Childcare incentive advice for businesses as parents struggle

HMRC has today released a guide for employer supported childcare following changes that came into effect on 6 April 2011.

The guide comes as research from Aviva found that parents are questioning whether they can both afford to work as childcare costs amount to £385 a month. The research also found that 32,000 more women have chosen to stay at home to look after their families since Q3 last year.

The HMRC guide outlines tax relief on childcare incentives, including the conditions that must be met. The three types of employer supported childcare that attracts relief from income tax and national insurance contributions are:

• Workplace nurseries
• Directly contracted childcare (also known as other childcare)
• Childcare vouchers

Employer supported childcare schemes are voluntary arrangements, and for anyone entered on or before 5 April 2011, the first £55 per week of the cost to the business for directly contracted childcare and childcare vouchers, is exempt from tax and NICs.

However, from 6 April 2011, employers must carry out an estimate of the employee’s ‘relevant earnings amount’; the amount of exempt income (in the form of childcare vouchers or directly-contracted childcare) that the employee can subsequently receive will be determined by the result of the basic earnings assessment – see below:

  Basic Rate Higher Rate Additional Rate
Weekly £55 £28 £22
Monthly £243 £124 £97
Annually £2915 £1484 £1166

You can find the HMRC guide here.