Some employers currently offer support for the childcare costs of their employees, perhaps by offering a place at a workplace nursery or by offering childcare vouchers. Until now, employees who received this form of support towards their childcare costs were taxed on its full value.
From 6th April 2005 the Government is changing t tax and National Insurance regulations, so that neither the employer nor the employee pays tax or NICs on the first £55 of childcare support.
An employer that offers childcare support to staff will now be doing so under what is commonly known as a ‘salary sacrifice’ scheme. This briefing explains what a salary sacrifice scheme is and how it can potentially impact on an employee’s earnings, benefits and tax credits.
Disclaimer
The information contained in this briefing is guidance only and is based on information from the Inland Revenue. Any employee who is considering using childcare support on offer from her or his employer through a salary sacrifice scheme is strongly advised to consider the implications for their contract of employment, their pay, in-work benefits, state benefits and tax credits, and consult their trade union, and/or a legal and/or financial adviser.
To find out more about the tax and NICs in relation to employer supported childcare, see the Inland Revenue leaflet IR115 www.inlandrevenue.gov.uk/leaflets/ir115.pdf
Information about tax credits can also be obtained from the Inland Revenue at www.taxcredits.inlandrevenue.gov.uk
Daycare Trust. Tel: 020 7840 3350. email info@daycaretrust.org.uk www.daycaretrust.org.uk
Maternity Alliance. Information line: 020 7490 7638. Email info@maternityalliance.org.uk www.maternityalliance.org.uk
4Children - Tel: 020 7512 2100 Fax: 020 75376012 Email: Information@4Children.org.uk
The Low Incomes Tax Reform Group aim to persuade politicians and the Inland Revenue to make tax rules simpler and fairer - especially for the benefit of those on low incomes. It has produced guidance on the new Employer Supported Childcare scheme and the implications for those currently claiming tax credits. www.litrg.org.uk
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