At present the childcare vouchers scheme can appear complicated as it is usually administered directly through employers. Although contractors operating through their own limited company can access the scheme, it is still associated primarily with those in traditional employment.
However a new scheme coming into effect in October 2015, looks to be more flexible and will include self employed individuals including contractors.
How the current childcare voucher scheme works
At present, contractors working through their own limited company can access the tax free childcare voucher scheme by finding a provider and paying bills directly through the company. This then reduces their corporation tax bill due at the year end.
The current system of employer funded childcare will continue to run and users can therefore choose whether they wish to switch to the new scheme in October, or remain on the current scheme.
Differences from the current childcare voucher scheme
The new scheme will come into effect in October 2015, and will allow parents to purchase vouchers directly from a provider. For every 80p put into the scheme by parents, the government will contribute 20p, up to the limit of £10,000. So parents can benefit from £10,000 of childcare for a cost to them of £8,000.
Initially the childcare provision can be used for children up to the age of five, with plans to extend this to age twelve thereafter. The new scheme will work on a quarterly entitlement basis whereby the parents will have to show eligibility every three months. Therefore unlike the present tax credits system, there is no need for parents to inform HMRC of changes in their circumstances.
How the new process will work
Unlike the current scheme, the new process will be more streamlined and straightforward. There will be an on-line portal for user registration and administration, and this will also allow funding of the childcare vouchers. The new scheme is designed so that anyone can add to the fund on behalf of the entitled household, for example grandparents of the children.
Another flexible feature of the scheme is that users can withdraw payments made but not yet used, for example if they no longer qualify or don’t currently have need for childcare provision. At this point, the government will also withdraw their contribution from the overall fund.
Who qualifies for the new scheme
The scheme is designed for working parents who currently pay for childcare. To qualify, both parents living in a household must earn at least £50 per week on average, although if either are on parental leave (maternity, paternity or adoption) they will be classed as ‘in-work’.
To ensure that those working for themselves are also able to claim the funding, the £50 weekly qualifying earnings will be waived for those registered as self employed.
For many households, childcare provision is one of the largest outgoings, and so the revised scheme will be welcomed by many who are not currently in receipt of government assistance.
If you need any help or advice on the scheme, please contact AccountsNet for an overview of childcare voucher administration.