New tax breaks for employer-supported childcare

EMPLOYEE BENEFITS

Chancellor Gordon Brown announced in his pre-Budget statement that the tax and national insurance treatment of employer-supported childcare would be reformed from April 2005.

Employers will be able to provide, tax and national insurance free, £50 a week for a nursery, childminder or after-school club on behalf of their staff. Or they can provide childcare vouchers to employees free of tax and national insurance, again up to £50 a week, which their employees will be able to use for registered childcare or approved home-childcare.

More details

At the moment employees are only exempt from both tax and national insurance when their employer provides a workplace nursery that they wholly or partially fund and manage.

The announcement extends the tax and national insurance exemption to the direct provision of childcare (employer-contracted childcare) and childcare vouchers subject to the following rules:

The childcare used must be either registered childcare or approved home-childcare -- this is in line with the government's commitment to only support safe, good quality care.
The exemptions will be limited to £50 a week to ensure that they are affordable and fairly targeted.
To qualify for the exemption employers will have to ensure that where childcare schemes operate they are generally accessible to all staff.

The government believes that this measure will, over time, increase the financial help available to 100,000 working families through employer childcare support schemes. Draft legislation to implement these changes will be published in January 2004.

Want to know more?

To find out more about the pre-Budget statement visit the Treasury web site at
www.hm-treasury.gov.uk/pre_budget_report/prebud_pbr03/prebud_pbr03_index.cfm

Further information is available on the Inland Revenue web site at
www.inlandrevenue.gov.uk/pbr2003/index.htm

Posted 16 December 2003