This is the penultimate day of our Tax & Accounting at Christmas Special, as we analyse the tax and accounting treatments of all things Festive and open a door in our Christmas Advent calendar to count down each working day until the Christmas holidays in the UK. 

The Childminder

In the story of the Nativity, a child was born. Parents Mary and Joseph had travelled to Jerusalem to be counted in a population census. We presume that the results were used by the Romans to budget for taxes; there were no tax breaks for childcare back then but with tax rates as low as 3% under the early Roman empire they were not necessary.

What tax relief is available now for childcare and who is eligible for it?

Accounting

The costs of providing childcare to staff will be part of staff remuneration or welfare.

Tax

The tax-free childcare account opened on 21 April 2017 and has been open for children of all ages since   February 2018. It applies to employees where there is no Employer supported childcare (which is now limited) and the self-employed.

The Childcare voucher and employer directly contracted childcare schemes closed to new entrants on 4 October 2018.

Self employed

The childcare account applies to the self-employed:

  • Government top-up of 20p for every 80p paid to a maximum of £2,000 per child per year for an £8,000 contribution by parents.  
  • Both parents must be working the equivalent of 16 hours per week at the National Living Wage.
  • Neither parent must earn more than £100,000 per year.
  • Only regulated and approved childcare providers will be able to receive payments from the account.

Employees

Three types of employer supported childcare are exempt from Income Tax and National Insurance contributions (NICs).

  • Workplace nurseries
  • Other childcare
  • Childcare vouchers. From 4 October 2018 the childcare voucher scheme has been closed to new entrants; those already in the scheme can continue to use it but may find they are better off under the new childcare account.

Those in employment can also use the tax-free childcare account; if their employer contributes to the account this will be subject to tax and NIC’s as additional remuneration.

Workplace nurseries

  • Places allocated to the children of employees in workplace nurseries are completely exempt from tax and NICs if they meet certain conditions.
  • This exemption also covers another employer’s staff who work on the employer’s premises and use its childcare facility.

Conditions must be met in respect of

  • The child cared for
  • The premises where the care is provided
  • The employees who may use the care

VAT

  • Childcare is exempt from VAT as a welfare service. 
  • Input VAT incurred in relation to providing childcare for employees is therefore not recoverable unless it fall within the Partial exemption de minimis limits.

Links to our subscriber guides:

Tax-free Childcare
A summary guide to the new tax-free childcare account and how it works.

Tax-free childcare or childcare vouchers
This guide compares the childcare options; those eligible under both schemes need to consider which is best for them.

Childcare and Childcare vouchers
Many parents remain eligible for childcare vouchers and this guide explains the rules in detail.

Employer provided nurseries
A guide setting out what an employer needs to do to qualify for exemption for a workplace nursery.

High Income Child Benefit Tax Charge
When does the HICBC apply? How is it calculated, who pays it and how should it be declared?

Health and welfare: VAT 
This guide looks at supplies of medical care and to charities and welfare services including childcare.

External links:

Government’s Childcare Choices site

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