Home > Ask Our Experts > Can we Set up a Childcare Voucher Scheme?

Can we Set up a Childcare Voucher Scheme?

By: J.A.J Aaronson - Updated: 2 Sep 2012 | comments*Discuss
 
Childcare Childcare Vouchers Employee

Q.

My husband and I are both the only employees of a close company. My husband is company director and I am company secretary and deal with bookkeeping and other administrative tasks.

I work 2 days a week and we pay for our 3 children to go to registered childcare on those days (this is all paid privatey not through the company).

Do you know if we are allowed to set up a childcare voucher scheme as we are a close company? Would payments for vouchers under the scheme still be allowable for corporation tax?

Are the employees (i.e. my husband and I) still able to get these vouchers tax and NI fee, or does it get considered as a benefit because we are a close company?

(Mrs E.C., 12 November 2008)

A.

The childcare voucher scheme is a very useful, but frequently underused scheme. The government has recognised that the cost of childcare for employees is a significant one. In fact, childcare costs can count among a family's largest regular expenditures. As such, the Childcare Voucher Scheme has been introduced to help ease this financial burden. The scheme allows employees to pay for the cost of childcare from their gross income – that is, from their income before tax. With childcare costs frequently reaching the thousands, this can represent a significant tax saving.

Close Companies

The rules regarding Close Companies are not particularly well explained in HM Revenue and Customs (HMRC) guidance – in fact, there isn't really any guidance on this issue at all. As such, it should be assumed that close companies are treated in the same way as other companies. This assumption has been backed up by numerous accountants; having done some research, I have found various accountants suggesting that they have received verbal confirmation from HMRC that close companies are eligible for the childcare voucher scheme.

Payment in Voucher Form

There are, however, a few factors that you should take into consideration when establishing your childcare voucher scheme. In the first instance, you have mentioned that you are currently paying privately for your childcare. Payments will not be allowable under the favourable tax treatment offered for childcare vouchers if the employee has contracted privately for the childcare and the bill is then settled (in whole or in part) by the employer. As such, you need to make sure that the payment is made in voucher form only; cash payments from the company will be taxed as a Benefit In Kind.

Setting up Your Own Scheme

Alternatively, the company can contract with the childcare provider directly, on your behalf. It is vitally important that the vouchers are viable under HMRC guidance. However, you should remember that this does not necessarily entail paying for the services of a voucher provider. It is perfectly possible for an employer to establish their own voucher scheme, rather than outsourcing. Indeed, for a small company, this may represent a cost saving in the long term, even though it can be fairly arduous to set up in the beginning.

At all stages of the process, it is vital that you stick to the general guidance offered by HMRC, a summary of which is available on this site. Furthermore, it is important that you consider the effects that a voucher scheme may have on your personal tax credits.

You might also like...
Share Your Story, Join the Discussion or Seek Advice..
Why not be the first to leave a comment for discussion, ask for advice or share your story...

If you'd like to ask a question one of our experts (workload permitting) or a helpful reader hopefully can help you... We also love comments and interesting stories

Title:
(never shown)
Firstname:
(never shown)
Surname:
(never shown)
Email:
(never shown)
Nickname:
(shown)
Comment:
Validate:
Enter word:
Latest Comments
  • mac
    Re: How Will My Second Job Be Taxed?
    Hello, I have 2 jobs - 1 full time (my main job) through an employer that pays me £80k a year, then I have another, which…
    9 September 2019
  • Chris
    Re: How Will My Second Job Be Taxed?
    I'm an apprentice earning £8,482 a year. I also have a second job, 5 hours a week, earning £2,000 a year. As both wages total…
    8 September 2019
  • Laura
    Re: How Will My Second Job Be Taxed?
    Good afternoon, I have two full time jobs one 25,272 per year and second 24,591£ how much tax I pay in one year? . Thank you .
    7 September 2019
  • Jan
    Re: Payment of Pensions
    I would like the frequency of my State Pension payments changed to weekly from four weekly. How do I do this?
    30 August 2019
  • Komo
    Re: How Will My Second Job Be Taxed?
    I work full time and earn approximately £61k a year. I recently started a small business which could pay me up to an extra…
    29 August 2019
  • Maetso
    Re: Can Tax Allowance Be Claimed on Work Clothes?
    I'm a residential support worker and have to wear my own clothes as there is no uniform. Can I claim…
    26 August 2019
  • Kenthen
    Re: What Does Road Tax Pay For?
    I often wondered if it's legal for the council to close public roads for pedestrian usage unless it's for repair or some other road…
    11 August 2019
  • Oky
    Re: How Will My Second Job Be Taxed?
    Hi if I work for 2 agency. One job is 40 hour per week and other is 12 or 20 hours per week, only for one week it will be.…
    7 August 2019
  • Jo-jo
    Re: How Will My Second Job Be Taxed?
    I have main job at 24 hours a week and earn £198 a week if I take on a 2nd job at 10 hours a week at £9.04 an hour how much…
    3 August 2019
  • Jules
    Re: Should I be Paid Mileage Allowance?
    Im a carework i dont get paid any mileage i only get 25p per visit but my calls are 5 & 6 miles apart how do i claim some…
    24 July 2019