If certain conditions are met, childcare support provided by employers (or in your case, your limited company) can be partly or completely exempt from Income Tax and National Insurance (NI).
There are a variety of ways of providing childcare support but the most popular is childcare vouchers. The employer provides the employees with childcare vouchers which can then be used towards the cost of qualifying childcare.
The employee can choose the childcare provider and when the vouchers are used- so you could save them up for when you need more childcare than normal. A stipulation of the scheme is that the childcare provider must be registered with the relevant authorities in your part of the country.
You can get up to £55 each week free of tax and NICs if your employment earnings are not more than the higher rate threshold. If your earnings are more than the higher or additional rate thresholds then the amount you can get free of tax and NICs is reduced (currently £25 per week or £110 per month). Any excess above these limits will be subject to tax and NI just as normal wages.
A major advantage for a lot of directors of small, owner-managed companies is that the income used for assessing whether you are entitled to the £55 or £25 rate per week, is employment income and does not include dividends. So if your wife and you are on low salary and high dividend remuneration strategy, you are likely to be entitled to the higher rate- and you can have the amounts each; not as a couple!
If you would like to discuss childcare vouchers or any other tax planning available to you, please contact us to be put in touch with your local TaxAssist Accountants office.
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.