Employer paid nursery places / opportunity to reduce tax - Anyone know more/ have experience??

[Mo2]

I have recently learnt that if an employer pays the costs of childcare for employees and then deducts the costs from the employees gross salary, the employee only has to pay tax on the net amount. This means a saving of between 25% and 40% on childcare costs for the employee depending on which tax bracket they are in. For the employer the costs are tax deductible.
The childcare does not have to be a dedicated facility for the company and the employee may be the only user of a particular nursery from the company. However there are some conditions to be met.

A full question and answer page from the Inland Revenue is available here

Apparently there was a consultation exercise earlier this year looking at extending it to make it easier to participate. Just wondered if anyone has had success in convincing their employer to do this, or knows what recent developments have been?

With 2 kids in nursery at £1500 a month this could mean a big saving for us!

[Pimpernel]

As I understand it (and I may well be wrong - it's very confusing!), it's only tax deductible if the employer has some responsibility for managing the childcare. So if an employer just pays for a place in an external nursery, it counts as a taxable benefit. The conditions are quite restrictive. Would love to be wrong though!

There was a consultation in February and the responses have recently been published on the Inland Revenue site. If you put 'employer supported childcare' into google, you can find quite a few individual responses as well.

I think I've just persuaded my employer to offer childcare vouchers (only a year after I first enquired). Vouchers mean that the employee doesn't have to pay NI on them, saving around 10% - not as generous as a tax saving, but still worth having. Busy Bees are one company (I think there are others) who manage this type of scheme.

[stardust]

Sounds about right.
I am currently in the process of persuading my employer to enrol in a system known as TEDS, entitling the employee to receive tax relief if the empoyer pays the nursery fees direct ie deducted at source from monthly salary.
You can visit the website at www/Teds.uk.com

Would love to hear if anyone has any comments, or noted any pitfalls in the scheme

If all goes according to plan we could save approx £400 per month on nursery fees at £1000 per month...and in south London I have found little alternative for full time care. There are also costs that the employer must pay in advance, but he is not losing out as these are in fact equivilent to the savings he makes in NI contributions.
The scheme is only applicable to private nurseries.
Teds could be the answer so fingers crossed.

All comments welcomed!

[janinlondon]

Stardust, I did see on another site that there are implications for your pension (ie: pensionable salary will change) and national insurance. But I am not clued up enough to know whether these balance out when stacked up against the benefits. Would be interested to hear how you get on.

[GillW]

I'd be really careful about the TEDS scheme and checking that it did have Inland Revenue approval (note it doesn't claim that they do anywhere on their web site) - or you could find yourself with an unexpected tax bill. See this article .

There are proposals to change the tax treatement of employer supported childcare to bring it more into line with the support for workplace nurseries - see here for the consultation documents, and here for the summary of the responses. Perhaps now Gordon Brown might be needing a nursery place they'll bring this in in the next budget

[miranda2]

Bah - it does seem the TEDS scheme is a ramp. But it does annoy me that childcare isn't claimable against tax as a working expense. And why is it claimable if I have an enlightened employer who provides a creche and not if I don't?? Sounds very unfair to me. I really hope this gets sorted out - the tax is a huge part of the cost. So we're paying tax to be allowed to earn money to pay tax on - hmmm!

[zebra]

I couldn't get my employer to participate; they already do such a scheme for the on-site nursery. But it's A) the most expensive childcare in town; B) has very few & limited spaces; and C) 120 miles away from where I live. I feel annoyed about the whole thing... but I also know that my children very much dislike Nursery settings; they are SO MUCH happier with a child-minder. Plus I find CMs are much more flexible than Nurseries.

On other drawbacks... Apparently the companies that act as intermediaries often charge a lot for the service, but I don't know more specifics.

Child Tax Credit covers over 50% of our costs with the CM, anyway, so I don't feel like I'm missing at that much (personally).

[alibubbles]

zebra, how about getting your childminder to take childcare vouchers? I get paid by three families in Busy Bee vouchers, as Pimpernel has put a link to.

I got the school of the teachers whose children I mind, to set it up. ( Most companies already do vouchers, or can easily, though don't advertise it) We chose Busy Bees as it was so simple, the parents request an amount each month in vouchers and because this is taken off their salary at source it is exempt from National Insurance, - 11% They will still pay tax as a benefit in kind at the end of the year via their P11D. The school does have to pay for the scheme, but they also save money ( can't remember the amount) and gain goodwill from the employees.

The school now say when recruiting staff, childcare vouchers available!

Two of the families save £75 a month each (£900 a year) and the other is part time, £55 a month (£660 a year)

All I have to do as the childminder is just ring up BB when I have the vouchers and they are redeemed over the phone and my account credited 3 days later.

I think it is great, I can't see any reason why childminders won't accept them, it is only the same as a cheque, and guaranteed payment.

If your company don't offer Busy Bees, they may do another one run by American Express or Diners like Luncheon vouchers. Worth asking your personnel department, or seeing if a few of your collleagues would be interested and lobbying the for equality in terms of childcare provision!

[stardust]

Thanks for the feedback...and 3 mths down the line I am still wrangling, though already back at work, so feeling peeved at the potential £400 saving we could tap in to if I had sound reassurance to give my employer. Having read the article (v useful thank you) I did wonder if anyone had had any more recent information; I hoped that the article, written in 2000, may have been superceded by more forward thinking....It seems ridiculous that evidently some families are benefitting from this scheme (run by TEDS), and that nurseries advocate it, when it does not even get past certain local tax offices. Surely someone must have a definitive answer on this one....why hasnt TEDS been forced to close?

