By Louise Misiewicz
Do you have children?
Did you know that you could benefit from child benefits and tax reliefs on school care vouchers?
My husband and I have a son, and we naturally wanted to know all the benefits that we could claim whilst still being tax-efficient.
Our team of property tax experts are on hand to advise our clients on how to be tax-efficient, whilst providing useful sources of paying for the care of your children.
If you are an employee and you have a offspring then you may be aware that you can claim child benefit from the government. The amount that you can claim is:
- £20.70 per week for the first child
- £13.70 per week for each child thereafter
You normally qualify for Child Benefit if you’re responsible for a child under 16 (or under 20 if they stay in approved education or training) and you live in the UK.
If you have not done so already you can make a claim by using this link.
You may also be aware that child benefits are reduced if you or your spouse earn more than £50,000. Any excess of the £50,000 will be charged against the child benefit that you have received. This tax charge will be taken via your self assessment as part of the work we do for our clients.
Earned salary less £50,000
——————————— (% result) X Child Benefit Received
Someone earning £55,000 would therefore have a tax charge of:
50% = £5,000 (£55,000 less £50,000) divided by 100
£538.20 = 50% (above) £1,076.40 (52 weeks X £20.70).
Employer-supported childcare is normally provided through salary sacrifice. This means an employee gives up part of their salary in return for a non-cash benefit as shown by the government website. I would suggest that owner business need to move fast before April 2018, as the government are looking to remove some of the tax benefits.
The amount that you can receive from your employer as a salary sacrifice is as follows:
- £55 per week for basic rate tax payers
- £28 per week for high rate tax payers
- £25 per week for additional rate tax payers
If you are paid more than the above limits from your employer, say £55 instead of £25 as a high rate tax payer then the employee would receive a benefit in kind and pay income tax, whilst the employer would also have to pay class 1A national insurance at 13.8% on the excess.
For any employees who joined the employer provided childcare voucher scheme before 6 April 2011 and have continued to be employed by that employer and have not taken a break from the scheme for any continuous period of more than 52 weeks. Forward planning is the key, but always take professional advice. You can contact our team of tax experts here.
A salary sacrifice means that you are paid £55 less in your pay packet as a basic rate tax payers. The employer would then credit the £55 as child care vouchers that can then be paid to an OFSTED registered carer, nursery or school.
You can even claim the vouchers and save them up even if you currently do not have children that require a carer, paid nursery.
The cost of providing this service is also tax deductible for the employer, and they would save the 13.8% national insurance on the amount paid for the vouchers. Everybody wins.
The following guides contain more detailed information:
- how to help your employees with childcare
- childcare vouchers: exemption from 6 April 2005 to 5 April 2011
- childcare vouchers: example
- particular benefits: childcare
Please do not forget that as a parent, you may also contribute towards your child’s pension. Albeit you would not receive any tax relief on these contributions, the government will still provide the child with an extra 20%.
Step-by-step guide to implement this strategy
It is one thing to understand the theory but it is another to implement the above successfully. That is why we have created a step-by-step guide:
- Claim for child benefit online if you and your spouse earn less than £60,000.
- Discuss the school care vouchers with Eden Red and review the government website. Speak with your employer to see if they would be willing to sign up to the scheme.
How to engage with us
If you want to understand how to implement this strategy or to discuss other finance/tax questions then please book some time with us using the below calendar.
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If you are looking for a new accountant, then please book some time with us using the below calendar. Please note that this booking is to describe our services and will not be used to discuss your personal tax affairs.