Some employers have taken on board April’s tax breaks and gone way beyond, perhaps investing in major on-site facilities, be aware of the cost and tax implications, says Alison Coleman
Case Study: First Direct
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Finding good quality affordable childcare remains a top priority for working parents, and increasingly, they are looking to their employers to help them secure it.
When income tax breaks on childcare vouchers were introduced in April, they were hailed as the solution to all employees’ childcare needs. Employees can now choose to have up to £50 a week, or £217 a month, of their gross salary paid in childcare vouchers, free from income tax or national insurance contributions.
Employers, too, can save money, with exemptions from tax and national insurance on the part of the salary paid in vouchers.
However, vouchers are not suitable for all employees. Staff may not be able to take advantage of vouchers because they can only be used to pay registered carers, such as childminders and nursery nurses, and not relatives or friends who sometimes provide their childcare support.
For employers that want to offer an alternative form of childcare support to staff there are a number of other options, such as the provision of workplace nurseries, or the contracting of places at nurseries elsewhere.
Jonathan Swann, communications officer with Working Families, an organisation that helps working parents, carers and their employers achieve a better work-life balance, says: “We know that employer-provided childcare is highly valued by working parents. So too is flexibility, and where childcare vouchers are not necessarily the best option, employers are providing alternatives, such as on site or contracted nursery places and emergency childcare.”
Workplace nurseries are generally found in organisations which have a large number of staff in one location. Nurseries present several advantages over other forms of childcare. For instance, if a nursery nurse is ill, parents won’t have to change their childcare arrangements, ensuring continuity.
Parents may also like the fact that their children are mixing within a larger group, and are close to them during working hours.
There are significant tax and other commercial advantages too. Any subsidy, direct or indirect, whether at the employer’s cost or recovered from employees through salary sacrifice, is free from income tax and NI and can be treated as normal expenditure for corporation tax calculations. In effect, subsidised on-site childcare can be provided at no cost to the company.
But with average start-up costs of around £200,000, workplace nurseries are not an easy option.
Supply and demand can be difficult to balance. With nurseries generally only catering for certain age groups they can quickly become oversubscribed, while a large number of part-time or shift workers can create additional nursery staffing pressures.
Employers can’t assume that all the working parents among their staff will want to use the facility; they may prefer not to commute to and from work with their children.
But there are other ways in which employers can provide support. Childcare agency Tinies supplies qualified staff to provide permanent and emergency childcare for working parents, some of who are employees of the company’s corporate clients.
Founder Ben Black says: “In an emergency we can send a nanny to the employee’s home to care for the child there. However, it is seen as a last resort and take-up of the service has been quite low.
“The NHS offers something similar [to its employees], but it found that with low take up, the money could be better spent on giving working parents more flexibility at work.”
Tinies also owns a new online back up service at www.emergencychildcare.co.uk, due to be launched early next year, through which local nursery places can be booked online at the last minute.
“It will help to fill a gap in the market, enabling working parents to book emergency places at a local nursery of their choice, close to home,” adds Black.
Some employers provide childcare by buying or reserving a certain number of places for their employees at existing nurseries or play schemes. Others operate childminding schemes, maintaining a database of registered childminders who have offered care to employees’ children.
Changes to the rules on tax exemption on childcare provision, extending it beyond workplace nurseries to independent nurseries, and registered nannies and childminders, have given parents more choice. Beth Reid, campaigns officer at national childcare charity the Daycare Trust, says: “Contracting childcare places at local nurseries or childminders is a good option for smaller organisations with fewer employees. But one of the most valuable benefits an employer can provide is flexible working. When a child is sick, opportunities for home working and late starts can make a huge difference.” For many working parents, however, childcare continues to be problematic when their children reach school age, with the relatively short school hours and long school holidays posing the biggest problems.
Earlier this year the government announced plans for schools in England to be open from 8am to 6pm, putting £680 million of funding over the next two years into encouraging more schools to set up breakfast and after school clubs to help working parents.
However, a number of schools that already operate such schemes say the sum required to fund the initiative is much larger. In order to provide the maximum benefit to children attending extended schools, the staff providing extra-curricular activities and care must be highly qualified. An after school club that offers 24 places will theoretically need three part-time staff, including a manager and two play workers.
