Coronavirus: Accessing money in childcare schemes
The coronavirus (COVID-19) outbreak is having far-reaching financial impacts on individuals and businesses across the UK, and indeed across the world.
You may well be considering what funds you can access to keep you afloat in these difficult times. You may use the Tax-free Childcare scheme or use childcare vouchers from your employer and wonder whether you can withdraw from those accounts.
This page looks at both childcare schemes and the implications of taking money out.
If you get help towards your childcare costs through tax-free childcare (TFC) and have a tax-free childcare account, you will pay money into your account which (subject to certain conditions) usually attracts a Government top-up and then make payments to your childcare provider from the account.
However, you are free to withdraw any money you have put into account - but you should be aware of the potential consequences of doing that.
The amount you withdraw from your TFC account will be deducted from the total sum in the account that attracts the Government top-up payment. So, the more money you take out that is not for childcare, the less contribution you will get from the Government.
If the amount you withdraw has already had the TFC top-up, then you will have to repay to HMRC the value of the top-up that corresponds to the amount of your withdrawal. For example, for every £8 you withdraw (i.e. that you don’t use to pay your childcare provider), HMRC will take back (or you need to pay back to HMRC) the government’s £2 contribution.
We suggest you contact the HMRC Childcare Service helpline for advice if you are considering this.
Childcare vouchers (Employer-supported childcare)
If you are part of your employer-supported childcare scheme, you may be part of a salary-sacrifice arrangement whereby you have agreed to take less salary (up to a limit) in exchange for employer childcare vouchers (or directly-contracted childcare) and consequently benefit from relief from tax and national insurance contributions on the value of your employer-supported childcare vouchers.
Our understanding is that it is usually not possible to get a refund on any excess childcare vouchers unless your employer allows it and adjustments would need to be made for the tax and NI savings given. You should speak to your childcare voucher company and employer.
Due to the circumstances, you may not need to pay for childcare at the moment. You may therefore want to reduce or stop your childcare vouchers salary sacrifice so that you don’t build up too much of an excess and/or have a higher amount of money in your pocket.
HMRC's guidance says: "HMRC agrees that COVID-19 counts as a life event that could warrant changes to salary sacrifice arrangements, if the relevant employment contract is updated accordingly.”
You can ask to stop receiving childcare vouchers or directly contract childcare through your employer scheme temporarily without having to leave your scheme, providing you re-start taking your vouchers (or workplace nursery option) within 52 weeks.
The important thing to remember here is that your temporary break from your employer’s scheme must not last more than 52 weeks, otherwise you won’t be able to re-join and may need to look for other types of support towards your childcare costs.
You could, however, remain within the scheme and reduce the vouchers you are claiming to a minimal amount to avoid this issue. A reduced salary sacrifice and childcare vouchers might also be appropriate if, for example, you are having to pay a retention fee to avoid losing your childcare place when childcare settings reopen.
For those who have been furloughed under the Job Retention Scheme, it is understood from HMRC guidance that if an employee (a full-time or part-time regular salaried employee) switched out of a salary sacrifice scheme on or before 19 March 2020, then the reinstated higher salary will form the basis of the calculation of the amount that employers can claim under that scheme.
It is our understanding that if an employee reduces their childcare vouchers (and consequent salary sacrifice) after 19 March 2020, this will not affect their salary calculation under the Job Retention Scheme as the calculation is done on the basis of the worker's last pay period prior to 19 March and the provision of benefits in kind doesn't count as pay.
So, for example, say Jenny usually earns £1,500 a month basic pay, after a salary sacrifice of £243 into childcare vouchers. She stops the salary sacrifice arrangement at the end of March when she is furloughed on 80% pay. Jenny's 'furlough' pay would be 80% of £1,500 (£1,200), not 80% of £1,743 (£1,394.40).
⚠️ Note that unless Jenny stops the salary sacrifice arrangement with her employer anyway, her employer may have to fund the £243 childcare vouchers from their own pocket during the period of furlough (because the obligation to provide the vouchers will still probably exist on the employer under the agreement made with her, unless it is changed).
At the same time HMRC have stated that all of the grant received to cover an employee’s furloughed pay must be paid to them in the form of money. No part of the grant may be netted off to pay for the provision of benefits or a salary sacrifice scheme. So when Jenny's employer receives the £1,200 grant for Jenny, he should pay the entire amount to her, and not use £243 of it to pay for childcare vouchers.
If Jenny was getting her pay topped up to 100% by her employer from £1,200 to £1,500 then the 20% extra (£300) can still form the basis of a salary sacrifice, meaning that Jenny could receive £1,257 in cash pay and £243 in childcare vouchers. Her employer would receive reimbursement of £1,200 under the Job Retention Scheme.