Changes to employer supported childcare
The Government recently announced plans to phase out the tax and national insurance exemptions for childcare vouchers. Further details of these plans have now been published. As expected the available tax exemptions will change for childcare vouchers which are first provided after 5 April 2011.
The tax benefits for new scheme joiners after 5 April 2011 will be restricted for higher rate taxpayers. This change is designed to ensure that relief for higher rate taxpayers is limited to the same amounts as for basic rate taxpayers. This change should result in all employees receiving approximately the same level of income tax exemption, approximately £11 per week.
Employees who are already receiving vouchers will be able to claim tax and national insurance exemptions as before until they leave their employer’s scheme or are no longer eligible to participate.
The Government says it is making these changes as the tax relief is disproportionally beneficial to higher rate tax payers. Government figures suggest that one third of the tax benefits of childcare vouchers go to the 6% of parents who pay tax at the higher rate.