Tax free bonus for parents paying childcare

Tax-Free Childcare eligibility further extended

The government has extended the eligibility criteria for support with childcare from 1 November 2020. What do you need to know?

What is Tax-Free Childcare (TFC)?

Well, it isn’t completely tax free, it’s a 20% tax-free bonus to help with childcare costs. Working parents can open a TFC account which is topped up by £2 for every £8 contributed, up to a maximum of £2,000 per child, per year. The money is then used to pay a registered childcare provider. Those earning over £100,000 or less than the national minimum wage for 16 hours per week aren’t eligible for the scheme. Due to the pandemic, lots of people are facing a reduction in their income and may not meet the criteria despite still needing childcare in order to work.

What is the government doing about it?

From 1 November 2020, eligible working parents who receive support through the new Job Support Scheme and extended Self-Employment Income Support Scheme will continue to receive their childcare entitlements, including the 30 hours offer and TFC, even if their income levels fall below the threshold temporarily whilst on these schemes.

What parents need to do 

Don’t delay, HMRC are urging parents to check this website https://www.childcarechoices.gov.uk/ to see which offers work best for them.

Two new job support schemes

Updates from previous job support scheme post

The job support scheme now comprises of two schemes from the 1st November 2020. This is based on the new government tier system.

JSS Open

The first scheme is called JSS Open, and is available for businesses that remain open but with employees working reduced hours.

Eligible

  • The employee must work at least 20% of their usual hours as defined by the previous CJRS scheme closed on 31st October 2020.
  • The reduction in hours must be agreed in writing with the employee.
  • Employees must be on the payroll of the employer between 6 April 2019 and 23 September 2020 and included on at least one RTI return in that period and submitted to HMRC on the 23 September 2020.

How much is paid

  • The employer must pay for all of the worked hours at the employee’s agreed reference salary.
  • The employer must pay up to 5% of the value of the hours not worked, up to £125 per month.
  • The government will cover up to two thirds of the hours not worked.
  • The employer must pay all the employers national insurance on all the wages the employee receives plus any employers minimum contribution to a workplace pension

Claims

  • Employers will be able to claim under either JSS from the 8 December 2020.
  • A claim can’t be submitted for a particular employee until the employee’s wages have been paid and reported under RTI.

Example of JSS Open

Carol is employed as a  childminding assistant on an annual salary of £15,000 or £1,250 per month. In a normal month she would work 140 hours, which is £8.93 per hour.

It was agreed that due to coronavirus restrictions and a reduction of children attending the setting that Carol would work 28 hours per month for £250.04. To qualify for the JSS Open, the employer must pay Carol 5% of her remaining normal hours £50.00 (5.6 hours x £8.93). The JSS grant should cover the cost of 61.67% of the total 112 non working hours : £617.06 (69.07 x £8.93).

The total pay received by Carol is £916.84 (£250.04 + £50.01 + £616.79), which is 73.33% of her normal pay.

The employer would also have to pay employers national insurance and workplace pension payments on this wage.

Example of JSS Closed

Dawn has an annual salary of £18,000 or £1,500 per month. Under this scheme the grant will cover for two thirds of the normal pay of furloughed employees, who cannot work at all, up to a maximum of £2,083.33 per month. The employee must give up one third of their wages and will have to agree to that change in their employment contract in writing. This example is based on a business located in a Tier 3 zone.

The salary payable to Dawn is £1,500 x 2/3 = £1,000 per month.

The employer would also have to pay employers national insurance and workplace pension payments on this wage.

 

 

 

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JSS Closed

The second scheme is called JSS Closed – this scheme can only be used by businesses which are required to close by the coronavirus regulations, this is Tier 3 restrictions in England.
To use the JSS Open scheme there are conditions to meet and an agreement must be in place in writing between employer and employee. Due to the late advice this leaves a very limited time to discuss and sort between employer and employee to access immediately from the 1st November 2020. A more detailed post can be found on our website www.accountancykids.co.uk/news

SEISS grant changes

Grant amount increased

The next two stages of the Self-Employment Income Support Scheme (SEISS) cover the periods from November 2020 through to April 2021.

The SEISS was already due to be extended beyond 31 October 2020. Initially, there were to be two grants covering three months each with the first being equal to 20% of average trading profits. It has been announced that the first of the new grants, covering November to January 2021, will be doubled to 40%. The overall cap is doubling too, meaning a maximum grant of £3,750. There is no information as to what the level of support for the period from February through to April will be just yet.

Job support scheme

JSS new changes announced

The job support scheme was due to change from the 1st November 2020 to a less attractive scheme from the two previous support schemes for employees. However, due to the worsening pandemic conditions and the introduction of a Tier system for local authorities the scheme has now changed again.

What are the changes

It’s just been announced that employers will be expected to pay 5% of the cost of unworked hours under the Job Support Scheme (JSS) instead of the 33% originally communicated.

When originally announced, the JSS required employers to pay one third of their employees’ wages for hours not worked. Employees were required to be working 33% of their normal hours. But today’s announcement reduces the employer’s contribution to those unworked hours to 5% and cuts the minimum hours requirement to 20%. This means that staff working just one day per week will be eligible.

