Call to arms on childcare - We're being swizzed...

[Lil]

Does every working mother know they can save up to 10% on their nursery/childcare fees? does every employer know they can also save up to an additional 13% on their NI contributions to said employer.

NO! And I've just found out why..(Please don't switch off at this point!!!)

Have been looking into these childcare voucher schemes and am shocked at the amount that the agencies like Busy Bee and Accord charge. They take 50% of all savings available on childcare as fees - and they are left to get away with it.

I have just set up the scheme where I work ,and once you get past the confusing explanations given by the tax man, and the ridiculous hype and waffle the agencies give, it is surprisingly simple...

All you have to do is get your employer to pay your childcare fees direct to the nursery by BACS or a cheque.

That's it. No vouchers needed. The tax man just looks at your P11d at the end of the year, and sees a benefit item in the form of nursery fees (no different from say, company car benefit). They don't care how the money gets to the childcarer from your employer.

The agencies are making a lot of money by relying on employers apathy and lack of government clarity/promotion on this issue. Its working for me, and I had to tell you at mumsnet. Maybe if your employers realised they would save money and don't have to pay such high charges to these agencies, they would take up this FREE MONEY the government are offering.

I despair at the amount of money I've lost over the last few years, and the amount my friends are wasting.

CALL TO ARMS MUMSNETTERS!!

[sis]

Thanks Lil, will look into it and ask work to do the same!

[GillW]

Just be careful - the inland revenue rules on this (page 12) allow it if the company organises places in a commercial nursery, but not if they pay childcare bills on an employees behalf.

So if your company contracts with a nursery to pay for x number of places (and these are available on an equal chance basis to all employees) then it's ok, but if you have a child at nursery (and other people have children at other nurseries) and you all just get the company to pay the bills directly it's not.

[bells2]

Is it available only for nursery fees? What about Nannies and childminders?

[bells2]

Is it available only for nursery fees? What about Nannies and childminders?

[Lil]

Bells, as long as the chilcarer is REGISTERED, it can be a nanny, childminder or even your sister.

Gill, I'm certainly not an expert on this, but the key is that money gets paid from the employer direct to the childcarer. The money is not allowed to touch the employees (i.e. your) hands or bank account. This is obviously to avoid fraud.

The employer has a 'contract' with the childcarer to do that. Each employee can have different childcare arrangements (of course they would have), but a 'contract' can (as I understand it) be a verbal one or a written one depending on the size of the firm. So your firm could write a letter to the nursery promising to pay childcare fees for 'Ms X' and the nursery manager signs it and sends it back. The company then sets up a BACS each month to pay the childcarer, or sends a cheque. That's it.

Does this make sense?

[21stcenturygirl]

I don't profess to be a Tax expert but having looked at the Inland Revenue paper, I think the key is that it is treated as "Benefit in Kind" (ie. on your P11D). Lil is right in that no cash is to change hand between Employer/Employee.

What the IR seem to be trying to get across is that the Employer pays the Childcarer "£X amount for X no of days childcare". They then issue a voucher to the Employee that can then be presented at the Childcarer for X no of days childcare.

Please feel to correct me if I'm wrong, Mumsnetters!

[Lil]

Agree 21st!!

Just to hammer the point that it doesn't have to be a voucher, that's where the whole 'childcare voucher' phrase has muddied the water. The IR calls it 'Childcare help' in its paper. A cheque is fine and avoids the need for the nursery to send the voucher back to the employer for payment (which would be a cheque/Bacs anyway!). Saves on the postage and time.

[prufrock]

GillW. I think you are thinking about not paying TAX. You are correct that the only way to avoid this (at 10,23 or 40%) is for the employer to offer a workplace nursery type arrangement. Lils post is about NI contributions (currently 11% up to the upper earnings limit) It really is that simple to save money and everybody should ask their companies to consider it.

[SofiaAmes]

Lil, does this apply to young children who are pre-nursery age? I'm not sure I understand where the benefit is to me and to my employer. Are we both getting a discount on our NI contributions? And is this something that my accountant needs to account for, or my employer's accountant? Do you know what this scheme is called? Thank you for letting us all know about this. My motto this year is to get as much out of the govt. as possible (legally of course).

[angharad]

Have been trying to get CARDIFF UNIVERSITY (named and shamed!!) to set up a scheme without success for a while now...Thanks for the new info, I'll pass it on.

[GillW]

Prufrock - have a look at the link I gave earlier. The crucial issue is whether the employer arranges the childcare (in which case it is exempt from NI) or whether they just pay your childcare bills (in which case it isn't). So you can't, in theory, just go along to your employer and say "my child is at X nursery, can you pay the bill instead of paying me". Whether in practice the IR would check if it was an ongoing arrangement before the company started to pay I don't know, but in theory at least they could ask for evidence that the childcare had been arranged by, and not just paid for by, the employer.

[Lil]

GillW, look at the IR document you linked, page 21....

..it says that you are NOT exempt from NICs if the employer REIMBURSES the employee or provides ADDITIONAL SALARY to cover the cost of childcare.

In other words if the employer gives the employee cash or more money in the pay slip to cover childcare.

IF however, the employer provides the childcare (e.g. company nursery) or contracts with the provider (e.g. pays the fees directly with a cheque or BACS), NICs are exempt from both the employer (so they save 13%) and the employee (so we save up to 11%).

