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Tax-free childcare in 2015: how will the tax change for childcare affect businesses?

POSTED: 15th January 2015
IN: Business news
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Following its announcement in the 2013 Budget, the government is now set to launch the new tax-free childcare system in August this year to replace the current childcare voucher system.

undefinedHaving already reviewed how this change will affect British families, Aldermore reviews what impact this shift will have on UK small businesses.

Currently, employers have the option to offer Childcare Vouchers to employees via a salary sacrifice scheme. Under this system, employees can allocate up to £55 per week from their salary towards childcare costs, free from income tax or National Insurance (NI) contributions. Employers’ NI contributions are also waived from this sum, which can lead to annual savings of up to £402.36 per employee.

However, the new system will transfer responsibility away from employers, as parents will be required to apply online to gain access to the scheme, managed by National Savings and Investment. Unfortunately for businesses, this also means that after August, they will no longer be able to start a new company-led scheme, accept new members onto an existing scheme or benefit from reduced NI contributions offered under the previous model. Importantly though, the same tax relief still applies for workplace nursery schemes.

Despite this major change, business consultancy Jelf found that 82 per cent of employers plan to continue offering their current childcare voucher scheme after the autumn deadline, with a further 14 per cent unsure of their plans. This may be motivated by a desire to boost employee morale, particularly if employees find automated salary deductions improve their ability to budget for childcare costs.

Moreover, one group of business owners do still stand to gain from the altered system: those with children.  In the past, entrepreneurs have been unable to claim support for childcare costs, but after much campaigning from interest groups including the Federation of Small Businesses (FSB), the tax-free childcare scheme will also be extended to self-employed parents.

Reflecting on this change, FSB National Chairman John Allan commented:

“The FSB warmly welcomes the introduction of tax free childcare. Small firms often bear the brunt of the lack of affordable childcare and these proposals will provide additional flexibility for their workforce and encourage more parents back into work. Importantly the scheme will also be available to our self-employed members, which is great news as they often miss out on welfare provision due to their economic status.”

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