Cutting through compliance: childcare vouchers are ending 4th October 2018

My good friend, and legislation guru, Ian Holloway wrote a very informative and important piece on the changes to childcare vouchers last week and I’m really keen to share it with you. You can find the original article here, and I have included some key points below.

The situation

Childcare vouchers, and more broadly, all Employer Supported Childcare (ESC) schemes are coming to an end as of 4th October 2018.

This actually means that:

  • Childcare vouchersVouchers are provided, commonly via an Optional Remuneration Arrangement / salary sacrifice. Subject to annual limits that equate to up to £55 per week, £243 per month, depending on joining date and marginal rate of taxwill be closed to new entrants
  • Directly contracted childcareThe employer contracts with a commercial nursery or childminder, subject to the same limits as childcare vouchers will be closed to new entrants
  • Workplace nurseriesAn employer provides places for employees’ children in an employer-managed and financed nursery, subject to qualifying conditions – unaffected and completely tax / NICs-free, regardless of value

(Employers sometimes pay for childcare costs by, say, reimbursing expenses if an employee is attending a business event.  This is not tax or NICs exempt and should be regarded as remuneration or, maybe, included in a PAYE Settlement Agreement).

The date of 4th October was set in The Income Tax (Limited Exemptions for Qualifying Childcare Vouchers and other Childcare) (Relevant Day) Regulations 2018 and reflects the delay in the original proposal to close ESC schemes from the start of the 2018/19 tax year.

The challenge

New entrants into ESC schemes are not allowed on, or after, 4th October 2018. This will be in effect UK-wide and it is important employers and employees understand what the implications could be.

What you need to know

Tax Credits / Universal Credit

The Working Tax Credit / Child Tax Credit and / or Universal Credit is not available to claimants of Tax-Free Childcare.  This is not just the childcare element but the whole of the benefit.

See the Gov.UK guidance to familiarise yourself and this may be something you wish to make your employees aware of.

Free Childcare

Parents are already and increasingly entitled to free childcare.  However, childcare provision is a devolved issue and it is exceedingly complicated.

In England and Wales this is 30 hours per week but for different lengths.  In Scotland it is 600 hours per year and in Northern Ireland it is called free early education at 12.5 hours per week.

Childcare Choices

This is, perhaps, one of the best websites to direct our employees to.  This includes a ‘childcare calculator’ that comprises the Tax-Free Childcare scheme with other childcare initiatives.

However, it is ostensibly designed for working families in England.

The terminology

Basic Earnings Assessment (BEA) – This has to be performed for entrants to the ESC scheme on, or after, 06 April 2011

Childcare Account Notice (CAN) – When a Childcare Account is opened by the eligible parent / parents, they must provide a CAN to their employer within 90 days.  Receipt of the CAN confirms that the employee is no longer eligible for ESC but are getting tax relief through TFC. A CAN is not a specified form, it just means putting the request in writing

Entitlement Period (EP) – The UK Government Tax-Free Childcare Income Tax support is only for a 90-day (3 month) EP at a time.  This means that the maximum top-up is £500 per quarter (£2,000 / 4).  At the end of the EP, the parent is required to reconfirm their eligibility and so opens the next 3-month EP

Tax-Free Childcare (TFC) – The UK Government’s new childcare tax relief scheme that is the only option for new entrants on, or after, 04 October 2018 (apart from workplace nurseries).  HMRC have a dedicated helpline on 0300 123 4097 for childcare issues

A transfer under the Transfer of Undertakings (Protection of Employment) Regulations 2006 (TUPE) – A transfer where, essentially, the terms and conditions of the previous employment are protected from detriment in the new employment.  TUPE transfers don’t impact the continuation of ESC from one employer to another

Common FAQs

See Ian’s original article here for a comprehensive assessment of some of the common situations employers may face and questions employees may ask about the closure.

Useful resources and sources

Childcare Vouchers End 4th October 2018 article

Please use the following contact details for further queries not covered in the guidance:

tax-free.childcare@hmrc.gsi.gov.uk

Childcare Service helpline: 0300 123 4097