With all of the recent changes affecting contractors, it is more important than ever for contractors to ensure that they are making the most of all expenses that can be claimed through their Limited Company.
Childcare vouchers are not very well advertised for contractors, however it is definitely something that can be claimed and will improve tax efficiency for contractors. This is due to the Limited Company receiving Corporation Tax relief on the payments that are made and childcare vouchers up to the rates below are both tax free and NI exempt.
The childcare voucher scheme was set up by the government in 1989 to assist working parents with their childcare costs. The vouchers can only be used to pay registered and approved child carers and they cover children up to the age of 15.
How much can you claim?
The amount that can be claimed is dependent on the level of earning of the individual which can be seen in the table below. So if the employee is within the ‘basic rate’ tax bracket you will be able to provide them with up to £243 per month in childcare vouchers without there being any tax and NI implications.
| Basic Rate | Higher Rate | Additional Rate | |
|---|---|---|---|
| Weekly | £55 | £28 | £22 |
| Monthly | £243 | £124 | £97 |
| Annually | £2,915 | £1,484 | £1,166 |
You partner is also able to benefit from the voucher scheme too as the exemption is for each employee and not the number of children you have. So if your partner works for your Limited Company you can pay childcare to them too. If they work for another organisation that runs the scheme they are able to make use of this benefit with them.
How to set up the scheme
The best way to set this is up is for the Limited Company to have a direct agreement with a childcare provider. So the Limited Company will buy vouchers from a third party provider on behalf of the employee. This method is ideal for those employers who only have a small number of employees who use childcare.
All that is required is for the director of the Limited Company to write a letter to the childcare provider confirming that they wish to purchase childcare vouchers from them and to set up a payment to them. Then it is just a matter of keeping appropriate records, including basic details of the child the vouchers relate to.
Your accountant will be able to assist in providing a letter template to provide to your childcare provided, so get in touch with them today.
This article was provided by our friends at Gorilla Accounting who offer specialist accounting services for freelancers and contractors.
Hi,
Is that monthly limit on top of your basic salary? or would that mean that your basic salary needs to be reduced that amount?
For example, if you’ve got a salary of £1000 per month, would you be able to keep £1000/month + £243 in childcare vouchers, or would you need to get a new reduced salary of £757 + the £243 amount in vouchers?
Thank you,
Michael
Hi Michael
Yes, this is a tax free amount and is in addition to your personal allowance. You will not need to take a reduced salary.
So long as no more than £243 is paid per month for a basic rate tax payer then no tax and NI would be due.
Regards
Jamie-Leigh
Hi,
Maybe this is a silly question, but by “child cares” you also mean the nurseries?
Thank you,
Flor