There are three ways in which employers can help with childcare costs that do not give rise to income tax liabilities for the employees, being workplace nurseries, childcare vouchers and directly contracted childcare.
An employer can provide a workplace nursery and in such a case, the cost of places allocated to children of employees is exempt from tax and National Insurance Contributions, providing certain conditions are met. This exemption can be extended to cover costs for other employees' children if they are working on your premises and use your childcare facilities.
Directly Contracted Childcare
Assistance can be given by contracting directly with a commercial nursery or childminder, in which case the first £55 per week of the cost per employee will be exempt from tax and National Insurance Contributions, providing certain conditions are met.
Employers can provide vouchers to employees that can be redeemed against qualifying childcare. the first £55 of vouchers per week (again, per employee) are exempt from tax and National Insurance Contributions, subject to certain conditions being met.
In the case of directly contracted childcare or childcare vouchers, it is important to bear in mind that the tax exemption limit of £55 per week is per employee, not per child. HM Revenue & Customs have a leaflet available on their website called 'How to help your employees with childcare' (leaflet reference e19). If you would like to discuss the tax and National Insurance implications of assisting employees with childcare costs, please contact your local TaxAssist Accountant, who will be happy to help you.
By Jo Nockels
Disclaimer: The information provided is based on current guidance (at date of publication) from HMRC and may be subject to change. Any advice shared here is intended to inform rather than advise. Taxpayer's circumstances do vary and if you feel that the information provided is beneficial it is important that you contact us before implementation. If you take, or do not take action as a result of reading this information, before receiving our written endorsement, we will accept no responsibility for any financial loss incurred.