At the moment, because of the way in which the childcare voucher scheme works, higher rate taxpayers benefit from at least double the amount of income tax relief that basic rate taxpayers receive. According to HMRC figures, around a third of the funding for employer supported childcare goes to the 6% of parents who pay tax at a higher rate.

Because of this, changes to the level of tax relief available have been introduced, and will come into effect from 6th April 2011. These changes will mean that any new entrants to the scheme from this date will benefit from the same level of tax relief, so higher earners will benefit in line with those on lower incomes.

Employees already in a scheme prior to this date will not be affected by these changes and will retain their current level of tax savings unless they leave the scheme or are no longer eligible to participate.

From 6th April 2011, employers will be required to assess employees pay for the coming tax year, and this figure will be used to fix tax exemption for that year. If additional benefit is provided during the year because of a change in salary, the excess benefit will be considered to be a benefit in kind and should be declared to the HMRC on form P11d.

For more information about child-care vouchers in general, or to discuss this particular change, call Anne on 01494 451681 or e-mail anne@hradvantage.co.uk