Relief for Working Parents – Tax-free Childcare

The recently introduced Tax-free Childcare scheme, which replaces the current childcare “salary sacrifice” voucher scheme from next year, is a major boost to working parents although its overall benefits remain to be seen.

There is no obligation on employers to get involved as the scheme will operate directly between parents and the Government.

The Tax-free Childcare has been available from 21 April 2017 for parents of a child who will be aged under 4 as at 31 August 2017 or of a child who is disabled (aged under 17). The scheme is being rolled-out during 2017 in relation to all children under 12 (where parents qualify).

It really is down to individual employers to what extent (if any) they want to get involved.

Employers can act purely as a source of information on the scheme, for example by referring employees to the Government web portal for advice. A useful time to provide this information may be prior to and on return from periods of family-related leave.

However, employers can choose to pay into employees? childcare accounts if they wish to do so. This could be done by facilitating payment into the childcare account on behalf of the employee.

Under this option the employer makes the payment into the childcare account directly from the employee’s net pay via the payroll system. Alternatively, employers may choose to make additional payments into childcare accounts without an employee’s net pay being reduced.

In this case, the additional payment made by the employer will be classed as earnings and subject to appropriate tax and national insurance deductions. Instead of making a series of smaller payments, employers will also have the option of making one bulk payment.

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