Why not save money providing a Childcare Benefit Scheme ?

January 15th, 2009 by free-horizon

“childcare schemes with a difference”

So read on, and welcome to our free-horizon website where we will explain how our schemes work and demonstrate to you how it will save an employer and employee real cash on registered childcare when a scheme is introduced.

For many years employers and employees have been able to enter the traditional voucher paper scheme, that has enabled employees to make savings on registered childcare by the removal of National Insurance contributions on the amount paid for registered childcare.

In April 2005, the Government made changes to the official legislation governing childcare payments to allow employers to introduce schemes, whereby the employee can now make payments for childcare up to £55 per week or £243 per month without having tax and NI contributions levied on these payments. This in turn under the current tax/NI allowances allows an employee to achieve possible savings of up to £1195 per year. The employer also makes savings based on the secondary NI contributions, calculated on the employees earnings level, which could be up to £372 per year for each employee. All in all, both parties achieve a win-win situation.

So why the introduction of this scheme ?

Until 2005 employers only had the opportunity to save money on their NI contributions or to run an internal workplace nursery for their employees children. This has meant that the choice of schemes to employers has been limited and prices for introduction have been held artificially high. The change in legislation meant the development of the employer direct payments scheme, which in itself is very easy to run indeed and thus introducing it means the savings far outweigh the cost. The scheme is run in house and the additional burden to existing resourcing is literally non existent to a small to medium sized employer. We make very sure of this.

Why choose over a voucher scheme?

Please don’t get me wrong but voucher schemes have provided a great solution to dealing with tax/NI free provision over the last twenty or so years. It is obviously a very lucrative business, since there are so many companies to choose from these days. So you need to ask your self why many of the large organisations in this Country are now switching to an “Employer Direct Payment Scheme ?”

Several key reasons come to light:

The changes that took place in October 2008 in relation to Statutory Maternity Pay have now put a greater financial burden on organisations who provide non-cash benefits.

They felt that the take-up levels were poor due to the lack of promotional interest from the voucher companies once they had introduced the scheme.

It was far easier to run a scheme in-house as they could meet cut of dates for payroll easier and could be far more flexible with these dates.

They realised that the voucher companies were sitting on their money and not all of it is paid over straight away, so it was now dead money to them, affecting their cash flow.

The Nurseries and Carers were frustrated with handling payments by vouchers in view of the time being spent having to reconcile payments with poor identifying references.

Most importantly where they had resource time available they could now justify retaining staff by keeping all the savings in-house rather than paying the continual management fees out.

So what happens with HMRC approval ?

You may or may not be aware, but your tax office will not give compliance confirmation until you have introduced your scheme. Their main interest is that you deal with the weekly/monthly reductions correctly through your payroll to account for the tax/NI contributions. They are not interested in the variation to the employees contract as this is a matter of employment law.

We, as part of our scheme, will arrange the compliance clearance with your tax office on your behalf. Normally they ask for evidence of an employee before they joined the scheme and the effect on their pay after they have joined the scheme.

Some organisations are frightened of this process, but we can re-assure you that it is very straight forward and all the HMRC office are geared up for such enquiries.

There are some major key benefits about our scheme which we feel would be better explained to you directly and specifically tailored to your own organisation, so please feel free to contact us at your convenience.

We appreciate the time you have taken so far and would like to point out that our site is continually updated with new links surrounding all aspects of childcare and recommend sites to visit as well.

Teach your children to draw !