Childcare voucher scheme

LMW

I hope that someone can help me with this.
A director who does not take salary from the company (only dividends) gets his nursery fees paid by the company and wants to take advantage of the childcare voucher scheme. I spoke to one of the companies providing management of childcare voucher schemes and they told me that a company director can do this through their expenses and they don’t need to be on the payroll. I am rather confused with this so any help would be much appreciated.

burg

As far as I am aware it is a salary sacrifice scheme and there would not be any sacrifice taking place.

As for sacrificing expenses they would be no better off than having the cash.

Also see this article for impact on higher rate tax payers and those on tax credits

http://www.moneysavingexpert.com/family/childcare-vouchers#calcs

PGM

I've never dealt with this type of scheme, does it work similar to a pension ie payments come out pre tax/NI?

PAMDILL

PGM,

I had it in place in the last couple of companies I worked with, it does not have to be actually vouchers.

Simplified:

1. The scheme has to be made available to every employee in the company - the employees don't need to take it but it does need to be available. The offer has to be issued to each employee in writing even if it is just displayed on a noticeboard in a prominent position

2. If an employee takes it, then their childcare provider enters into a contract with the company for the company to pay for the place up to £243/month or £55/week with the employee paying the shortfall.

3. The company then issue the employee with a change of conditions in their employment stating that they are sacrificing £243/month of their gross pay to cover childcare costs.

4. In the payroll system this amount is then set up to be a pre tax/nic deduction.

As far as I was concerned it was the best thing since sliced bread, saved a fortune in paye/nic and saved having to scrabble around on a Sunday night/Monday morning trying to find the exact money for the childminder. It was straightforward from a processing point of view as payroll person also.

PGM

Thankyou Pamdill, that was a very good over view of it!

LMW

Thank you very much for your help.

deanshepherd

Couple more pointers:

- I don't think it has to be a salary sacrifice scheme. It can just be a 'benefit' of employment.

- Check whether your client claims for tax credits. Often the tax saving on running voucher schemes is less than the tax credits you will lose for not paying for the childcare yourself.

PAMDILL

deanshepherd wrote: »

Couple more pointers:

- I don't think it has to be a salary sacrifice scheme. It can just be a 'benefit' of employment.

- Check whether your client claims for tax credits. Often the tax saving on running voucher schemes is less than the tax credits you will lose for not paying for the childcare yourself.

I was told by HMRC and the external accountant it was better to be salary sacrifice as then it is non-taxable.

I claim tax credits myself and personally found it more beneficial to have the salary sacrifice. In my present job they don't operate the scheme and it is now costing me a fortune.

The thing is the tax credit award is based on the 'after salary sacrifice' gross pay and when you look at the tax award notices most of the childcare portion of the tax credits is removed from entitlement based on your income unless you are a very low earner.

deanshepherd

Agreed, you have to do the calculation yourself to make sure which option is better for you.

The original poster is talking about a director with no salary so very different circumstances to yours. They could very well receive a significant amount for childcare in their tax credits.

The salary sacrifice is a moot point. It is not taxable either way.

LMW

You have been most helpful - Thank you very much!