Can someone clarify this for me please: Limited company sole director can claim £55 a week in childcare costs - through his company assuming its an approved childcare nursery. Can his wife also claim an additional £55 through his company even though she is not a director? (Sounds even dafter now I've typed it lol but I am sure I read somewhere that she could)
The childcare provider must invoice the business directly for the £55 per week (£243 per month).
The childcare provider must be approved legitimate registered childcare.
If the cost is more than £55 per week / £243 per month then the childcare provider should invoice the parent seperately for the difference for which there is no tax relief.
Beware the trap that if paid personally and reimbursed then it is a P11D item with no tax relief.
If the director is a higher rate taxpayer then childcare is reduced from £55/£243 to £28/£124 (week/month respectively).
If the wife really is a legitimate employee of the company (#1) then both will be entitled to relief for their employment. Therefore there is a hypathetical maximum of £110/£486 (reduced for higher rate tax payers).
Just to emphasise again. the director does not get any of this money. It goes directly from the company to the childcare and it is the company that is invoiced.
Anything in excess of the allowable amounts should be invoiced to the director seperately.
HTH,
Shaun.
#1 This is for an employee of the company (such as a director) not people who are simply shareholders
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Shaun
Responses are not meant as a substitute for professional advice. Answers are intended as outline only the advice of a qualified professional with access to all relevant information should be sought before acting on any response given.
My client has just emailed me and said the approved childcare provider The Co-operative Child care - nationwide chain have said they can't do it this way i.e invoice the company £243 a month and the rest invoice separately.
Its standard procedure to do this for all those who use the vouchers and to be honest given the nature of the Co-op I would be surprised if they refused. They can refuse to accept vouchers altogether of course. Maybe suggest speaking to them yourself.
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Joanne
Winner of Bookkeeper of the Year 2015, 2016 & 2017
Thoughts are my own/not to be regarded as official advice,which should be sought from a suitably qualified Accountant.
You should check out answers with reference to the legal position
Sorry, I am not very clued up on these, but are you saying that even though everyone is entitled to receive these vouchers some providers refuse to except them? And does this also mean as well that if the Co op don't want to issue an invoice to my client through his company separately for the £243 that he will ultimately pay more CT as well ? My client has said that his wife has changed jobs and so doesn't get them anymore. I don't understand this. Surely the childcare vouchers are open to everyone??
Georgie
-- Edited by Georgie on Friday 26th of June 2015 08:24:49 AM
There are two ways of providing employer-supported childcare, and I think that may be where the confusion is arising. The first is childcare vouchers and the second is directly contracted childcare.
One of my clients is a private nursery, and whilst we accept childcare vouchers, we do not allow directly contracted childcare. I strongly suspect that directly contracted childcare mostly arises in employer owned/run nurseries, as for other nurseries the conditions of contract are prohibitive! I would imagine this is why Co-op do not allow direct contract.
With childcare vouchers, no separate invoicing is required, however for most of my parents whose companies run their own childcare voucher scheme - as opposed to using a voucher company - they usually ask for the company name and address to be added to the invoices, as then HMRC can see the link. From the nurseries point of view this is acceptable, as our contract remains with the parents, who can choose as and when to use the childcare vouchers, and from the companies view it passes inspection, as HMRC can see the details of the registered provider, although there is obviously other paperwork to be kept in respect of the salary sacrifice. Alternatively, use one of the voucher companies - although I would suspect this is not cost effective for only one or two employees.
Hopefully that clarifies the situation - I am sure that Co-op will accept childcare vouchers, it will just be a case of ensuring that the paperwork at the companies end passes muster.
Thank you that is helpful. My client is a sole director and his salary each month is £883 so below the tax threshold. Would I have to increase his salary to £1126 in order to benefit from the salary sacrifice ?
You need to be very careful in this situation, as salary sacrifice has to be genuine. The guidelines are as follows:
Changing the terms of a salary sacrifice arrangement
If an employee wants to opt in or out of a salary sacrifice arrangement, employers must alter their contract with each change. The employees contract must be clear on what their cash and non-cash entitlements are at any given time.
