There will be a financial impact for your company if you are currently providing an employer-supported childcare voucher scheme, because your current employer National Insurance (NI) savings will be eroded by the forthcoming changes.
Despite this, the new Tax-Free Childcare scheme is potentially beneficial for your employees, and providing them with good support and advice now will ensure your company and your workforce benefit fully from the changes.
There are things to consider prior to an employee switching to the TFC scheme:
About Childcare Vouchers
Employer-supported childcare vouchers are tax and NI exempt and have been available since 2005.
They are a popular benefit for working parents, enabling them to claim up to £55 per week, or £243 per month (dependent on tax band) in the form of an e-voucher. This can then be used to pay towards any registered childcare costs for children up to the age of 15 (16 if the child is registered disabled).
Childcare vouchers are both government and HMRC approved. They benefit basic, higher and additional rate tax payers and offer savings of up to £1,866 per year, per family, should both parents claim.
How does this affect me as an employer?
The current scheme is a huge benefit for many employers.
It enables companies to save employer National Insurance contributions of up to 13.8% on the total value of the vouchers claimed by staff. With an average take-up of 10% of the workforce and a monthly voucher value per employee of around £200 this offers considerable savings back to the organisation. Employers are likely to see a significant drop in the number of parents claiming childcare vouchers from early 2017 and many companies are already considering additional salary sacrifice schemes to replace this loss in revenue.
It is recommended that you work closely with your current childcare voucher provider as soon as possible:
Employees can receive childcare vouchers for as little as £10 per pay period and providing they do so between now and early 2017 they will be entitled to continue on the current voucher scheme after this time.
Your staff will have many questions relating to the new scheme and your current childcare voucher provider should be expected to offer a range of marketing material in order to advise and support you and your employees during the upcoming changes. Details can also be obtained directly from HMRC, or contact P&MM today for further advice
How does this affect my employees?
Employer-supported childcare vouchers are non-taxable and NI exempt up to £243 per month and offer a potential saving of up to £933 per parent, per annum (subject to individual circumstances). Currently these vouchers can be used to pay towards any form of registered childcare for children up to the age of 15 (16 if the child is registered disabled). By comparison, the new Tax-Free Childcare scheme is potentially worth up to £2,000 per child per year.
When the new scheme launches, some parents will be better off financially in the current employer-supported scheme, whilst others will be better off using the new Tax-Free Childcare scheme. This will depend on the parent’s individual circumstances. The following table illustrates some example circumstances in which the family will be better off using the current employer-supported childcare voucher scheme rather than the new Tax-Free Childcare scheme.
It will be important for you to provide your employees with the best possible support and advice prior to the changes in early 2017, and to encourage them to join your existing employer-supported scheme prior to the changes. Once the Tax-Free Childcare is introduced, your employees will then be in a position to assess which scheme suits their personal circumstances the best.
What are my options as an employer?
The new Tax-Free Childcare (TFC) scheme will be introduced in early 2017 and will impact your organisation and your employees. Those companies and HR teams that embrace these changes by putting in place initiatives to educate their employees and introduce new benefits will gain the greatest advantage.
Recommendations for making the most of the forthcoming changes:
Are you a parent seeking advice? Our website provides advice for employers regarding the upcoming childcare changes. If you are a parent seeking independent advice, we recommend visiting Working Families by clicking here or calling them on 0300 012 0312