Child benefits and childcare: What to know for parents and business owners.

We all want the best for our children, and child benefits are there to help us when we need that little extra to provide as best we can. So too are employee childcare schemes which are not only beneficial for parents, but make good business-sense too. Laura Bilcliff from Bulley Davey explains the changes and pitfalls for parents and employers to look out for:

“Child benefits are a big pitfall for parents at the minute. In 2013 the government made child benefits means-tested – meaning parents had to prove their earnings sat below a certain threshold in order to receive them – those above received considerably less. Anyone with children can claim for child benefits, but this change means a few things:

  • If both parents individually earn less than £50,000 a year, you can get the full amount of child benefit.
  • If one parent earns between £50,000 and £60,000 a year, a ‘high income child benefit tax charge’ is levied on that £50,000+ income, which has the effect of reducing the child benefit payment by 1% for each £100 earned over the £50,000 threshold. For example, a mother whose partner earned £50,500 would lose 5% of the full child benefit.
  • If one parent earns over £60,000 a year, the tax charge means the child benefit payment is completely cancelled out – so effectively they now get nothing.“However many of these parents, and its estimated there are around 40,000 parents in this situation, don’t realise they are jeopardising their state pension when they retire by not claiming child benefit – even if they won’t receive anything – as they are losing out on the automatic National Insurance payment, which means you could have a smaller state pension when you retire.“If one parent earns over £60,000 a year and you do want to utilise the NI payments, especially for the lower-income parent, you can claim benefit at a ‘zero rate’. You won’t actually receive any child benefit – but you will still get the NI credits. To apply for this zero rate child benefit, tick a box on the child benefit application form – it’s in section 4 on ‘Higher Income Earners’.Employer Childcare Scheme“I am about to go on maternity leave with my second child and can attest that, as parents return to work, childcare becomes an issue and it can often be a costly one. In 2014 the government announced the Tax-Free Childcare scheme to take affect from this year – with applications open until April 2018. The scheme rivals, but does not replace, the current Employer-Supported Childcare, but crucially it doesn’t require the employer to be involved.“Companies can administer their own scheme, or hire an intermediary, who can do the leg-work in establishing your scheme for a small fee. But the key thing to remember is that only those businesses with schemes established before the April 2018 deadline will be able to see their benefits continue – as parents will only be able to benefit if they sign up to an employee scheme before this date.For more information or to speak to a specialist in your area, please visit bulleydavey.co.uk.
  • “So again, our advice is to look into this and get it established before the deadline. It is good-practice as an employer to help your employees – and there are benefits to be had on both sides. It’s a win-win scenario!”
  • “As an employer the benefits of establishing an employer-supported scheme include not paying National Insurance on Childcare Vouchers – these vouchers can be worth up to £55 per week or £243 a month for employees, but can be done via a salary sacrifice as long as it doesn’t take their earnings below the minimum wage – so you can save up to £402 per year for every employee who signs up to your scheme. Employers can also enjoy tax-relief of up to £1,000 a year, which can be doubled up if both parents are eligible.
  • As an employer, having happy employees under an Employer Childcare Scheme is not only socially beneficial, but can also be economically beneficial. Changes mean that an April 2018 deadline is in place to get things set up, but it’s not too late! Laura talks us through why:
  • “If you’ve stopped claiming and want to restart it isn’t too late, so long as you have a child under 12 – again in order to do this call 0300 200 3100 or visit the HMRC website.”
  • “You may be in the position where this won’t affect you and you don’t want to pay the tax incurred for the sake of a state pension you won’t really utilise – in this case you will have to let HMRC know either over the phone (0300 200 3100) or by filling out a form via their website.

“That final bullet point is important. As since the means-test was introduced many parents have stopped claiming, especially those with a parent between the £50,000-£60,000 threshold, or those over it – as it is seen as not worth claiming for the little or nothing they receive.

“However many of these parents, and its estimated there are around 40,000 parents in this situation, don’t realise they are jeopardising their state pension when they retire by not claiming child benefit – even if they won’t receive anything – as they are losing out on the automatic National Insurance payment, which means you could have a smaller state pension when you retire.

“You may be in the position where this won’t affect you and you don’t want to pay the tax incurred for the sake of a state pension you won’t really utilise – in this case you will have to let HMRC know either over the phone (0300 200 3100) or by filling out a form via their website.

“If one parent earns over £60,000 a year and you do want to utilise the NI payments, especially for the lower-income parent, you can claim benefit at a ‘zero rate’. You won’t actually receive any child benefit – but you will still get the NI credits. To apply for this zero rate child benefit, tick a box on the child benefit application form – it’s in section 4 on ‘Higher Income Earners’.

“If you’ve stopped claiming and want to restart it isn’t too late, so long as you have a child under 12 – again in order to do this call 0300 200 3100 or visit the HMRC website.”

Employer Childcare Scheme

As an employer, having happy employees under an Employer Childcare Scheme is not only socially beneficial, but can also be economically beneficial. Changes mean that an April 2018 deadline is in place to get things set up, but it’s not too late! Laura talks us through why:

“I am about to go on maternity leave with my second child and can attest that, as parents return to work, childcare becomes an issue and it can often be a costly one. In 2014 the government announced the Tax-Free Childcare scheme to take affect from this year – with applications open until April 2018. The scheme rivals, but does not replace, the current Employer-Supported Childcare, but crucially it doesn’t require the employer to be involved.

“As an employer the benefits of establishing an employer-supported scheme include not paying National Insurance on Childcare Vouchers – these vouchers can be worth up to £55 per week or £243 a month for employees, but can be done via a salary sacrifice as long as it doesn’t take their earnings below the minimum wage – so you can save up to £402 per year for every employee who signs up to your scheme. Employers can also enjoy tax-relief of up to £1,000 a year, which can be doubled up if both parents are eligible.

“Companies can administer their own scheme, or hire an intermediary, who can do the leg-work in establishing your scheme for a small fee. But the key thing to remember is that only those businesses with schemes established before the April 2018 deadline will be able to see their benefits continue – as parents will only be able to benefit if they sign up to an employee scheme before this date.

“So again, our advice is to look into this and get it established before the deadline. It is good-practice as an employer to help your employees – and there are benefits to be had on both sides. It’s a win-win scenario!”

For more information or to speak to a specialist in your area, please visit bulleydavey.co.uk.