Being a parent is not easy, but neither is being an employer of parents. Although the requirement to pay tax credits through the payroll to employees has now ceased, there are several forthcoming changes to employment law which are designed to help working parents, and for which employers need to start planning now.
Maternity and paternity pay and leave
Maternity pay is currently payable for up to nine months and the mother can take a further three months unpaid leave if she qualifies.
Fathers now benefit from an additional period of paternity leave, introduced alongside the extension of Statutory Maternity leave to 12 months. Fathers (and other paternity leave claimants) may take any unused maternity leave that the mother has not taken, if she returns to work after six months, but before the end of her maternity leave period.
Once the parent is back at work he or she can ask their employer for a flexible working arrangement, if their child is aged under six. Parents of disabled children can ask for flexible working if their child is aged under 18. The Work and Families Act extends this right to a much wider range of carers, including those who care for adults.
While the parent is working, someone has to pay for the childcare, and the Government has been urging employers to help with these costs. Employers are able to provide their employees with childcare vouchers, or pay for childcare directly in a private nursery, with the first £55 per week for basic rate taxpayers being free of tax and national insurance contributions (NICs). This figure may be reduced for higher rate taxpayers and additional rate taxpayers, depending on when they entered the scheme.
A solution, which is perfectly acceptable to HM Revenue & Customs, is to substitute some of the employee's pay with the childcare vouchers. This way the employer can save on national insurance, since employers' NICs are not payable on the value of the vouchers. However there are some practical difficulties with such a salary sacrifice. The employee must agree to the change in their gross pay before it takes effect, which normally means signing revised terms of employment. When an employee is no longer eligible for the childcare vouchers, perhaps because the child is too old, the vouchers should be withdrawn and the employment terms readjusted.
If you run your own company and have young children you can give yourself tax-free childcare vouchers, but remember that vouchers may only be redeemed with a registered or authorised childminder or nursery. The vouchers do not qualify as tax-free if they can be exchanged for cash.
Employers who provide a workplace nursery can allow their employees to use the facilities with absolutely no tax charges. This is a very good deal for the parents who receive free or subsidised childcare close to their place of work, but many smaller employers cannot afford to set up such nurseries.
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