London vouchers 2014

The main part of this note refers to Employees joining a Childcare Voucher scheme on or after 6th April 2011.

The rates and limits refer to the Tax Year ending 5th April 2014, and it is assumed that the vouchers had been supplied for qualifying childcare.

Why?

As an employer, you are required to establish the maximum amount of Income Tax and National Insurance-free Childcare Vouchers you can give to each employee in the scheme, based on their income for the current Tax Year to 5th April 2014.

If vouchers are provided at a level above the limits, the excess should be reported on form P11D for the year, and Class 1 Employee’s and Employer’s National Insurance Contributions deducted and paid via the payroll at the time the excess vouchers are made available to the employee.

Where do I file it?

There is no requirement to file this with HMRC, but you must keep a copy of the assessment on file (paper or electronic), as HMRC would look for it during a PAYE Investigation.

Is it Important?

Yes, the tax and National Insurance-free nature of the payments made within the appropriate limits depends on the employer having carried out a Basic Earnings Assessment.

Without it, the full value of the vouchers supplied would be treated as a benefit subject to Income tax and National Insurance Contributions.

How often?

Being necessarily an estimate of the employees’ earnings for the coming year, you should repeat the exercise if earnings etc change radically, but at a minimum, the assessment must be carried out at least once, and preferably at the start of, each Tax Year.

How?

Include:

• Basic pay as stated in the employee’s contract of employment (If a Salary Sacrifice is in place, please use the reduced, post-Sacrifice amount).
• Contractual or guaranteed bonuses
• Contractual Commission
• London weighting or other similar regional allowances
• Guaranteed overtime payments
• Taxable benefits
• Cash equivalent of any taxable benefits (eg company car benefit)
• Shift allowances
• Skills allowance
• Retention and recruitment allowances
• Market rate supplements
  = A

Then deduct the following items from A:

• The employee’s Personal Allowance (For Year Ending 5th April 2014, £9, 440)*
• Performance related or discretionary bonuses
• Overtime payments
• Contributions to occupational pension schemes
• Payroll giving donations
• Removal expenses
• Expenses payments
  = B

* nb If an employee earns more than £150, 000, do not make the £9, 440 reduction for Personal Allowances

Based on the Assessed figure “B” above, the maximum amounts of Tax and NIC-free Childcare Vouchers an employee may receive are, :

There is no need to carry out an Assessment for existing members of schemes who were already participating on or before 6 April 2011.

The usual annual renewal of voucher arrangements does not affect this. The crucial date is when the employee initially joined the scheme.

The pre-existing limits for the amount of Childcare Vouchers that can be given to employees and attract Tax and National Insurance relief continue to apply as below.

If vouchers are provided at a level above these limits, the excess should be reported on form P11D for the year, and Class 1 Employee’s and Employer’s National Insurance Contributions deducted and paid via the payroll at the time the excess vouchers are made available to the employee.