The Government changed the rules regarding the tax and National Insurance exemptions available to some working parents joining a childcare voucher scheme on or after 6 April 2011.
Why did the rules changed?
Previously, higher earning scheme members received a greater tax saving than those on basic rate tax. The changes mean that all scheme members now make the same tax savings, making it fairer.
Who was affected by the changes?
The changes will have only affected you if you joined a childcare voucher scheme on or after 6 April 2011. If you were already in a childcare voucher scheme, nothing will have changed.
What changed on 6 April 2011?
If you applied to join your employer’s childcare voucher scheme since the 6 April 2011, they will have had to carry out a Basic Earnings Assessment to calculate your expected earnings for the rest year. The assessment will have determined the maximum value of childcare vouchers you may claim for the rest of this tax year. Your employer will carry out this assessment at the beginning of each tax year to check if your pay has changed, as this may affect the value of childcare vouchers to which you are entitled.
If you were already a member of your employer’s childcare voucher scheme, this won’t be necessary.
What happens if my employer gets the assessment wrong?
If your employer gets your initial Basic Earnings Assessment wrong, and you have received a level of tax relief to which you were not entitled, then your employer must notify HMRC of the taxable benefit using a P11D form. You will therefore be taxed on any childcare vouchers received in excess of your entitlement.
What if I disagree with my employer’s basic earnings assessment?
You should discuss this with your employer and request a copy of the calculation.
What if my pay changes during the tax year?
The Basic Earnings Assessment your employer completes when you join the scheme, or at the beginning of the relevant tax year, will fix the maximum value of childcare vouchers available to you for the rest of that tax year. Any pay changes during that period will be incorporated into the basic earnings assessment your employer will complete at the beginning of the next tax year.
What are the childcare voucher limits?
If you joined your employer’s childcare voucher scheme since the 6 April 2011, your employer will completed a Basic Earnings Assessment, and you will be subject to the following limits:
The following table illustrates the value of childcare vouchers employees can receive as exempt income, following completion of the Basic Earnings Assessment:
If you were already a member of your employer’s childcare voucher scheme on 6 April 2011, you can continue to claim up to £55 per week (£243 per month / £2,915 per year) of childcare vouchers.
My child attends my workplace nursery. Will I be affected?
The changes did not affect workplace nurseries at all.
Will I need to complete a new Amendment to Contract (ATC) form?
No. If you were already a member of your employer’s childcare voucher scheme, you will not have had to do anything to continue receiving childcare vouchers exactly as you were before. If you joined your employer’s childcare voucher scheme since the 6 April 2011, you will have had to complete an ATC in the normal way, but you will have been subject to the limits detailed above, as determined by the Basic Earnings Assessment. For the avoidance of doubt, you must have registered to join the scheme, and submitted your ATC on or before 5 April 2011 for the previous limits to apply.
Can I still make changes to my voucher value on or after 6 April 2011?
Yes. If you were already a member of your employer’s childcare voucher scheme, you can apply for changes to your voucher value by completing a Contract Variation in the normal way. This will not affect your tax exemption entitlement.
Can I opt in and out of the scheme without it affecting my benefits?
Yes. Providing you do not come out of the scheme for more than 12 months, you can take ‘breaks’ from the scheme, without it affecting your level of savings.
What happens if I leave to join a new employer’s childcare voucher scheme?
You will be treated as a new joiner in your new employer’s childcare voucher scheme and will be subject to a Basic Earnings Assessment in the normal way.
What happens if my employer changes its business name due to a take-over or merger?
You are already a member of your employer’s childcare voucher scheme when the merger or takeover happens, there will be no change to your level of savings. You will not be treated as a new joiner.
What happens if my employer changes childcare voucher provider?
Changing childcare voucher provider will not affect your status as an existing scheme member.
What is a Basic Earnings Assessment?
Your employer is required to complete a Basic Earnings Assessment at the beginning of each tax year to determine whether you are considered a basic, higher or additional tax rate payer for the purpose of calculating your childcare voucher entitlement.
It will include:
- Basic pay as stated in the employee’s contract of employment
- Contractual or guaranteed bonuses
- London weighting or other regional allowances
- Taxable benefits
- Shift allowances
- Contractual commissions
- Guaranteed overtime
- Skills allowance
- Retention and recruitment allowances
- Market rate supplements
- Cash equivelant of any taxable benefits (e.g company car)
The calculation will exclude:
- An amount equivalent to your personal allowance
- Performance related or discretional bonuses
- Overtime payments
- Contributions to occupational pension schemes
- Payroll giving donations
- Removable expenses
- Expenses payments
For more detailed information, please call our Helpdesk on 0800 458 7929 or visit http://www.hmrc.gov.uk/thelibrary/employee-qa.pdf