Childcare vouchers have been around for some time (in its current form since April 2005), and as such are one of the most popular benefits provided to employees.
They are generally offered by employers in the form of a salary sacrifice arrangement whereby the employee will, by sacrificing salary in exchange for the vouchers, save in tax and national insurance an average of around £904 per annum (£1,196 for higher rated employees). The employer also benefits from the adoption of such scheme with a saving in employers national insurance (“NI”) amounting to £373 per annum.
If you factor in the fact that the children involved are more likely to obtain a better quality of childcare as a result of its parents having slightly more money; employers are likely to have a slightly happier workforce and pay less in NI. In addition, the government can be seen to be supporting parents by enabling them to re-enter the workforce. It would seem it is a win win situation for all involved!
It therefore saddens me to have to inform you that from 2011 the scheme in its current form is likely to be phased out:
Following the PM statement at the recent labour party conference HMRC's press office subsequently provided the following statement:
“The PM has announced an extension to the Government's provision of free nursery places for two year olds so that 250,000 children will benefit by 2015/16.
This extension will be funded by the phased withdrawal of the tax and NICs exemptions for childcare vouchers provided by an employer. From April 2011, employees who join an employer-supported voucher scheme will not be entitled to the existing exemptions.
Existing recipients of vouchers will be unaffected until April 2015, when the exemptions for vouchers will be withdrawn completely. These changes affect childcare vouchers only - the long-standing exemptions for workplace nurseries will remain unchanged. More details will be set out at Pre-Budget Report.”
As you would expect there is already a “save the vouchers” campaign and an online petition should you wish to join it. With the potential demise of childcare voucher schemes, there is likely to be a resurgence of the old employer financed and managed workplace nursery schemes.
The basic rules for such schemes are detailed within section 318 IT(EP)A. In short the exemption for workplace nurseries applies when childcare for eligible children is provided by an employer:
• on the employer's premises or
• in circumstances where the employer is responsible, in whole or in part, for the management and financing of the arrangements under which the childcare is provided.
A lot of the old schemes were being challenge by HMRC as the employers where not seen to be truly exercising their managerial or financing requirements when participating in “off the shelf schemes”.
Unlike the government-backed provision of childcare vouchers, genuine employer provided workplace nursery schemes are not capped at £55 per week. In essence, therefore the potential tax advantages for both employer and employee are significantly greater.
We would, however, advise caution when you are presented with such a scheme, especially those purporting to have HMRC approval. I would always recommend that you have any such scheme considered by your tax advisor so as to be sure that you are fully aware of the risks before you enter. As always, we will be more than happy to provide you with any assistance if required.
Fingers crossed however that the political back lash that may result in such a change will lead to a rethink of this proposal long before we get to 2011!
