Employer provided childcare vouchers and Scottish Income Tax
12 February 2018
Our advisory team has been receiving some questions around the proposed change in Scottish income tax from April 2018 and the impact this will have on childcare vouchers.
We were asked similar questions last year following the introduction of the Scottish rate of income tax and so for clarification around the income levels used to calculate the appropriate tax and NICs relief for childcare vouchers, see the following which was also published in HMRC Employer Bulletin – April 2017:
Eligibility to tax-free childcare vouchers depends on an employee’s income level. Employers have to estimate the employee’s relevant earnings for the tax year since the exempt amount of childcare vouchers is based on their relevant earnings.
S270A of Income Tax (Earnings and Pensions) Act 2003 sets out the levels of income at which the exempt amount changes.
If the estimated relevant earnings amount:
- exceeds the higher rate limit for the tax year the exempt amount will be £25 for each qualifying week;
- exceeds the basic rate limit but not the higher rate limit then the exempt amount for that tax year will be £28 for each qualifying week;
- otherwise the exempt amount for that tax year will be £55 for each qualifying week.
Eligibility criteria for employer provided childcare vouchers are not devolved to the Scottish Parliament and, therefore, the basic and higher income tax rates mentioned above are the UK rates.
This means that the same limits apply for all employees in the UK in receipt of childcare vouchers.
As stated in HMRC’s Employment Income Manual:
“Basic rate limit and higher rate limit refers to the UK rates as defined in S10 (5) and (5A) ITA 2007. This means the same limits apply for all employees in the UK.”