does anyone self employed - pay themselves in childcare vouchers?

[mulranno]

...just wondered...I have a ltd co - I am the only employee - usually pay myself under the tax threshold and the dividends

Well you can't if you are self employed, but you aren't - you are an employee of the company.

You can do it, although the savings aren't great because there is no NI to save. With a fee of 2.5% that would leave you about £525 a year better off.

I have heard that HMRC can get a bit sniffy if you don't pay yourself National Minimum Wage when setting up a voucher scheme, but there is no basis for this in law AFAIK.

even if you are employed by your own limited company you still have to pay yourself National Minimum Wage for the hours you work (or are you saying you work less hours than you really are), and I may be wrong here, but i am under the impression that the value of the child care vouchers must not put you under the Minimum Wage for the hours you are working when deducted from your gross pay.
i.e you are paid £8.00 per hour for 15 hours = £120.00 less £55 childcare vouchers = £65 actually comes down to £4.33 per hour so below minimum wage
as you are not paying NI at the moment you will have no savings in this area.

Totally different to the subject above but I always think it wise to pay oneself just enough to be paying some National Insurance (£140 a week covers this) but then perhaps I am just old fashioned

even if you are employed by your own limited company you still have to pay yourself National Minimum Wage for the hours you work as an employee

The last three words I added to that sentence are vital. As a Director (assuming you are a Director), you are an Office Holder of the company, and although remuneration for an Office Holder is subject to PAYE, it is NOT subject to the NMW.

Unless your contract of employment states otherwise, it is usually impossible to say how many hours of work you do as an employee and how many as an office holder.

This is what I meant about HMRC getting sniffy - they would like the law to be different and sometimes try to act as though it is, but if they do they are wrong in this case.

And it is wise to pay yourself above the Lower Earnings Limit (£102pw or £5,304pa), but there is no benefit to be gained from a NI point of view in paying above the (primary or secondary) threshold at which you actually start paying NI contributions.

However, unless you have other earned income that is going to use up your personal allowance you will want to pay yourself £7,475pa anyway

Just in case there is any confusion, you would continue to pay yourself at the tax threshold and pay the vouchers in addition otherwise you won't save a penny!

What you should do, is set up the scheme so that the company is paying the childcare provider directly - so that there isn't an intermediary to pay fees to. You need to ensure the correct paperwork is in place to do this.

What you then save (as MrA said you pay yourself the £7k PLUS take the vouchers on top) is the corporation tax on the amount of the vouchers (assuming you aren't a higher rate tax payer so aren't paying any tax on your dividends).

You should also bear in mind the impact is you receive childcare tax credits - is you aren't paying for the childcare (because your company is) then you can't claim the 70% tax credits.

There are a few more hoops to jump through now, including calculating the relevant earnings to ensure that you are giving childcare at the right level - not difficult at all, but one of HMRC's things is that you have to have done this to ensure the scheme is valid. So just do the piece of paper and keep it on file.

this might be useful.

Personally I'd pay the £75 a year for someone else to get it right

What does the voucher company actually do in this sort of situation though?
Do they do all the net relevant earnings stuff then? (not that there is very much to it if you are paying yourself PA - sheet of paper with name, earnings from that employer and conclusion - bob's your uncle).

In terms of admin you just do a letter to the childcare provider saying that the employer is contracting to pay £x of the school fees and then set up the standing order.

Don't actually have any experience of voucher companies, but have just advised a client re setting up their own scheme, and there doesn't appear to be a lot to it other than making sure the paperwork is right.

My bigger concern would be the interaction with tax credits may mean that the "voucher" route is not the most tax efficient.

response from my accountant is that as I am not a higher rate tax payer then vouchers are not viable?....not sure that makes any sense!

Of course they are viable - the company can make the payment (either directly or through a voucher scheme) and the company gets tax relief on the amount of the payment.

As you aren't higher rate you aren't paying any personal tax on your income (small salary and dividends) but the company will be paying corporation tax. The amount paid from the company for childcare is an expense of the company and reduces the taxable company profit. It also reduces the reserves the company is able to distribute - therefore reducing your dividend (but you have had the childcare paid, so don't need to meet that directly yourself so this doesn't matter).

