Mazars client director Lisa Pennington shares how GPs can check their eligibility to childcare funding and what measures can be taken to maximise access
Many parents who work in primary care either as GP partners, salaried GPs or staff members want to continue working after having a child, but childcare costs can be prohibitive. To fulfil the commitment made by the previous government to grow the economy, changes were recently made in access to funding for childcare. This could potentially enable parents to return to work. However, Tax-Free Childcare and Child Benefit are only available to some. Here we’ll explain under what circumstances you start to lose access to them, and if there is anything that can be done to mitigate this.
Tax-Free Childcare
If both parents work, the child is aged between nine months and four years old, and the individual lives in England then Tax-Free Childcare and funding can be available depending on various criteria.
However, if either of the parents in the household are earning over £100,000, then they lose all the childcare benefits. This threshold is based on ‘adjusted net income’ which is calculated by taking total income before personal allowances and less certain tax reliefs – such as trading losses, donations made to charities through Gift Aid, and pension contributions. This is likely to affect many full time GPs.
Child Benefit
You are entitled to Child Benefit if you are responsible for bringing up a child who is under 16 years of age – or under 20 years of age if they are in approved education or training. You receive £25.60 weekly for the eldest or only child, and then £16.95 per additional child. If you claim Child Benefit and your child is under 12 years of age, you automatically get National Insurance credits that count towards your State Pension.
Currently, Child Benefit starts to be withdrawn if one parent in the household earns more than £60,000 per annum. The higher earner must repay the benefit at a rate of 1% of the amount for every £200 above the threshold of £60,000. The point where all the benefit is repaid is £80,000. Many consider this policy unfair, because it means two parents each earning just under £60,000 will retain all the benefit; but if one earns, for example, £70,000 and the other £20,000 then some of the benefit is lost. The person in the household with the highest income pays the tax charge, and they do not have to be the child’s parent. Therefore, you could be in the position where you and your partner start to cohabit, and you become liable for the tax charge if their child is living with you, even though you personally do not receive the child benefit. The household can stop receiving Child Benefit, or continue and repay any tax that is owed via a Self-Assessment tax return.
The income measured against the threshold is ‘adjusted net income’ as above for childcare benefits.
If an individual normally earns over £80,000 and therefore has not been claiming Child Benefit and their income reduces to £60,000 – £80,000, then Child Benefit can be re-started as a proportion will be retained. Once they are earning over the £80,000 threshold again, HMRC should be informed and the payments stopped; or the charge needs to be paid via Self-Assessment.
Ways of reducing ‘adjusted net income’
Increasing pension contributions: This will reduce ‘adjusted net income’. This could be via a personal pension plan or buying additional pension within the NHS pension scheme which will increase the superannuation paid and reduce income. If an individual decides to increase personal pension contributions to bring their income below the thresholds, there needs to be consideration of the impact on pension annual allowance charges. Pension growth within the NHS Pension scheme should be calculated before making any additional pension contributions to ensure that the goal of maintaining childcare benefits does not result in pension tax charges. Advice should be taken from a suitably qualified financial advisor before making any additional pension contributions.
Ensure pay estimates are accurate: Net adjusted income is affected by the superannuation contributions paid during the year. For GP Partners, ensuring the estimate of pensionable pay for the following year is as accurate as possible enables the correct deductions of superannuation are made via the monthly payments to the practice. This means that tax relief on superannuation contributions can be matched with income in the year it was earned rather than waiting for the following year when relief is claimed on a shortfall of superannuation. As Partnership profits are not always easy to predict, advice should be taken from your accountant and projections prepared if required.
Make donations via Gift Aid: This can also reduce ‘adjusted net income’. If an individual is intending to make contributions in the following year, Gift Aid rules allow ‘carry back’ to the previous tax year. Strict timing rules apply, so advice should be taken from your accountant.
Claim all allowable expenses (self employed): For self-employed individuals, ensuring all allowable expenses are claimed to reduce taxable income is important – particularly when their ‘adjusted net income’ is around the thresholds. Keeping records during the year of all expenditure is recommended. Expenditure can be planned to coincide with claims for childcare, such as buying a new car or equipment if necessary. The expense must be ‘wholly and exclusively’ for the purpose of the business and using the example of a car the proportion of private use will be disallowed. Tax relief is available on the cost of the car based on the CO2 emissions. Advice should be taken from your accountant regarding allowable expenditure.
Claim all allowable expenses (salaried): For salaried individuals, ensuring that allowable expenses such as professional subscriptions are identified and claimed to reduce income. Salary sacrifice can also reduce ‘adjusted net income’. However, if a cash benefit is changed for a non-cash benefit this will potentially have an impact on the pension as changes to the pay will affect pensionable pay.
The rules regarding Tax-Free Childcare, Child Benefit and clawbacks are complex, but the funding can be a valuable support to households. If you can become eligible or maintain your eligibility, then care needs to be taken to look at the ways this can be achieved.
Lisa Pennington is a client director in the Mazars healthcare team
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