From 6 April 2005 changes have been made which can be neatly summarised under three main headings:
1 Workplace nurseries
The old tax and NI exemptions already described continue and indeed, generally speaking, are widened. Now employees of other organisations may also benefit from the exemptions if they work at the same location as the employer’s staff. As before there is no financial limit on the relief and, indirectly therefore, no limit on the number of children per employee for whom such care can be provided.
2 Childcare vouchers
The main changes are that the exemption is extended to cover tax as well as Class 1 NI (both employers’ and employees’) but a financial limit of £50 per week has been introduced. Any excess is liable to both tax via the P11D, and Class 1 NI (employer and employee) via payroll deductions.
The £50 is measured by reference to the face value of the voucher. Voucher provider companies charge an administration fee for the service but this is not included in the £50.
The exemption is per employee not per child although there is nothing to stop more than one person (typically both parents or others with parental responsibility) qualifying in respect of the same child.
3 Other childcare support
If the employer makes other direct arrangements for childcare then, so long as certain conditions are met, the first £50 of expenditure per week is exempt from tax and NI. Any amount over £50 is taxable, reported on form P11D and liable to Class 1A NI.
Examples of the types of childcare covered under headings 2 and 3 would include the employer paying for a place at a local nursery, out-of-school club or registered childminder.