BUT as I mentioned earlier, if you get childcare tax credits you need to look at which is best for you - the government funded childcare via tax credits, or the tax relief on the childcare vouchers for the company. This is complicated by the fact that if you go for the vouchers then your personal income is reduced (your dividends fall) and some you maybe eligible for some/more family or working tax credits.

earn too much for tax credits - also why would the dividends fall as the vouchers would be on top rather than salary sacrifice?

because if you make, say, £40k before you take anything.

Without vouchers
£40k - £7k (salary - round for ease of illustration) = £33k - 20% corporation tax = £26,400 available for dividend

With vouchers
£40k - £7k (salary) - £2,860 = £30,140 - 20% corporation tax = £24,112 available for dividend

Therefore with vouchers there is £2,288 less to pay out as dividend, but you have had £2,860 paid directly for childcare - so you are £572 better off (the 20% tax on the vouchers).

the £2,860 is the vouchers - £55 per week for 52 weeks.

What does the voucher company actually do in this sort of situation though?

The flippant answer would be the same as you did - except I bet you charged a lot more than £75!

... but there is a more serious answer. Providing childcare vouchers has two significant differences from paying childcare directly:

1. You can't just pay part of the employee's childcare costs this way, you actually have to have a separate contract with the childcare provider. This makes it a complete non-starter for a nanny, and more complicated for any other childcare.
2. Using a voucher company puts the onus for (ongoing) checks on Ofsted registration on them

actually I didn't charge anything.

HMRC website says itself about paying direct, and has a sample letter to childcare provider to set this up.

I can certainly see the advantage when you are offering it to employees (and there is take-up) due to the admin involved. But in this circumstance it seems overkill.

We only have 1 employee on the scheme and pay 2.5% in fees to the providing company who do all the legal side and the paperwork (apart from 1 bit that we had to download, after inserting our company details/employee details etcand send off the HMRC. This total 71.50 per annum and it is certainly worth it to me.
I may be wrong, but, for a higher rate taxpayer my understanding that, since April of this year all new schemes to higher rate tax payers only allow basic rate tax relief making the scheme more viable to basic rate tax payers than higher rate tax payers.

Dividends don't come in to the Basic Earnings Assessment so those that take a small salary and the rest in dividends can still get the £2,916pa in vouchers. The savings for the company are exactly the same (CT at 20% on £2,916 i.e. £583) and the higher rate taxpayer saves an additional £729 on the reduced dividend (£1,052 for additional rate taxpayers).

HMRC website says itself about paying direct, and has a sample letter to childcare provider to set this up.

Yes they do: mentioned briefly in the text above the letter is "under these arrangements it will be you, and not the employee, who is contracting for part of the childcare".

What they don't say is that this makes the employer liable for notice periods etc (that isn't a problem for the owner-managed business of course, but could be for other small employers) and impossible for nannies because the company cannot become the nanny's part-time employer.

OK...should I then go to a voucher company...and which one?

I use Kiddy Vouchers and have found them to be excellent, as has my employee and his nursery provider - they charge me 2.5% admin plus vat on the admin

I'm a director of my LTD company and pay minimum wage and take a dividend. I'm also confused about childcare vouchers!! I have a partner in the company and our split is 50/50, we have no other employees. If I go for the addition to salary scheme, would my partner also have to take the £243 a month? (his children are grown and there's no need for childcare). If this is the case, the company would be paying for my vouchers and to balance my partner for my benefit taken. Is it worth doing as surely the company would be paying out more to save around £600 corp tax?

If I go down the salary sacrifice route, i'd be losing nearly £3000 a year but my childcare would be part paid and I would save around £600 in tax personally I may lose tax credits but I think I earn too much for these anyway. My accountant has said they'd have to charge around £5.00 a month to create a payslip and there's also the voucher scheme fees, which with one company was around 13%

Hope that makes sense, I'm just trying to work out which option would be better for me, can anyone shed any light?

It's up to your accountant to advise you really, but basically:

1. Your 'partner' wouldn't have to take the vouchers unless he wanted to. If you have 'A' and 'B' shares just adjust the dividend payment, otherwise you can waive part of your dividend to square things up.

1. Salary sacrifice won't make any saving in this situation.

1. 13% is outrageous. One provider is mentioned on this thread that charges 2.5%, there are others.

The net savings for one employee aren't great: for a husband and wife company it starts to become worthwhile.