Introduction »

Planned changes for childcare vouchers

During the final session of the previous government the Prime Minister outlined plans for certain changes to childcare vouchers.

Gordon Brown wrote:

‘I have already made clear that no family currently in receipt of tax relief for their childcare vouchers will see any change in the support they receive. But following our discussions I can now also say that we will retain tax relief for new childcare vouchers issued in the future. However, there still remains a concern that a disproportionate benefit is accruing to higher rate taxpayers. So in order to ensure that this tax relief is given on a fairer basis to all families, we will ensure that all taxpayers get the same income tax relief as basic rate taxpayers do currently. This will take place from April 2011 and will not affect those receiving vouchers issued before that date.’

Subsequently, HMRC have issued more guidance on this proposed area of change.

The current position is that an employee in a childcare voucher scheme is entitled to £55 per week free of tax. This equates to a tax saving of £11 per week for a 20% basic rate taxpayer, £22 per week for a 40% higher rate tax payer and £27.50 per week for any 50% taxpayers.

However, from April 2011 all new recipients of childcare vouchers (including previous recipients who change employment) may only get the equivalent of basic rate tax relief. This means that for a recipient who is expected to have employment income chargeable at the 40% rate, only £28 will be received tax free, which saves £11 tax. This is the same tax saving as a basic rate tax payer. The respective tax free amount for a 50% taxpayer will be £22 tax free weekly.

If you would like to review your childcare provision options in light of the above please do get in touch.

Introduction »