Childcare Vouchers from 6 April 2011 – the new rules

HM Revenue & Customs has published guidance for employers outlining the changes to employer-supported childcare taking effect from 6 April 2011. It may be seen at http://www.hmrc.gov.uk/thelibrary/employer-qa.pdf.

The most important point to note is that the changes affect only those who are not already participating in their employer’s childcare vouchers scheme at 5 April 2011. Everyone already participating by then will continue to enjoy tax relief at whatever is the employee’s marginal rate, including those with a taxable income greater than £150,000 and therefore making them liable to additional rate tax at 50%.

New entrants to an employer’s vouchers scheme on and after 6 April 2011 are subject to a reduced maximum of tax-free vouchers. This maximum is at present £243 per month. For new participants

• whose estimated earnings and taxable benefits exceed the sum of the personal allowance (£7,475 in 2011-12) and the basic rate limit (£35,000 in 2011-12), ie a total of £42,475, the maximum monthly amount in vouchers is £124
• whose estimated earnings and taxable benefits exceed the additional (50%) rate limit, the maximum monthly amount in vouchers is £97.

Small owner-managed companies may be able to mitigate the effect of the new rules. Talk to Abacus!