OMG, WTF is TFC?

There is nothing governments enjoy more than acronyms. In recent years we've had RTI (Real Time Information for payroll) and AE (Auto Enrolment for pensions) and in the next few months GDPR (the General Data Protection Regulations, themselves an update of the DPA - Data Protection Act) will come in to force before MTD (Making Tax Digital) changes the landscape for accountants and company bookkeepers in April next year.

But before all that TFC (Tax Free Childcare) will soon supersede Childcare Vouchers. Whilst TFC has been available since April 2017, Childcare Vouchers have also been available and depending on your circumstances one may be more beneficial than the other. From 6th April, 2018 Childcare Vouchers will no longer be available to new entrants - if you are already in a scheme before this date you can continue to use it, however if you move company then you can't join a new scheme.

With this in mind it's worth considering your personal position to ensure that you are not losing out if Childcare Vouchers are available to you.

For small / close companies this is particularly important as the company can pay a director childcare vouchers (or pay the childcare provider directly) - dependant on certain criteria (ie assuming they are a basic rate tax payer) £243 / month without there being any benefit in kind.

If you therefore have a husband and wife who are both directors in their company, and they have children in childcare, then they company could potentially make a total contribution of £5,832 per annum. After deducting corporation tax the net cost to the company would be £4,723.

If these directors had maximised their basic rate band through tax planning then paying out additional dividends in order to receive £5,832 net would mean that the company would need to declare dividends of £8,640 (assuming 32.5% tax on dividends). The net cash-flow saving for the company is therefore £3,917 per annum, however it should be noted that if the directors were remunerated by salary then the potential savings are even higher!

Another bonus is that under the addition to salary schemes you can make "catch up" payments for the current tax year. So even if you haven't signed up yet you can make catch up payments for the tax year to date (on the basis that you are employed and had a child for the period!).

These are the kind of small, simple things that can have a big impact on our clients lives and ensure that they are taking home more of what they earn. If your accountant hasn't raised this issue with you yet then what other reliefs are they potentially missing. Remember your accountant should SAVE not cost you money.

Our fees are an investment rather than a cost and the savings noted above would cover the annual compliance costs for most SME's. So why don't you treat yourself to some R&R and contact us today.