It has been confirmed that there will be changes to the tax laws regarding the childcare voucher schemes in 2011. The government view that there are too many well-off parents benefitting from this (including tax-free music lessons through certain schemes) has led to a change in the way the system will work.
This is the time of year many employees will have to decide on salary sacrifice scheme for the coming year so ensure your employees are aware of the following:
1. If employees are elegible, make sure they sign up now. They have until April 6 2011.
2. They must have a child (born or adopted) by 5 April to sign up
3. However: the first voucher does not need to have been issued by 6 April
4. They will only benefit from the marginal tax rate after 6 April 2011: existing employees within a scheme can continue to benefit from marginal rate relief on their childcare
5. The change withdraws relief in excess of basic rate for new joiners
6. A break (career or maternity etc) will not make you a ‘new joiner’
7. Childcare is not just for younger children – it can be used up to the age of 16.
As an employer:
• If you haven’t already made a scheme, do so now
• If you have a nursery, you likely won’t be affected. These will continue as a tax-free benefit providing all the requirements are met.
• The scheme MUST be available to all employees – closing it to new entrants will only make it taxable and NIC-able to all.
If in doubt, check the HMRC website here.