It may be necessary to change the terms of a salary sacrifice arrangement where a lifestyle change significantly alters an employees financial circumstances. Examples include marriage, divorce, or an employees spouse or partner becoming redundant or pregnant. Salary sacrifice arrangements can allow opting in or out in the event of lifestyle changes like these.
If an employee can swap between cash earnings and a non-cash benefit whenever they like, its not a salary sacrifice. In these circumstances, any expected tax and NICs advantages under a salary sacrifice arrangement wont apply.
In the situation you describe, I don't think HMRC would agree that salary sacrifice is taking place. I suspect this would probably be why Shaun described direct contract in his explanation. It is, of course, up to the directors to decide what to do - but whenever I've been involved in the advice for a situation such as you are describing, the accountant has always advised that no salary sacrifice is taking place.
I have had an update from my client. The Co-op will invoice my clients company but it has to be for the whole amount and not just for the £243 amount each month. They don't have the facility to do it separately apparently !??
So I wondered if he could pay the £243 from his company each month and we keep a copy of the invoices etc as proof and he pays the balance from his personal account. Would that be allowed?
No, if the company is invoiced then the company pays.
The balance is a BIK so becomes a P11D item.
The amount paid by your clients reimburses the company but acts as capital introduced / reduction of DLA. It does not reduce the BIK.
The more worrying point here is that a busienss the size of the Co-Op doesn't have systems in place to deal with basic admin!!!! Thats worrying.
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Shaun
Responses are not meant as a substitute for professional advice. Answers are intended as outline only the advice of a qualified professional with access to all relevant information should be sought before acting on any response given.
The more worrying point here is that a busienss the size of the Co-Op doesn't have systems in place to deal with basic admin!!!! Thats worrying.
Im pretty sure the Co-Op can do this, which is why I suggested Georgie contact them as you never quite know what questions clients ask. Dont ask the correct question , dont get the right answer. Plus it might just be the individual running the local nursery that is mis-understanding or even being lazy not wanting to do additional admin.
Although I though it might be a mute point on the back of the exchange amount the amount of wage/salary sacrifice figure itself. Plus sounds like the wife isnt actually an employee of the company so her allowance has gone for a burton. unless Ive read it wrong.
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Joanne
Winner of Bookkeeper of the Year 2015, 2016 & 2017
Thoughts are my own/not to be regarded as official advice,which should be sought from a suitably qualified Accountant.
You should check out answers with reference to the legal position
Talk to the head office first - will probably get more sense. Then if they say what you want them to say - get them to drop you an email - superb 'evidence' in the case of any potentially stroppy local nursery manager.
(Im just peeved I got no tax breaks from the extortionate amounts I had to pay for childcare, back in the day lol)
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Joanne
Winner of Bookkeeper of the Year 2015, 2016 & 2017
Thoughts are my own/not to be regarded as official advice,which should be sought from a suitably qualified Accountant.
You should check out answers with reference to the legal position
Good idea, yes I will do that tomorrow . That's a great help thank you. I am on a mission with this. My client is a honest, hard working guy and it just peeves me that he could lose out on this benefit because the muppet at the nursery hasn't got the facility to print 2 invoices!
If all of the childcare costs are paid by the company , say for example £350 a month , is all of that an allowable cost? So have the effect of reducing his CT by £840 over 12 months?
sort of yes but don't forget that the company will need to pay classs 1A and the director will be liable for tax & NI on the P11D entry.
Taking the taxable excess divorced from the allowable childcare costs the variance is 1284 (350-243*12) so the tax saving on that alone for the company would be £256.80 which ust taking the tax alone is simply passed to the taxpayer to pay but there are also class 1A contributions for the company to find meaning that on the excess alone the company is worse off by 13.8% over say paying a dividend and the taxpayer paying the difference personally (so no NI).
That could be blown out of the water of course if this is an IR35 case in which case dividends may not be available.
Of course, even where allowable such still requires seperate billing of the company and parents and as it seems that its your own client who is too confused to do their own calculation properly maybe there's an opportunity here to also do all of the bookkeeping / admin for the childcare provider.
(that was so funny reading that earlier!).
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Shaun
Responses are not meant as a substitute for professional advice. Answers are intended as outline only the advice of a qualified professional with access to all relevant information should be sought before acting on any response given.
