HM Revenue and Customs (HMRC) is clamping down on employers that may have wrongly used a government benefit to reduce childcare costs for staff.
Using salary sacrifice via a government childcare support scheme, employees’ nursery fees are deducted from their salary, meaning staff pay lower tax and national insurance contributions on the reduced salary.
But accountants have warned that an increasing number of employers are not meeting the eligibility criteria for the scheme. Employers that sign up are expected to provide a workplace nursery for parents either onsite or through an external agreement.
Some are using a third-party to secure childcare places with providers under arrangements that do not comply with the scheme.
According to HMRC’s rules, employers need to be “wholly or partly responsible for the financing and managing of the provision” of childcare to qualify for the benefit. It has published guidance for employers to ensure they do not fall foul of intermediaries that fail to meet the criteria.
An HMRC spokesperson said: “Where an employer provides a non-cash benefit to an employee, that benefit in kind is taxable. For childcare, where an employer arranges with a commercial provider to provide childcare for employees’ children or provides childcare vouchers for the employee to use, that is a taxable benefit in kind. Where an employer provides a workplace nursery, that may be exempt from tax and national insurance where certain conditions are met.”
Susan Ball, employer tax partner at accounting firm RSM UK, added: “If a nursery scheme should have been taxable and the employer has not declared this as a benefit in kind, on their P11D form or via payroll, HMRC can go back up to six years to check whether tax exemption has been claimed when it shouldn’t have been.
“There may be interest and penalties going back several years, so the impact of this could be significant. This has implications for employees too, who will not be happy if they are landed with an unexpected tax bill because their employer doesn’t pick up the liability. Employers which offer such schemes should act now to review their position. Those that have incorrectly claimed the tax exemption should make a voluntary disclosure to HMRC as soon as possible.”