All comments welcomed!
Many thanks

[GillW]

It doesn't help you now, but from April 2005 you will be able to get £50/week of your nursery fees tax AND NI free if your employer will do nursery vouchers. This is a limit PER PARENT, so if there are two of you and both employers will do it that's £100 a week between you. See here .

[stardust]

Thanks GIllw. You are certainly clued up....2005 seems a long way off....
The more I think of this salary sacrifice, the angrier I get. If it really is a sham, how come some parents are already benefitting and the nursery is pedalling it as a bona fide saving? Furthermore, how can companies like TEDS continue to set up this scheme, and charge over £1000 each hit?

Is there anyone out there who has been successful with TEDS?....I feel like a dog with a bone on this issue...but if htere's money out there to be had..

Thanks in advance

[zebra]

But the employer still has to consent to participate, don't they, GillW? My employer refuses to participate, and that is that. (Same goes if I wanted to ask a childminder to accept the vouchers, Alibubbles).

Oh, but... they would argue they have their onsite nursery, to which fees are paid pre-tax. I tried to sign up for a baby place and a 3yo place next January -- January 2005. The nursery won't let me sign up the baby, because it hasn't been born yet, so therefore hasn't a name or a birthdate! I won't be able to get the baby on the waiting list until May-July time at the earliest. What do you think the chances are of me getting a place for both the 3yo and the baby in for the same sessions, any 2 days or any combination of 5 mornings/pms per week? Especially given they have their biggest intake in September and only a small one in January. Almost NIL!! Even though I have tried to sign up a year in advance.

Some employee benefit, eh?
Ranting, who me?, no no no....

[marialuisa]

Zebra, you may find that your employer will be a bit more willing to listen about the BusyBees vouchers if you can get a bit of a campaign going. At our last HEI we emailed all university staff (thabnk God there were mailing lists set up!) and collared as many friends and direct colleagues as poss to pester personnel. After initial refusals to consider the scheme they backed down in the face of mass demand. References to that Uni's love of promoting itself as "family-friendlY, equal-opps" etc. helped massively. The scheme was implemented the month before we left, complete with headlines in local rags/local TV about how the city's largest emplyer was so forward thinking...

Congrats on the pregnancy BTW.

[zebra]

Thanks, ML, I tried to raise the issue 18 months ago, asking around I found about 5 other interested parents (not very many, really, when they must employ over 800 people). Had an apparent positive response from personell, "I'll raise it next meeting", etc., and then it all went quiet. Then we pulled kids out of nursery and until I just read Alibbubbles message I thought that CMs weren't eligible to receive them. I will look into it, but we move in 10 days and don't know what childcare arrangements, if any, we will have after that, anyway. Although after we move I'll be working on site, meaning in their offices and not from home, so it may be easier to find other interested parents to raise yet another campaign.

[marialuisa]

Good luck. We found that a general email with contact details of the relevant person worked wonders. glad to hear your move is going ahead at last.

[Fennel]

Zebra if you sign up the 3 yr old and they get a place, their baby sibling is often then a higher priority than other applying babies. this is how it works in my (uni, workplace) nursery. so it's worth putting the older child down. if you definitely want to use the nursery that is.

[childcarevouchers]

I'll happily offer anyone advise on saving money on their childcare via childcare vouchers.

I work for a company called Family Matters and we specialise in setting schemes up with employers (even v small one's).

There's really no reason why a company shouldn't set one up - especially given parents can save as much as £71 per month - that's £858 a year.

As for the TEDS scheme - childcare vouchers are much better! More flexible, totally legitimate AND COST NEUTRAL for your employer!!!

I'd be delighted to help anyone who is unsure about this subject - and Family Matters will even speak to your employer if they are having doubts.

[TracyK]

does the employer actually have to produce vouchers - i thought they just paid you the £50 a week and called it child care vouchers??

[shorties]

Has anyone managed to find out if the TEDS scheme is approved by the Inland Revenue. I am going to set up a meeting next week with them to go through the legal side of their scheme. I'll keep you posted

[Blu]

For v small employers, with few employees wanting this facility, there is, in fact, no ned to go through a voucher scheme or any 3rd party at all.

The employer simply contracts the chosen nursery direct to provide a certain amount of childcare for the employee. They can do it by letter - then the nursery invoices the employer direct (£217 pcm is the maximum allowed free of tax)..and the employee pays the nursery for the outstanding balance. The amount is deducted from the employees pay [acket before tax as a salary sacrifice.
The advantage of this is that the employer gains the benefit of not having to pay the employers contribution on the tax/NI. A serious consideration for charities, not-for-profut organisations, small businesses etc.

Just beware: For purposes such as maternity allowance, reducndancy etc, your salary will be judged at the amount once the chilcare contibution has been 'sacrificed' from your salary.

[mildew]

Shorties
Did you make any progress with TEDS?
My nursery has been pushing the TEDS scheme and my employer has agreed to sign up to it but I'm worried about a) what if the inland revenue decide that the TEDS scheme isnt proper use of the workplace childcare tax breaks and i get a tax bill and b) amending my contract of employment properly so that when my DD and DS are no longer in daycare then my salary goes back up - I really don't know where to start and I havent met anyone who has done the TEDS/salary sacrifice scheme

[fsmail]

We are just about to start this as we pay £100 per week to the nursery, perfect between the two of us. We both work for small companies so they are going to pay the nursery direct. It should save us 30% which is great.