self employed - what financial help for childcare?

[zumm]

Hello, both my husband and I work for ourselves. He earns maybe £40k/year and I'm currently earning around £6k.

Part of the reason my income is so low is I am full time caring for our almost two year old DD.

Come September (when DD will be 2.4yrs) I would very much like to start using a part time nanny to allow me to do more work - she is fully registered so I would pay tax. She tells me that I & my OH are both entitled to something like £250/month in child care vouchers, which we can collect from our offices. And apparently this is not income-related. All this surprises me greatly.

Obviously, we don't have offices - so my question is: what, if any, support is there for self-employed people, and does anyone have any advice on how to claim it?

Thanks very much!

It's £250 out of your pre tax income so you just don't pay tax on it, rather than free money. However you only get them if your employer has joined the scheme, so if you're self employed I don't think you can.

She means childcare vouchers which are issued via your employer as part of a salary sacrafice (if they are signed up to this scheme). You can claim up to £243 a month and they are issued pre tax so you save on taz if you know what I mean. You would need to get dh to ask his employer if they run the scheme. I think they save you about £800 a year in tax? they are not a benefit you get paid.

The amount is less now for higher rate tax payers, they can only buy £124 per month if signing up for the scheme now.

Ah thanks for these responses. Yes - milky this was the figure she quoted - that's helpful to know the background (salary sacrifice and that you basically save on tax).
So since DH is self-employed, he has no one to ask. Does this then mean, as a self-employed person, you get no tax benefit?

Verity - what is wtc (working tax credit?) and if so, would I, as ad-hoc self-employed (I keep my own hours), qualify to get that IF I use a tax-registered nanny? TIA

With an income of £46k I doubt you'll qualify for any benefits/tax credits I'm afraid.

& SE people (sole traders) can't claim the salary sacrifice

But if you run a company you can

Rubirosa do you happen to know the upper limit is for benefits or tax credit? (so last year, his income was more like £20k and mine about £2k...and in any case when working for yourself some take a small salary since the rest goes back into the business.)

Katy - he does have his own limited company (although he is the only person who works for it). Is it possible to claim the salary sacrifice through this then - - and if so, is it something you fill in on your tax return or something you organise through other lines? Thanks again.

I think the limit is now £26k for families with one child, £32K with two+ children.

See an accountant: make sure that they understand childcare vouchers.

You can both be employed by your DH's company and both receive vouchers through it. You can also receive a small salary (or a directors fee) to use up the remaining amount of your personal allowance - if you have an accountant already I would ask him why you are not already doing this (if your earnings are £6,000 in 2011/12 the company could save £295 in tax): you have until Thursday to get a salary payment in for 2011/12 to fix it.

Thank you MrA.
DH does have an acctnt - I think a fairly crap one though.
I don't.
I also can't see how I cld be employed by his company since we're in totally different areas...?

I can't comment on your specific situation or the quality of your accountant , but I can tell you that the most efficient arrangement where one spouse has no other income or earns less than the personal allowance (£7,475 in 2011/12, £8,105 in the year just starting) is usually for the spouse to be a director and shareholder of the company and be paid an amount that makes his or her earnings up to the personal allowance. It doesn't matter what the spouse's other work is.

And where the couple use Ofsted registered child care, this enables the company to provide up to £243 per month for each spouse in childcare vouchers free of tax (note that this is not a salary sacrifice arrangement).

Mr A - I wish you'd be my accountant. Thanks so much - you're very good!!

PS re childcare vouchers free of tax - are these actual vouchers or does one have to pay our of income and then get tax back (baffled as to what they are). Thank you again.

The vouchers come out of pay and you don't pay tax on them. The £243 limit must be for lower rate tax payers as the limit for 40% tax is £124. I thought it was a salary sacrifice scheme - at least that is what my current employer and my previous employer advised. That means you have to declare them if you are claiming tax credits.

OK - can I check I understand what Mollie is saying:

child care vouchers: these are part of the salary sacrifice scheme and come out of your salary but you get them back through tax rebates? (although MR Anch says they are not part of salary sacrifice - perhaps because we work for ourselves so a different route? Although same result - namely you get tax back?)

