HM Revenue & Customs 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 companies are not meeting the eligibility criteria for the scheme. Businesses that sign up are expected to provide a workplace nursery for parents either onsite or through an external agreement.
Some are using “agents” or “promoters” to secure childcare places with providers under arrangements that do not comply with the scheme.
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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.
Susan Ball, employer tax partner at accounting firm RSM UK, said employers and staff could face “potentially large” tax bills as a result of the clampdown.
“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,” she said.
“There may be interest and penalties going back several years, so the impact of this could be significant for many.
“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.”
HMRC said it will publish updated guidance for employers to ensure they don’t fall foul of intermediaries that fail to meet the criteria.
Ball added: “Employers who 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.
“The new Labour government may want to consider what additional support they could offer to parents.
“One option could be reopening the childcare voucher scheme to new applicants, which could be done fairly rapidly if they wanted to.
“Any support with childcare costs does enable people to get back into work or increase their hours which would boost productivity, a key aim of this government.”
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