We will come back and update this page with a worked example on how the payroll employee costs are calculated for employers operating payroll. Any  additional government guidance on the mechanics of the scheme changes will be updated on this page.

 

Job retention bonus

Bonus payable to employer

The Job Retention Bonus is a £1,000 one-off taxable payment to you (the employer), for each eligible employee that you furloughed and kept continuously employed until 31 January 2021. The bonus can be claimed between the 15th February 2021 and 31st March 2021.

Eligibility

An employee must have received taxable pay in each of the three tax months:

  • 6 November – 5 December
  • 6 December – 5 January
  • 6 January –  5 February

And

  • The employee must have received at least £1,560 as taxable pay across those three tax months, any tax free allowance or adjustment as driven by their tax code is not deducted/added to the taxable pay.
  • The full payment submission for each of those three months has been sent under RTI to HMRC on time and is accurate.

Please be careful with the threshold amount, an employee may receive £2,500 taxable pay over the three month period but if they only worked two months from the three then they won’t receive the bonus. The employee must work in all three tax months.

Exclusions

An employee ceases to be eligible for the bonus scheme if:

  • The employer has repaid all CJRS grant claimed in respect of that employee.
  • They are not paid at least once in each of the three tax months.
  • Their total taxable pay does not reach £1,560 across the three months.
  • A leaving date has been reported on or before 31 January 2021.
  • They are placed on contractual or statutory notice of termination of their employment at any point before 31 January 2021.

Payment details

Your payroll agent  should be able to apply for the bonus on your behalf.

Taxable income

The bonus is recognised as other income for income tax or corporation tax purposes.

 

Time to Pay arrangements

Are you struggling to pay your tax bills?

Did you know that the second payments on account for 2019/2020, due by the 31st July 2020 was deferred automatically until the 31st January 2021. There is now an additional option if you are unable to make these payments in full by 31 January 2021.

Childminders could set up a “Time to Pay” payment plan of up to 12 months online without needing to phone HMRC. If an individual required a longer period than 12 months to repay their debt, then they need to contact HMRC to set it up.

 

New Job Support Scheme

Job Support Scheme

The Job Support Scheme (JSS) will replace the Coronavirus Job Retention Scheme (CJRS) at the end of October. The JSS will run from the 1 November 2020 for six months until April 2021.

Eligibility

Any business suffering from lower demand over the coming months as a result of ongoing restrictions due to Covid-19. The aim of the scheme is to protect viable jobs that are retained on a reduced work hours basis.

The scheme is not tied to the previous CRJS so neither the employer nor the employee needs to have previously used the furlough scheme. To qualify the employee must be on the employers PAYE payroll on or before 23 September 2020 and a Real Time Information (RTI) submission sent to HMRC on or before 23 September 2020, will qualify.

How to qualify for the scheme

Employees must work at least 33% of their usual hours to qualify and paid their normal contracted wage for the hours worked.  The employer must also pay the employee a third of the hours not worked and the  government will also pay a third of the hours not worked by the employee.

The employee will earn a minimum of 77% of their normal wage. The government will pay 22% from the scheme in comparison to the more generous CJRS.

The grant will not cover Class 1 employer NICs or pension contributions, these will remain payable by the employer.

HMRC has stated that employers will not be able to top up their employees wages above the two-thirds contribution to hours not worked at their own expense.

When is the grant payable

The grants will be paid in arrears from December 2020 on a monthly basis following payment of wages to the employees and the RTI submissions sent to HMRC. The grants can only be used as reimbursement for wage costs actually incurred.

Worked example

Employee normally works five days per week usually earning £250 per week. under the JSS, the employer puts this employee on a reduced-hours working arrangement working two days a week (40% of the usual hours).

The employer will need to pay the employee £100 per week for the two days actually worked.

For the hours not worked (three days or 60%), the employee will be entitled to 2/3 of the usual wage related to these hours.

This is calculated as:-

Step 1 – £250 x 3/5 = £150 (related to hours not worked)

Step 2 – £150 x 2/3 = £100 (additional entitlement for hours not worked).

The total earnings for this employee is £200

The £100 amount due for the hours not worked is funded by the government grant and the employer, each contributing 1/3rd of the step 2 calculation above.

 

 

 

 

 

 

 

Self-employment income support scheme

Further grant covering up to six months

This grant is available for self-employed individuals and members of partnerships who are actively continuing to trade but are experiencing reduced demand due to Covid-19. The SEISS grant will provide support over the winter months.

The grant is not as attractive from previous support grants and will be paid in two lump-sum instalments,  the first payment will cover a three month period from the start of November 2020 to the end of January 2021.

How much is payable in first instalment

The grant will cover 20 per cent of average monthly trading profits, and capped at £1,875 in total.

How much is payable in second instalment

An additional second grant instalment, which may be adjusted to respond to changing circumstances, will be available for self-employed individuals to cover the period from February 2021 to the end of April 2021.

Who is eligible

  • An individual must be currently eligible for the scheme (see previous news post 3 April 2020)
  • Declare that they are currently actively trading and intend to continue to trade.
  • Declare that they are impacted by reduced demand due to Covid-19 in the qualifying period (between 1 November and the date of the claim)