And then there are tax credits. But tax credits are only available to those earning less than £26k if one child? On a sliding scale. Not sure whether any one can have both vouchers and tax credits?

Argh, I feel so uninformed! Thanks all!

Mr A - I wish you'd be my accountant. Thanks so much - you're very good!!

You can contact me via a personal message or my web site if you want

The principle behind childcare vouchers is that an employer can provide up to a certain limit (£243 a month to a basic rate taxpayer) of them to an employee without putting them through PAYE or declaring them as a benefit, so no tax is or NI is paid by the employee. The employer gets to deduct the cost of the vouchers as a business expense and so pays less tax and has more money available to pay a dividend.

The vouchers can be a physical bit of paper given to the employee which the employee gives to their child carer and the carer gives to the employer who then pays the carer, but more commonly an external company is used that does everything online with the carer being paid by bank transfer: this can cost as little as 2.5% of the vouchers value which is much less than the savings made.

Crossposted.

perhaps because we work for ourselves so a different route

Exactly that, when you work for your own company salary sacrifice is irrelevant.

Not sure whether any one can have both vouchers and tax credits?

You can, but you cannot claim the childcare element of Working Tax Credit for childcare that is paid for by vouchers. But with one child and £46k income between you, tax credits are not an option.

Can't comment on self employed as only ever PAYE. I get £124 per month in current employment and got £243 in last employment. That sum is deducted from my gross monthly salary before tax (same way as pension). I don't pay any tax on that amount, nothing to claim back at a later date. That sum is then credited to my account at the childcare voucher company (Compuserve in my case but there are others). I get an email to tell me this has been done and I can then access my account and transfer to my childcare provider. You can set up a monthly payment but as my childcare needs vary I transfer as and when I need to.

As far as I understand my actual salary is effectively reduced by the amount of the childcare vouchers. So if my salary is usually £30,000 per year and childcare vouchers total £1,500 per year my effective salary is £28,500. However I am not an accountant and only going on what my employers have explained on how the scheme works. I know that when I enquired into wtc it stated that childcare vouchers were considered to be a salary sacrifice scheme and had to be declared. I made that enquiry some years ago so of course things may have changed now.

MollieO all that is (almost*) exactly correct for your circumstances but totally incorrect and confusing for zumm's as there is no point in jumping through the hoops of a salary sacrifice scheme when you own the company that is paying you.

• only almost because the reason you have to declare them for tax credits is not because they are provided in return for a salary sacrifice - you have to declare them whether this is the case or not - it is because you cannot claim the childcare element of WTC for childcare paid for by vouchers.

Sorry for adding to the confusion OP (thanks Mr A for clarifying)

MrA is lovely (& knowledgeable)

Can we have a MrA AppreciAtion society please. Thanks v much, Mr A.

I also have an unconnected question about NIC contributions and whether I ought to be paying them given I think those contributions allow one to get SMP sd we be lucky enough to have a second child (in the next year?!). But maybe I ought to save that one for another thread.../A's website, unless it's something Mr A can answer easily over here. (i.e. what, if anything, ought someone in my boat be paying - I know there are various classes of NICs -but I simply do tax returns for freelance work, and not sure NICs are deducted automatically?, quit my PAYE job around this time last year.)

I think my lack of knowledge is costing me quite a lot of cash - I can now see the sense in having an accountant, even for my meagre income!Thanks again to everyone for your kind help with this!

If you are self employed and paying Class 2 National Insurance contributions (which with earnings of £6,000 you are supposed to be - it is only £2.65 a week) you are entitled to Maternity Allowance (not Statutory Maternity Pay) at the full rate of £128.73 for up to 39 weeks.

Have you registered with HMRC as self employed or are you just declaring the freelance income as 'other income' on your tax return? If you want to sort this out yourself, this is probably a good place to start.

It would be normal in your position for one accountant to manage the tax affairs of the company, you and your DH as they are all interrelated.