Tax relief on nursery vouchers

Gordon Brown had revised his proposal to withdraw the income tax and NI exemption on employer provided childcare vouchers.

Currently employees are exempt from tax and NIC on childcare vouchers provided by employers. The exemption is available on the first £55 a week of vouchers per employee, as long as a range of conditions are met. Any excess over the £55 is liable to tax and to NIC (both employees' and employers' contributions).

In a change to the original announcement Gordon Brown has now said:

'I have already made clear that no family currently in receipt of tax relief for their childcare vouchers will see any change in the support they receive. But following our discussions I can now also say that we will retain tax relief for new childcare vouchers issued in the future. However, there still remains a concern that a disproportionate benefit is accruing to higher rate taxpayers. So in order to ensure that this tax relief is given on a fairer basis to all families, we will ensure that all taxpayers get the same income tax relief as basic rate taxpayers do currently. This will take place from April 2011 and will not affect those receiving vouchers issued before that date.'

Under the revised proposals it appears that from April 2011, vouchers will not attract the full current tax and NIC exemptions as their tax relief will be restricted to the basic rate.  Higher rate taxpayers will be liable to tax on the vouchers at their marginal rate of tax of 20%, being the difference between basic rate of 20% and the higher rate of 40%.

Vouchers issued prior to April 2011 will be unaffected by the change.

Internet link: Number 10 website

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