Tax-Free Childcare – Am I eligible as a company director?

by | Jan 12, 2022 | Personal Tax

If you have a family and associated childcare costs, could you be missing out on thousands of pounds in tax relief each year?

Childcare is not generally an allowable business expense, but if you draw a salary as an employee of your own company (including directors), you could be eligible to claim tax relief through your salary via the Tax-Free Childcare Scheme.

With the cost of household bills set to soar this year as a result of a rising cost of living and the impending energy crisis, never has it been more crucial for families to reduce costs where they can. Anyone with children, will know that childcare costs in the UK can escalate very quickly, particularly for those with children under five, but even for those that with older children, the costs of wrap-around care and holiday clubs soon mount up.

What is the Tax-Free Childcare Scheme?

The Tax-Free Childcare scheme was launched in April 2017 and is intended to support working parents with the cost of childcare provision such as after nursery care, after school clubs and childminders.

The Government scheme operates by providing £2 for every £8 paid to a registered childcare provider. So, for every £8 paid into your childcare account, the Government also pays in £2.

It is possible to get up to £500 every three months, which equates to £2000 per year for each child. If the child is disabled, then this increases to £1000 every three months (a maximum of £4000 a year).

What are the eligibility criteria for Tax-Free Childcare?

Is it generally possible to claim relief if you are employed (including self-employment), but there are minimum and maximum earning criteria.

To be eligible, you (and your partner if applicable) must expect to earn at least National Minimum Wage or Living Wage for 16 hours a week on average over the next three months. Additionally, you (or your partner) should not have an expected ‘adjusted net income’ above £100,000 in the current tax year.

Your eligibility must be reconfirmed every three months using the online system, otherwise you will be faced with the full amount of the childcare provider bills.

Where do I find more information or open a childcare account?

More information on the scheme can be found on the Government Tax Free Childcare website. You can also setup an online childcare account on the website using your Government Gateway ID.

Which childcare services can I pay for with Tax-Free Childcare?

The funds in your online account can be used to pay for any approved childcare, which includes nurseries, wrap-around school care, holiday play schemes and childminders.

The childcare provider must already be registered with the scheme to be able to receive payment.

What if I already claim for 30 hours of free childcare?

It is possible to claim for both the 30 hours childcare scheme and also the tax-free childcare scheme so make sure to take advantage of the 30 hours scheme in the first instance if you have 3-4 year old children.

What about the old Childcare voucher scheme?

You may have heard of or be familiar with the childcare voucher scheme. This scheme allowed employees to exchange part of their gross salary for vouchers, effectively making the vouchers tax-free and exempt from NICs. This scheme closed to new entrants in October 2018, but anyone already enrolled in the scheme could continue as long as they remained with the same employer. Directly contracted childcare (an arrangement where the employer directly pays the employees childcare provider) also ceased at the same time. Since October 2018 onwards the only tax relief scheme available has been the Tax-Free Childcare Scheme.

Tax Efficient Advice

If you need support or advice on any aspect of tax planning, don’t hesitate to get in contact with the Kingston Burrowes team, who will be happy to help.

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