Are you clued up on claiming childcare costs?
Posted on 25th July 2019
With the summer holidays finally here, children all over the country are no doubt looking forward to six full-on weeks of fun. Whether you’re jetting off somewhere sunny and warm or you’re looking forward to a relaxing staycation, there’s no doubt that the summer holidays are hard work, especially when there are younger children involved.
For any working parent, even just having the kids off school for a week during half term can be daunting, not only in terms of keeping them busy and entertained whilst juggling a job, but the financial pressures when it comes to the ever-rising cost of childcare. It’s no surprise that the six-week break is often a source of stress, anxiety and pressure for so many working parents.
Which schemes are available to limited company directors?
Prior to 4 October 2018, limited company directors had access to two schemes when it came to seeking assistance for childcare costs – the voucher scheme or a direct agreement. The limited company could contribute to some of your childcare costs and claim the costs back on expenses.
If you are already claiming on either of these schemes, you are safe and can continue to claim. However, from 5 October 2018, unless you were already getting directly contracted childcare or childcare vouchers, your only option now is the Tax Free Childcare Scheme.
Schemes available pre-October 2018
Childcare voucher scheme:
If you currently use the voucher scheme, you will probably now be aware that it was closed to new applicants in October 2018, so if you aren’t already using the scheme you won’t be able to apply for it. If this is you, then don’t panic – there is another way (see Tax-Free Childcare scheme below). The limited company can purchase childcare vouchers which are then handed to you, the employee (and any other paid directors).
Direct agreement between employer and employee:
This option was used when an employer i.e. your limited company would pay for childcare costs directly to a provider, e.g. a nursery or a nanny. The amount paid would be set out in an agreement between the employer and you, the employee (and any other paid directors). As with the voucher scheme, the direct agreement is no longer available to new claimants.
The only scheme available post-October 2018
Tax-Free Childcare scheme
If you do not currently belong to any childcare scheme, you will now need to sign up to the new Tax-Free Childcare (TFC) government scheme, through which you could receive up to £500 every 3 months (£2,000 a year) for each of your children to help with the costs of childcare. This only applies to you if neither you nor your partner (if applicable) earns more than £100,000 per year, and the scheme only applies to children who are aged 11 or under.The childcare provider then claims their fees back through the voucher scheme. Although the voucher scheme is closed for new signups, as long as your limited company runs the scheme and you are an employee of the limited company, you can continue to use the scheme.
How do I know whether I can use the TFC scheme to pay for my childcare?
There is a strict criterion that needs to be adhered to in order for anybody to benefit from using the TFC scheme. The criteria are:
The provider of the childcare must be registered with Ofsted;
The child you are claiming the cost of childcare for must be under your care and you must have parental responsibility for them – adopted children fall within this regulation but fostered children do not;
Any payments made beyond the allowance do not qualify for tax or National Insurance exemptions.
If you are a limited company director and you meet the criteria above, you may find that joining a childcare scheme is the answer to your prayers for the busy six-week holiday! Putting the costs of childcare through your limited company can save you a decent amount of money, and will also help reduce your corporation tax if you pick the direct agreement option (the Tax-Free Childcare scheme is paid directly to you so there are no corporation tax savings).
You could use any money you save for a well-deserved weekend break after summer – a hard-earned reward for surviving the summer holidays!
How do I know which scheme is right for me and my family?
As with all accounting enquiries, there is no one-size-fits-all answer, and it will depend on your individual circumstances. Book a call with Nicola, our founder, or feel free to send us a quick email. We would be more than happy to assist you, and will help you figure out whether the TFC scheme is a good fit for you and your family!
Nicola J Sorrell
- Effective Accounting
Founder | Xero Champion | IR35 Expert
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