of the Company participate in the scheme too?
Directors can participate in a Childcare Voucher scheme, however to do so they must also be an employee of the Company as the tax relief is only available to employees. If they are offered the scheme as an Addition to Salary scheme, then you need to be aware that the scheme must be offered as an Addition to Salary scheme to all employees for the tax relief to be allowable. If they are offered the scheme as a Salary Sacrifice scheme, you need to ensure that the Director's salary does not drop below NMW.
- How will having Childcare Voucher affect my existing benefits
It is worth bearing in mind that if you take Childcare Vouchers it can have an impact on your entitlement to other benefits. This is because the salary sacrifice agreement alters your salary for the period that it is in place.
You should always ensure that your Voucher Order does not drop your salary below the Lower Earnings threshold (for the tax year 2011/12, this is £102 per week), as this can affect your rights to benefits that are based on National Insurance Contributions such as Jobseekers Allowance, and the amount of pension that you receive when you retire. - How will having Childcare Voucher affect my right to Statutory Maternity Pay?
It is worth bearing in mind that if you take Childcare Vouchers it can have an impact on your entitlement to other benefits. This is because the salary sacrifice agreement alters your salary for the period that it is in place.
Some benefits, such as Statutory Maternity Pay, are based on your salary. As your entitlement is to 90% of salary for the first 6 weeks, reducing your salary will have an impact the amount you are paid for those 6 weeks.
- How will having Childcare Voucher affect my Tax Credits ?
If you join a salary sacrifice scheme, it is the reduced salary that will be used to calculate your entitlement to Working Families Tax Credits and Child Tax Credits. If you are currently receiving WTC or CTC you should call them and ask what impact taking Childcare Vouchers will have on the amount of Tax Credits you receive.
- Is it easy to change the amount of Vouchers I want?
Your employer will have specified how regularly you can change the amount of your Voucher Order. It is usually every 6 months, or once a year. Your online Account Manager will show the date the next change is allowed, and you can pre-book the change for it to take effect from that date.
- We are only a small employer, I thought this scheme was just for large companies?
The size of your Company is irrelevant, whether you have 1 participant or 100, the potential savings you will make on each participant are the same. Maximise don't have any set up costs, and you pay just 2.5% of the Voucher Order as an admin fee, so you aren't penalised by disproportionate costs if you have only a few participants. Also, because we offer a fully managed service, the amount of time that the Company needs to dedicate to the scheme is minimal, meaning it doesn't matter if you don't have a dedicated HR department.
- What are the benefits to the Company in running a Childcare Voucher Scheme?
As well as the potential savings of £402* per participant per year in Employers NIC, the scheme will help you to attract and retain staff, and improve moral.
- What happens to the Vouchers if my employee leaves?
Childcare Vouchers don't expire and your employee will still be able to access their account online. You will stop being charged for the Vouchers when the employee leaves, but they still have them available to redeem for registered Childcare until the 1st September after the child turns 15, (16 if the child is disabled).
- What is a Basic Earnings Assessments?
Before 5th April 2011 all employees were entitled to receive up to £243 per month of Childcare Vouchers free of tax and NI. However, the government have now changed the rules, and the maximum amount that any new participant in the scheme can now receive in Childcare Vouchers depends upon their tax band.
Whether an employee is subject to the new limits depends upon when they joined the scheme. If they joined on or before 5th April 2011 (that means that needed to have been accepted onto your scheme, but not necessarily have received their first order of vouchers) then they fall under the old limits, and you do not have to worry about Basic Earnings Assessments.
However, if they were accepted on to your scheme on or after 6th April 2011, then you need to conduct a Basic Earnings Assessment. You will need to carry out the assessment when the employee first joins your scheme, and then annually at the start of each tax year.
The assessment is valid for the whole of the tax year, so if your employee received a pay rise, promotion, changed to part-time etc the BEA undertaken remains valid until the start of the next tax year.
The calculations is Basic Earnings + Taxable Benefits = Relevant Earnings
If the Relevant Earnings does not exceed £42,475 they are classed as Basic, greater than £42475 but less than £150,000 they are classed as Higher, above £150,000 they are classed as Additional.
Should you decide to register with Maximise Childcare Vouchers we will provide you with further details, and template Basic Earning Assessment forms for you to use.
- What is an Addition to Salary Scheme?
An Addition to Salary Scheme, as the name suggests, means that you add Childcare Vouchers to the salary. This can be a great idea if you are a small family run business, however if you have lots of staff it could prove costly.
If you opt for an Addition to Salary Scheme there is no need to use a Salary Sacrifice Agreement, and no reason to inform HMRC. However, for the scheme to be Employers NIC free, it needs to be offered to all your employees. This means that you can't operate an Addition to Salary scheme for family employees, or Management, and a Salary Sacrifice Scheme for the rest of the staff.
The tax savings are the same with an Addition to Salary Scheme, however because it will be you as the employer that pays for the voucher order, it will prove more costly to the company to do it this way. This is because you are making an additional payment to your employees to aid their payment of childcare costs.
- What is Salary Sacrifice?
When you set up a Salary Sacrifice Scheme, your employees will need to enter into a Salary Sacrifice Agreement. This agreement varies the terms of their employment contract by showing that they have agreed to receive childcare vouchers in exchange for part of their salary.
There is, in theory no actual limit to how much an employee can "Sacrifice", however, in practice it shouldn't allow their salary to fall below National Minimum Wage. We would also advise that you ensure that it doesn't allow their earnings to drop below the Lower Earnings Limit as this can affect their entitlement to some state benefits.
We can provide you with a template Salary Sacrifice Agreement, and if you decide to use ours, we can administer it on your behalf. If you want to get your own, that's fine too, you will just need to ensure that each scheme participant has a current agreement in place.
We recommend that you seek HMRC approval for your salary sacrifice Scheme as this will give you peace of mind that you are operating it correctly. We can support you in doing this, and provide you everything you need.
- Which of my employees should I offer the scheme to?
If you want to benefit from the savings on Employers NIC then it is really important that your scheme is open to all employees to comply with NIC regulations. However, those that can take advantage of the scheme need to have a child who is 15 or under on 1st September, have parental responsibility for that child (this means Step Parents or legal guardians can also benefit), and use Registered Childcare.
- Will I have to complete P9D forms at the end of the tax year for each of the scheme participants?
As long as you have operated the scheme within the HMRC's maximum amount of vouchers on which tax relief is allowed for each member of staff (£243 per month for all those who joined prior to 5th April 2011, and dependent upon their tax band for those who joined after) then the benefit they have received does not need to be recorded on the P9D.
It is perfectly acceptable for a member of staff to have a higher amount than the HMRC's maximum amount for tax relief, however you then have to process the higher portion through your payroll so that NIC (but not PAYE) is paid on it.
For example, someone who is allowed £243 per month, asks to receive £300 per month through Salary Sacrifice. The first £243 should be paid without the deduction of NIC, however the additional £57 is liable.
Well, half term is upon us, and it doesn't seem 5 minutes since my little boy was going back to school in September. Like most w...
