Budget – Employer-supported childcareThursday, March 24th, 2011
The “generally-available” condition
One of the statutory conditions for tax relief for employer-supported childcare is that it be made “generally available” to all of an employer’s employees. Employer-supported childcare refers to the provision of childcare under a contract between the employer and the childcare provider, and to the provision of childcare vouchers.
Budget 2010 announced that the statutory conditions would be amended so that, with retrospective effect from the 2005/06 tax year onwards, the “generally available” condition would not apply in the case of relevant low-paid employees where the childcare or vouchers are provided through a salary sacrifice arrangement. The Government has confirmed that this change will be included in the Finance Bill 2011.
Restricted tax relief
A new Tax Information and Impact Note has been published with the Budget documents about the reduction in the level of tax relief that will be available for higher earners from April 2011. It states that a number of technical changes have been made to the draft legislation in response to comments and concerns raised as part of the consultation, but these changes are not identified.
Following questions that we raised with HMRC about the way in which employers will be required to carry out a “basic earnings assessment” for each affected employee, and the use of the employee’s tax code as part of that process, we have now received the following response:
In setting out the employer requirements in relation to the estimate of the employee’s relevant earnings amount it is necessary to strike a balance between the need to obtain a fair and reasonable estimate for the coming year, and the administrative burden that this places on employers.
Just as the calculation of income will be subject to a degree of estimation, the use of the employee’s tax code as notified to the employer by HMRC is to be used as an approximation of the employee’s personal allowance. Employers are not required to obtain an analysis or breakdown of how the code has been calculated.
With regard to additional guidance on the estimate of the employee’s relevant earnings amount, HMRC will be issuing a draft update of our current guidance via our external stakeholder groups for comment in early April with a view to public release as soon as possible thereafter.