The Government’s tax-free top-up scheme for childcare vouchers will eventually replace the tax reliefs available for employer childcare schemes providing employees with childcare vouchers or employer-supported childcare.
Employer childcare voucher and employer-supported childcare schemes were due to close to new entrants on 5 April 2018. However, in March 2018, HMRC announced a six-month extension, giving employees until 4 October to join an employer scheme. Once an employee is within an employer scheme (and as long as they have received their first voucher by 4 October 2018), they are able to remain in it while the employer continues to offer it, and benefit from the associated tax reliefs. However, an individual cannot benefit from both the tax reliefs available under an employer-operated schemes and the tax-free top-up available under the Government scheme; the scheme which is most beneficial will depend on your circumstances.
In the latest issue of Employer Bulletin (June 2018), HMRC acknowledge that the extension to the deadline may have caused practical problems to employers who closed their schemes to new entrants on the original closure date of 5 April 2018, and recognise that it may be challenging for the employer to re-open the scheme to take advantage of the extended deadline.
Where an employer has already closed their scheme, HMRC have announced that they will use their collection and management powers to enable employees who were members the scheme before 5 April 2018 to continue to benefit from the tax and National Insurance advantages, even if the employer chooses not to re-open the scheme.
Employers can continue to offer childcare vouchers and employer supported childcare under salary sacrifice schemes, without the loss of the associated relief.
Written by the Tax Advice Network