If you pay for childcare and are trading through a limited company you can save a significant amount in tax. Childcare vouchers are easy to set up and are being used as a tax benefit by many company directors.
What are Childcare Vouchers?
Childcare Vouchers enable you to pay for childcare out of your pre-tax income. The cost of the vouchers (which are paid by the limited company) is effectively an expense for the company which reduces company profits thereby inducing a lower corporation tax liability.
Note – the childcare must be provided through an Ofsted registered child carer.
Is there a qualifying age for childcare vouchers?
You can use Childcare Vouchers for your own children up to the age of 15 or 16 if they are disabled.
How much can be paid?
They are worth a tax break of £11 per week.
- So for a basic rate tax payer the maximum allowance is £55 per week or £243 per month.
- For a higher rate tax payer the maximum allowance is £28 per week or £124 per month.
Also the allowance is per working parent not per household. Additional childcare care costs should be paid using post-tax earnings.
Childcare vouchers can be saved up, for example to meet higher childcare costs during school holidays.
How do child care vouchers work?
Company directors need to arrange for their own limited company to pay the childcare provider directly. Remember the provider should be Ofsted registered. Any additional child care costs should be borne by the director personally.