How to claim childcare costs as a contractor

 

Childcare costs in England are one of the highest in Europe, according to research by the OCED. The average cost for a child under two in nursery, is £122.46 per week (on a part time basis) and £232.84 per week (on a full-time basis). In some areas, the monthly cost of childcare can be more than a mortgage.

However, there is some good news. If you are a contractor who pays childcare costs, you may be able to claim some of these costs as a business expense through your limited company.

This article focuses on how you can claim childcare costs as a contractor post 5th October 2018.   

5th October 2018 – an important date to remember

Prior to 5th October, a limited company could issue childcare vouchers, which were administered by a third-party childcare voucher provider. If you joined a scheme before 6th April 2011, a limited company can pay £55 per week or £243 per month and these payments are exempt from Income Tax and National Insurance Contributions. After 6th April 2011, the relief that is available depends on your basic earnings.

On 5th October 2018, the childcare voucher scheme was replaced with the Tax-Free Childcare scheme. The childcare voucher scheme was closed to new applicants. However, if you joined a childcare voucher scheme before 5th October 2018 you can continue to use it as long as your employer (limited company) remains part of the scheme.

Tax-Free Childcare

The Tax-Free Childcare scheme has been around since April 2017 and it was introduced as a way to simplify the process of claiming childcare costs.

In simple terms, the government will pay an extra 20p for every 80p you put in, up to a threshold of £2000. This effectively means you can get £2000 per year per child to help cover childcare costs up to £10,000.

Are you eligible for Tax-Free Childcare?

You may be eligible for Tax-Free Childcare if you (and your partner) are:

• In work, or getting parental, sick or annual leave
• Earning at least the Minimum Wage (£7.83 per hour for someone over 25 for the tax year 2018/19) and working at least 16 hours per week

However, if you started your limited company less than 12 months ago this earning limit does not apply.

Also, to be eligible your child(ren) must:

• Be 11 years or under (children stop being eligible on 1st September after their 11th birthday)
• Normally live with you

If your children are adopted, they are eligible to receive Tax-Free Childcare, but foster children aren’t.

Additionally, if you have a child who is disabled you may be able to claim up to £4000 per year until they are 17.

You can only claim Tax-Free Childcare if your childcare provider is signed up to the scheme. If you are wanting to use the scheme it’s important that you check your provider is registered on the scheme before you pay them.

Note: If you or your partner have a taxable income of over £100,000 you will not be eligible to use the scheme.

Direct debit to a childcare provider

As an alternative to Tax-Free Childcare, you can choose to pay your childcare costs direct to the provider through your limited company. If you choose this route, it’s important that you note down how much your limited company is willing to pay on your behalf. To be eligible to do this, your childcare must be through a registered childcare provider.

The amount of tax-free childcare that can be claimed per employee is as follows:

Rate of Income Tax	Weekly exemption limit	Monthly exemption limit
Basic	£55	£243
Higher	£28	£124
Additional	£25	£110

Source: HMRC

Why not check out or post on ‘How to get tax-free childcare’

If you would further information on claiming childcare costs as a contractor, please get in touch with us on 01962 867550, or send us a message via our website.