This post could could stop you from getting into trouble!
Last week I got into a debate with a self-employed friend: she was convinced that as a sole trader she could consider childcare to be a business expense. After all, she needed the childcare to be able to work.
On the other hand, I was almost certain that in the UK, HM Revenue and Customs (HMRC) don’t consider childcare to be a business expense.
I asked accountant Jonathan Freeman of Freeman and Co to answer our question for us. He said:
Unfortunately, childcare costs paid by a sole trader would not be considered wholly and exclusively for the purpose of the trade and therefore would not be tax deductible.
The only childcare costs I’m aware of which are allowable as a deduction are those where an employer provides childcare facilities to its staff. There is detailed guidance about this on HMRC’s website http://www.hmrc.gov.uk/paye/exb/a-z/c/childcare.htm
As a sole trader it may however be possible to claim Working Tax Credit, which does include a childcare element.
So I was right, but it’s not exactly good news. 🙁
Although this might be basic stuff for some people, there are many mums who aren’t making enough money to pay an accountant to advise them and could be totally unaware that childcare can’t be claimed as a business expense. And you could have problems (and a hefty repayment to make) if HMRC found that you’d added childcare to your business expenses in error and paid less tax as a result.
If you’re not sure just what is allowed as business expenses, take a look at this leaflet. You might be surprised!
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Always worth checking! I qualified for Working Tax Credits the year before last, but because our household income was (slightly) above £21k last year, it suddenly stopped. So I suddenly had to start covering 100% of my £400 per month childcare fees – yikes! Tricky because they can never tell you what help you might get until you actually start paying for childcare and put in a claim. I understand that the Citizens Advice Bureau can sometimes advise, although I haven’t tried this myself.
Thanks for sharing this Claire. I think that’s the problem with the tax credits system and self employment – you’re never really sure what you’re going to earn and whether you’ll get help with your childcare or not. As you say, it’s always worth looking into it, though.
Thanks for the post. You should take part in a contest for one of the best blogs on the web. I will recommend this site!
Thank you very much!
Salaries, wages, bonuses, pensions, benefits for staff or employees; agency fees, subcontract labour costs; employers’ NICs etc are allowable business expenses though so can get confusing. Technically a nanny would be an employee and a nursery could be considered to be a sub contractor surely.
Jonathan is obviously far better qualified than me to answer this one, but I expect a nursery isn’t acceptable as a subcontractor because it would count as ‘payments for
non-business work’ (see page 3 of http://www.hmrc.gov.uk/factsheets/expenses-allowances.pdf) as childcare isn’t ‘considered wholly and exclusively for the purpose of the trade’.
As for employing a nanny, I would need to ask an accountant’s opinion on that because needing to pay employers’ tax and national insurance as well as e.g. sick and holiday pay complicate the issue.
If I travel for work and need to get a babysitter while i’m away, can i claim it? is it a business expense or child care expense?
As far as I’m aware that still counts as childcare, I’m afraid.
I seem to remember a few years ago when we had a limited company that you can write into your T&Cs that the business will cover childcare costs as part of your package as a director and then it is a business expense. Might be worth looking into if you think it’s worth your while going limited (although the increased accountant’s fees would need to be offset against the childcare costs).
I haven’t heard of that one Rachel but it’s certainly worth speaking to your accountant about it if you have a limited company. Thanks for the suggestion!