There's no mention of WHEN childcare was set-up, or any restrictions on the type of childcare. It covers everything, so I can't see where you get the idea that the employer has to ARRANGE childcare or that as you quoted.. "these are available on an equal chance basis to all employees)"..?

There really is no catch. Its about the government recognising the double whammy that parents pay when they pay NICs and the nannies also pay NICs. As Prufrock pointed out GillW you are getting muddled with how to avoid income tax, which is more difficult. It would be fantastic if childcare were INCOME TAX deductable like chauffeurs and Personal Assistants are (dig,dig). But refund of NICs is a start.

[Lil]

Sofieames, you and your employer save on your respective NICS. Your own submitted monthly invoice (if you are self-employed~) does not mention childcare, you just bill for a normal month. The payslip from your employer will show the amount you get paid, minus the deduction for childcare, so you don't actually pay income tax on the childcare fee amount.This deduction will go on your P11d, and at the end of the year you send your P11d to the IR and they will ask for payment of the income tax for the childcare then. But the NICS are never paid and the added bonus is that you get to pay your tax later as well!!

If there are any IR employees out there, please let me know if I'm missing something!!!!My company accountant and my nursery seems happy. My nursery has quite a few different employers paying the parents bills, and were more than happy to take on more. Its no hassle for them.

[tigermoth]

lil - thanks for all that info. No good to me at the moment, but as and when I get a salary again, I will be looking up this thread with much interest.

[GillW]

It's not me that says this - it's our company payroll department (and legal/accounts departments too). We currently have the Accor scheme, but they're going to stop it because not enough people use it. I've tried all methods to get them to go down the paying directly route and they're adamant that it can't legally be done in any way that avoids NI (and I do mean NI, not tax). I've even been shown a letter to them, from the IR, specifically stating that simply paying for existing childcare as a salary sacrifice WOULD NOT reduce the liability for NI.

[Lil]

Gill..??Do you know what the employer is supposed to physically do then, to avoid NI. and what Accor does that a company can't? all they do is send out vouchers on behalf of the company, that are then cashed in again. How are they actualling 'arranging' childcare. It doesn't make sense? I spoke to someone from the IR who gave a different answer. maybe I should try getting something written from the IR, because they told me it was OK on the phone!

[GillW]

It's not me that says this - it's our company payroll department (and legal/accounts departments too). We currently have the Accor scheme, but they're going to stop it because not enough people use it. I've tried all methods to get them to go down the paying directly route and they're adamant that it can't legally be done in any way that avoids NI (and I do mean NI, not tax). I've even been shown a letter to them, from the IR, specifically stating that simply paying for existing childcare as a salary sacrifice WOULD NOT reduce the liability for NI.

[Lil]

OK Gill, I'm not going mad!!! I just rang the NICs helpline and they agreed that childcare is a benfit in kind that is paid by the employer and is exempt of NICs. It should be presented on the P11d. As long as NICS are paid on the minimum level (i.e. £75 a week!) the IR is not interested. If it does choose to look investigate, all it needs is proof of payment, and/or a letter of agreement with the childcarer that the company is paying the employees fees.
That's it. As previously thought. Hooray!!!

[Lil]

OK Gill, I'm not going mad!!! I just rang the NICs helpline and they agreed that childcare is a benfit in kind that is paid by the employer and is exempt of NICs. It should be presented on the P11d. As long as NICS are paid on the minimum level (i.e. £75 a week!) the IR is not interested. If it does choose to look investigate, all it needs is proof of payment, and/or a letter of agreement with the childcarer that the company is paying the employees fees.
That's it. As previously thought. Hooray!!!

[bells2]

Cheers for this Lil - I am going to investigate. One question, as we have a Nanny sho works in our home, she is not registered. Does anybody know how I get her registered?

[Philippat]

Like angharad I'd like to name and shame WOLVERHAMPTON CITY COUNCIL who likewise are too crap to set this up despite constant nagging from me.

Can anyone who does use this scheme (vouchers or not) let me know where you work (if you don't mind) so I can present it as evidence that we ought to be doing it.

Thanks!

[prufrock]

Phillipat

I work for Morgan Stanley who have just introduced this policy using vouchers. Childcare providers are happy to accept as they promise to pay via BACS within 48 hours of receiving the voucher

[GillW]

Where did that duplicate posting an hour or so later than the first one come from? I wasn't even logged on at 4.06pm!

[21stcenturygirl]

Gill/Lil - As previously mentioned, I'm not tax expert but I am member of an organisation that has extensive liaison with IR. All the experts (Legal Accountants) speak of the inconsistency of IR advice (both on-line, written and verbal). You will get a completely different answer from one tax office/person to another. It is normally up to the Commissioners to decide on who is right!

As per all Tax rules, the Government sets them, then it is up to individuals to work out what they are meant to be saying. The only way to get the correct answer, defined in law, is through the Courts.

Maybe us Mumsnetters should take the task to hand and ask the IR (Area Offices, not local offices) to define exactly how the scheme works?

[Philippat]

Still battling to try and get my employer to introduce childcare vouchers.

Current problem is that they say it would have to count as a salary sacrifice, thus changing our contracts of employment, which we obviously wouldn't want.

Anyone know if this is the case? And if not, do you have an proof I can wave at them?