As the summer holidays are just around the corner, many parents find themselves juggling their professional responsibilities with arranging childcare. If you’re a director of a limited company or a sole trader, you might be wondering how to manage these costs effectively. Fortunately, there are options available to help fund summer holiday childcare which we explore further below.
Salary Sacrifice Schemes
Primarily aimed at employees, including directors of limited companies, salary sacrifice schemes allow individuals to give up part of their pre-tax salary in exchange for childcare vouchers. This effectively reduces your taxable income, and you could save on both income tax and National Insurance Contributions (NICs).
Please remember, though, the Childcare Voucher scheme closed to new entrants in October 2018. If you were part of the scheme before this date, you could continue to benefit from it as long as you don’t change employers, and your employer continues the scheme.
Replacing the old Childcare Voucher scheme is the Tax-Free Childcare initiative, a government-funded program that boosts your childcare payments by 20%. For every £8 you pay into an online account, the government will add an extra £2, up to a maximum of £2000 per child per year, or £4000 for a disabled child.
As a director of a limited company or a sole trader, you are eligible for this scheme. However, to qualify, your child must be 11 or under and usually live with you. They stop being eligible on 1st September after their 11th birthday.
Working Tax Credit
Sole traders might also consider the Working Tax Credit. This is a state benefit given to workers who earn a low income. If you’re responsible for at least one child, you may qualify for the ‘childcare element’ of Working Tax Credit, which provides assistance with childcare costs.
Whether you’re a company director or a sole trader, you have a variety of options for funding summer holiday childcare but it’s always a good idea to consult with an accountant to understand which option best fits your circumstances. The best choice will be one that benefits both your family and your business. With the right childcare sorted, you can enjoy the upcoming summer knowing that your children are in good hands while you work.
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