“After school clubs and holiday play schemes present employers with an ideal opportunity to provide funding towards this extended wraparound childcare support for the working parents among their staff,” explains Swann.
On-site or employer-managed after school care provisions would attract the highest tax benefits, with staff exempt from income tax and NI contributions on employer subsidies, and employers paying no NI contributions.
But concerns have been raised that extended care provided by an organisation could lead to a reduction in flexible working arrangements.
“There is a danger that employers which provide these extended care facilities may not see a need to offer employees quite as much in the way of flexible working,” explains Swann.
As well as meeting the childcare needs of their staff through practical help, such as nursery places and emergency nannies, employers could do more to help their staff by simply providing more information and advice on available childcare, and helping them decide which is the most appropriate option for them.
Estimator is a new web-based tool being launched by Opportunity Links, a voluntary organisation working to deliver the government’s National Childcare Strategy.
Facilitated and implemented via an organisation’s intranet or human resources department, Estimator highlights the financial implications of various employer- provided childcare options, helping employees decide which is best for them. It can also provide information on childcare provisions in their area.
Kate Warboys, sales and marketing director, says: “At a time when childcare is still a major priority for working parents, the very least that employers should be doing is helping them to find the best solution, even if they are not actively providing it.”
Case Study: First Direct
Last year, First Direct, a division of HSBC bank, doubled the size of its workplace nursery at Stourton, near Leeds, making it one of the largest corporate workplace nurseries in Britain.
The building extension will help the telephone and internet bank provide childcare support to parents among the 2,500 employees based at the site.
The facility is run in conjunction with nursery provider Kids Unlimited, and in accordance with HM Revenue & Customs (HMRC) criteria to qualify for tax breaks. A First Direct management representative is also actively involved.
Employees can purchase nursery places as part of the flexible benefits scheme, or directly from their salary. The flex scheme qualifies under HMRC guidelines as a salary sacrifice arrangement, therefore allowing employees to benefit from tax and NI savings.
One of the key benefits of a workplace nursery, particularly when offered as part of a package of benefits and support for working parents, is its impact on staff recruitment and retention.
Jane Hanson, organisation development manager, explains: “Good quality childcare is an important aspect of many people’s lives, and highly prized as a benefit by our employees.
“The impact of this is measurable in terms of our people attrition rates and engagement levels, customer satisfaction and recommendation, and the fact that 90% of our maternity leavers return to work.”
Take up of the 337 available nursery places is consistently high. But for those parents who prefer not to take a place, there are alternatives.
“Some parents choose to place their child in a nursery closer to home. Possibly because they want to make friends and contacts in their local community, but we support these parents with childcare vouchers through the flexible benefits scheme so they can also benefit from the tax and NI savings,” explains Hanson.
Given the impact on customer satisfaction and recommendation, and on people attrition levels, the nursery has been cost effective to set up and maintain.
“Losing our skilled employees to competitors is an avoidable and significant cost. Part of the rationale for implementing a workplace nursery was the value that a large proportion of employees place on that facility. The nursery is very important in setting us apart from our competitors and retaining valued employees,” says Hanson.
The tax implications of childcare provision
Employers can claim tax relief for the day-to-day costs of providing or subsidising childcare. They may also qualify for capital allowances on the cost of equipment for a nursery or play scheme, and tax relief for the capital costs of providing premises to hold a nursery or play scheme.
Nursery places provided by an employer are taxable benefits-in-kind unless the employer alone, or jointly, for example, with a voluntary body or local authority, make the premises available for the nursery.
For a jointly-run nursery to qualify for exemption it must be located on premises made available by one or more of those taking part in the joint scheme. The employer must be wholly or partly responsible for financing and managing the nursery or play scheme.
This does not necessarily mean the employer needs to be involved in the day-to-day management or direct responsibility for care of the children, but it does require their close involvement in the appointment of those providing the care.
In nurseries where sub-contractors provide the day-to-day childcare, places are exempt from tax providing the conditions governing the provision of premises and the responsibility for finance and management are met.