Employer-Supported Childcare and Tax-Free Childcare
27 August 2015
HMRC provided an update in their latest Employer Bulletin which mentioned the delay of the launch of Tax-Free Childcare until early 2017. As a result of legal action a suspension was placed on the development of the scheme which prevented key delivery steps from taking place.
The Supreme Court confirmed on 1 July that the government’s proposals for delivering Tax-Free Childcare (TFC) were lawful. This upholds previous judgments from the High Court and the Court of Appeal. The government welcomed the court’s judgment but has also announced that, as a direct result of the delay caused by the legal challenge, Tax-Free Childcare will now launch from early 2017.
The government has also announced that the existing Employer-Supported Childcare scheme (ESC – often known as childcare vouchers) will remain open to new entrants until Tax-Free Childcare is introduced.
The new Tax-Free Childcare offer will provide up to 1.8 million families across the UK with up to £2,000 of childcare support per year, per child (or £4,000 for disabled children). Parents will operate their new childcare account via an online system operated by HMRC in partnership with National Savings & Investments.
If you operate an ESC scheme, your employees who currently use it will be able to choose to stay in that scheme - while you offer it. We will provide further guidance, as well as a calculator which will help your employees to make a choice about which scheme is best for them, before Tax-Free Childcare is introduced.
As an employer you will have no mandatory role within the new Tax-Free Childcare scheme. However you may want to keep your employees up to date with the changes that are being introduced. You will also be able to make payments into your employees’ childcare accounts, if you want to. You will be liable to pay National Insurance contributions (NICs) on these payments and your employees will be liable to pay both income tax and NICs.
Workplace nurseries will be unaffected by the introduction of Tax-Free Childcare.
We would just like to clarify the part about employers being able to make payments into their employees’ childcare accounts. Employers have the option of paying into accounts but it must be from net pay where the tax and NICs have already been deducted. Employers must not make payments from gross pay.
Payments can be made from net pay even if it takes the employee’s remaining pay below the National Minimum Wage threshold, as payments into childcare accounts will still be classed as earnings.
Future guidance will provide full details on how an employer can make payments into their employees’ accounts.