Childcare for the Self-Employed

Childcare Voucher Expenses: A Contractor’s Guide

In times gone by, childcare vouchers were a benefit only available to employees, leaving the self-employed out of pocket.

But nowadays, it’s good news for contractors. They too are eligible to claim the cost of childcare. As part of the expenses you can claim through your limited company, you may also be entitled to claim the cost of childcare. Even if you are too late to enter the Childcare Voucher Scheme, you won’t be out of pocket thanks to Tax-Free Childcare.

Looking for information about how they work and how to claim? Read our guide to discover all you need to know, including what the changes mean and how you can qualify.

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What is the Childcare Voucher Scheme?

The Childcare Voucher Scheme (also known as Employer-Supported Childcare) is a government initiative which is intended to support working parents with paying for the cost of childcare. Unless you are already registered, HMRC will not consider new applications after October 2018.

Under the Childcare Voucher Scheme, parents can pay up to £243 directly from their business bank account, saving both personal income tax and Corporation Tax.

Am I eligible for the Childcare Voucher Scheme?

In order to use the Childcare Voucher Scheme, you must have met the following conditions:

• Childcare must be provided through a registered provider.
• You must be the parent, guardian or have parental responsibility for the child in question.
• You can only claim up until the 1st September after your child’s 15th birthday, or 16th if they are registered disabled.
• If the childcare provider is related to the child, they must be registered, approved and run a childcare business which cares for other children.

Changes to the Childcare Voucher Scheme

On October 2018, the Employer Supported Childcare scheme was retired and no longer open to new applicants (though this does not affect companies who were already enrolled in this scheme). In its place, Tax-Free Childcare was introduced.

What is the Tax-Free Childcare Scheme?

The Tax-Free Childcare Scheme was rolled out to families and unlike the Childcare Voucher Scheme before it, is open even if the employer is not registered.

Under the new scheme, contractors will get 20% of their costs paid for by the government. You can get up to £500 per child per quarter, and £2,000 in a year but you are responsible for any costs over £10,000 per annum. This works out at the value of every 80p you pay in, the government will top up with 20p.

How to qualify for the Tax-Free Childcare Scheme

In order to qualify for the scheme, you must meet the following criteria:

• Have one or more children under the age of 12 (or 17 if the child is registered disabled)
• Work at least 30 hours a week and earn at least National Minimum Wage. For the self-employed who do not expect to earn the minimum amount over 3 months, you can show that your yearly earnings will bring this average up.
• Earn less than £100,000 per year.

How do you qualify for the Tax-Free Childcare Scheme if you’re self-employed?

If you started your business less than 12 months ago, you do not need to meet the government’s £120 per week earning limit.

If you’re on parental leave, you cannot claim childcare vouchers for the child you’re on leave for.

In addition to the cost of childcare, the government allows the vouchers to be used for the following costs:

• after school clubs;
• holiday clubs;
• play schemes; and
• summer clubs and camps.

Payments made to providers who are not eligible will not receive tax and National Insurance exemptions. You also cannot claim if the childcare provider is related to your child, even if they are a registered provider.

What if I already receive childcare vouchers?

If you are already enrolled in the current Childcare Voucher Scheme, nothing will change.

How to apply for the Tax-Free Childcare Scheme

You can apply for the Tax-Free Childcare Scheme online. You will just need to provide the following information:

• Your National Insurance number,
• Your Unique Taxpayer Reference, and
• Your partner’s details (if applicable).

How are Tax-Free Childcare Vouchers paid?

Once your account is open, you can pay into it via direct debit, a bank transfer or a standing order as and when you need. You will pay 80% of the total costs per child into your account and the government will subsidise the other 20% directly.

You can withdraw the money you have accumulated throughout the financial year, but if this is used for a cost other than for childcare, the government will take away their contribution.

What do the changes to childcare expenses mean for contractors?

These changes mean that for contractors who operate through their own limited company, there is no requirement to set up an employer scheme to receive childcare vouchers. This not only removes the administrative burden and saves time, but also saves money on an admin charge.

Can I get a refund on childcare vouchers I don’t use?

Yes, if you pay too much, you can get a refund for both schemes.

Is VAT chargeable on childcare?

Childcare is exempt from VAT.

Childcare Vouchers or Tax-Free Childcare: which is best?

Unlike its predecessor, the Tax-Free Childcare Scheme removes a great deal of administration, such as claiming back the amount of Corporation Tax. Parents are also available to claim per child.

The new scheme is also available to sole traders, who previously would have been unable to claim under the old scheme.

However, for contractors who are already enrolled in the Childcare Voucher Scheme, they may find it beneficial to stick with this scheme if children are older (as it’s available for families with children up to the age of 16) or they’re earning over the £100,000 limit per parent.

If you’re still unsure what’s best for you, one of our expert accountants can advise.

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Guide to Expenses