Childcare Vouchers & Payroll
How do I treat childcare vouchers on the payroll? If for example someone has £500 worth per month, I used to just deduct that from their gross pay and that was that. Now I am being told that part of that amount is tax and NIC-able.
The answer to your question depends on whether you are deducting the amount from net pay as an employee purchase of childcare vouchers, or whether you are in reality treating the childcare vouchers (CCVs) scheme as a benefit in kind salary sacrifice arrangement where the employee has agreed to have their earnings contractually reduced.
Employee purchase of childcare vouchers through the employer receives no tax or NICs relief and is purely a voluntary deduction from net pay.
You do imply a deduction from gross pay of the full amount which is incorrect. CCVs used to only have NICs relief on the full amount and no tax relief as the benefit was fully reportable on form P11D.
However, approved childcare (e.g. a registered and inspected childminder) can be paid by the employer either directly or through CCVs up to the amount of £55 per week (£243 per month) from 6th April 2006 with no tax or NIC liability falling on the employee.
In the case of CCVs, any amount of benefit received - face value of the vouchers, not the cost - exceeding these limits are NI-able through the payroll and taxable through form P11D under non-cash vouchers.
The HMRC are fairly flexible on how salary sacrifice arrangements are acted through the payroll, what they do insist on is the existence of the contractual change. If the employer cannot show a contractual change then they may find the experience a little expensive as they will be met with a potentially significant tax and NIC bill.
If the scheme is purely the employee purchasing childcare vouchers, then deduct the £500 from their net pay as a voluntary deduction. There is no change.
If the scheme is a salary sacrifice scheme, then the employee has actually reduced their pay by an agreed change to the contract. Assuming that a contract change is held by the employer, this arrangement can be shown in a number of ways through the payroll.
The reality is that HMRC do not mind how a salary sacrifice arrangement is presented on the payslip or through the payroll, as long as the contract successfully shows salary sacrifice and that the correct amounts become taxable and NIC-able through the payroll and the form P11D.
If this case were a true salary sacrifice, £243 per month of the benefit in kind would be tax and NICs free. The other £257 pounds of benefit strictly has a Class 1 NIC liability through the payroll and a £257 tax liability through the operation of form P11D. Some employers may choose to tax at source this benefit amount through the payroll itself. If this is the case then you may consider a deduction of £243 from gross pay and a voluntary deduction of £257 from net pay.
Give As You Earn Schemes
The Home Office has launched a new UK-wide grants programme for the setting up of payroll giving schemes.
The intention is to encourage more employers to set-up a Payroll Giving scheme for their employees. The scheme is administered and promoted by the Institute of Fundraising and Business in the community and does the following:
Gives employers a cash incentive of up to £500
Matches the first £10 donated by each employee, every month, for a period of six months.
These new grants are available to employers with less than 500 employees who set up a new scheme between April 2004 and December 2006.
Payroll giving schemes enable employees to give to charity straight from their gross salary and to gain tax relief of up to 40% for each donation, whereas the non-payroll Gift Aid programme only places tax into the hands of the charity based on 22% tax basis.
Temporary NI Number
My local tax office has given me a temporary NI number for an employee in the format 99aa99999. Should we use this new format number on the P11 and end of year reporting?
Confusion arises when the HMRC PAYE tax office is not notified of the correct NI number and they allocate their own temporary PAYE number which is then used on correspondence. However, this is not a recognisable NI number to the National Insurance Contributions Office.
The NI Office issues numbers to those approaching 16 years of age and those working or claiming benefit so that contributions and credits can be correctly recorded on each person's National Insurance account. The NI number consists of two letters followed by six numbers then one more letter, either A, B, C or D. As soon as an employee starts work, you should ask them for their NI number - by law, everyone who is working must have one and let you know what it is. This helps to protect the employee's entitlement to Social Security Benefit.
If you are unable to get hold of an employee's NI number then you must keep a record of their full name, address, date of birth and gender. If you send a form P46 for the person, the NI Office will automatically trace their number. Alternatively, you can use the NI number Trace Service by obtaining form CA6855 from the Employer's Orderline, tax office or local NI office. This will trace the employee's number and send you a form CA6856 confirming it. Or, they may write to let you know that the number cannot be traced.
If the employee has never had an NI number then record their information and tell them to contact their nearest JobCentre Plus Office to arrange an interview and completion of the appropriate application forms. After the interview they should obtain a form CA5404 verifying that they have applied for an NI number.
It is essential that you obtain a correct NI number for each employee and do not use temporary numbers.
It has recently been brought to the attention of the HMRC that some local tax offices have sent employers 8-digit non-suffix NI numbers after checking the NI number from P46 submissions. These are incorrect and employers are asked to add the suffix A, B, C or D on the end of the number when completing forms P14 and the HMRC will then sort out the correct number.
