The Practical Guide to Limited Company Tax
If you have chosen to operate your business as a limited com...
By Lynne Gowers on 9th April 2018
It is out with the old and in with the new when it comes to tax relief on childcare costs from April 2018.
The old childcare voucher scheme is being phased out and instead, working parents with children under the age of 12 can now take advantage of the Government’s tax free childcare scheme by opening an online account to receive their tax free Government top-up. If you are a working parent, particularly if you are a contractor or freelancer, here is what you need to know:
The new scheme is open to all working parents, not just employees.
This is a welcome boost if you operate as a sole-trader as you would have been previously excluded from the childcare voucher system. What’s more, the earnings limit does not apply if you have started your sole trader business less than 12 months ago.
It is also positive news if you are a limited company director. While you always had the option of setting up a childcare voucher scheme through your company, it involved a lot of administrative faff – including finding a registered provider, possibly paying them a fee or commission and then claiming against your corporation tax bill to get the tax relief.
So, unlike the old scheme, tax free childcare means sole traders can finally benefit and limited company business owners face considerably less hassle securing tax relief on their childcare costs.
The system of childcare vouchers, also known as employment-supported childcare, is money paid out of your pre-tax income to pay towards nursery fees and other costs, such as music lessons.
It was up to employers whether or not they supported childcare vouchers, meaning that a wide proportion of workers missed out.
As it stands, if you are are already in a childcare voucher scheme, you will be able to stay in it for as long as your employer continues to run it.
In the same way, if you are a limited company director with a childcare voucher scheme already in place, you will be able to retain it.
However, anyone who isn’t already using the childcare voucher system will no longer be able to, and will have to sign up to the new scheme – Tax Free Childcare
Under the new service, eligible families will get 20% of their annual childcare costs paid for by the Government. You join it by creating an online childcare account, which takes about 20 minutes to set up (quicker if you already have a log in for the Government Gateway).
For every 80p you pay into your account, the Government will top it up by 20p. The scheme applies a cap of £10,000 annual childcare costs per child, so you could get up to £2,000.
You can get up to £500 every three months to total the full £2,000 per year.
Tax free childcare is open to all working single parents and couples who pay for approved childcare (generally Ofsted registered childcare) for a child under the age of 12, or under 17 if the child is disabled.
If your child is over 5 and the childcare is provided by the school, this must be outside school hours and on the school premises.
To be eligible, you will need to:
View our tax free childcare guide for more information, including details about how it interacts with other forms of childcare help.
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