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Can I pay for childcare through my limited company?

Monday, July 27, 2020
By Cheryl Sharp
Can I pay for childcare through my limited company?

Unfortunately for most parents with small businesses the answer to this question now will be no, you can’t.

Up until October 18 you were able to put some costs (up to £243 per month for basic rate tax payers) through your business either using the Childcare Voucher Scheme or as a direct contract between the nursery and your business.

However this closed to new businesses/parents to make way for the new Tax-Free Childcare offered by the government.

So if you already have a voucher scheme in place for yourself or employees, or already were paying the childcare provider directly through your business prior to the 4th October 18 then you can continue to do so.  But this is not possible for new employees - or new parents that haven’t used this before.

There are now basically 2 options:

  1. Workplace Nurseries

  2. Tax-Free Childcare

Workplace nurseries

Now realistically this is only going to be an option for bigger companies where there are a number of employees who require childcare.  

If you provide places for employees’ children in a workplace nursery, you do not have to report any benefit or pay any tax on the benefit. To be an option, a workplace nursery must:

  • have the appropriate registrations and approvals

  • be available to all your employees

  • provide childcare for your employees’ children, or children they have parental responsibility for

  • provide childcare up to the maximum age its registration and approval allows for

The nursery does not have to be at your workplace - it can be in other premises that you manage and finance, as long as they’re not a private residence.

Tax-Free Childcare

This is the most appropriate option for parents.  It’s not done through your business, but the government will contribute an amount to your childcare costs..  

You’ll need to set up an account online, where for every £8 you pay in, the government puts in a further £2.  The government will put in up to £500 every 3 months (up to £2,000 a year) for each of your children. This goes up to £1,000 every 3 months if a child is disabled (up to £4,000 a year).

You then use these funds to pay for approved childcare, for example:

  • childminders, nurseries and nannies

  • after school clubs and play schemes

Your childcare provider must be signed up to the scheme before you can pay them and benefit from Tax-Free Childcare.

Check with your provider to see if they’re signed up.

You can use this Tax-Free Childcare in addition to the 30 hours free childcare if you’re eligible for these hours too.

As with everything the government do there are some eligibility requirements to be able to get this tax-free childcare!  These are as follows:

  • You (and your partner if you have one) both need to be working at least 16 hours a week, earning at least the minimum wage, for the next 3 months (so earning at least £604.59 per month - which you would as a director, as your salary would be at least £791.67 per month).

  • Your child must be 11 or under and usually live with you. They stop being eligible on 1 September after their 11th birthday (what a lovely birthday present!!)

  • You must be from the UK or EEA, and if outside the EEA ensure your residency card states you can access public funds.

  • You cannot get Tax-Free Childcare at the same time as claiming Working Tax Credit, Child Tax Credit, Universal Credit or childcare vouchers.

Source: https://www.gov.uk