Childcare Allowances

COVID support overclaims and maximising childcare allowances

July 29, 2022

Learn how to check if you have over claimed Covid support, PLUS how to maximise your childcare allowances with the upcoming changes.

Avoiding Overclaim Penalties and Making the Most of Child Care Allowances

Here at TAG Accountants, we help clients maximise their income in the most tax-efficient way.

Unfortunately, unlike with the furlough scheme, under the COVID-related Self-Employed Income Support Scheme (“SEISS”) tax agents were excluded from being involved in claims leaving the self-employed to navigate its eligibility criteria for themselves.

In this article, we focus on i) how HMRC have implemented a penalty regime for SEISS overclaims as well as ii) looking at how employees can maximise Government support for childcare costs.

i) SEISS – beware the HMRC backlash

In the aftermath of COVID support schemes, HMRC have stated that in certain circumstances they will apply penalties of up to 100% for any SEISS grants that have been overclaimed by sole traders and partners.

For instance, HMRC could apply the penalty where they believe that the trader knew that they were not entitled to the grant and did not inform HMRC of this within the 90-day notification period. Where such a failure to inform is viewed as ‘deliberate and concealed,’ the HMRC may then charge the penalty of up to 100% of the amount of the SEISS grant that the individual was not entitled to.

Note that individuals are required to notify HMRC if there is an amendment to any of their tax returns on or after 3 March 2021 which would either:

  • lower the amount of the fourth and/or fifth SEISS grant they are eligible for or
  • cause the trader to no longer be eligible for the fourth and/or fifth SEISS grant

These latter SEISS grants had much harsher eligibility criteria and HMRC are of the view that individuals may have claimed these grants without fully understanding or meeting those criteria.

If the tax return was amended before claiming the fourth or fifth grant, individuals were required to inform HMRC within 90 days of receiving the grant. If the tax return was amended after receiving the fourth or fifth grant, traders must have informed HMRC within 90 days of the amendment.

If the fourth and fifth SEISS grants were claimed, they need to be reported on the individual’s 2021/22 self-assessment tax return, with any overclaimed amounts separately disclosed. The fifth grant claim was especially complicated as it was dependent on a reduction in business turnover due to COVID.

If you have any concerns, we can assist you in checking that the amounts claimed are correct and minimise any potential penalties.

ii) Making the most of a Childcare Account

A tax-free Childcare Account can be set up if you have children under twelve who attend nursery, after-school clubs, play schemes, childminders or are being sent off to a summer camp. The government will top up the amounts that you save in the account by 25% up to a maximum of £2,000 for each child per year, with a higher amount available for disabled children.

So, if you save £8,000, this could be topped up to £10,000. The monies in the account can then be used to pay approved childcare providers but note that you must meet certain eligibility rules to qualify. Parents of a child three to four years old and living in England may also be eligible to claim 30 hours of free childcare.

There is flexibility in that as well as the child’s parents paying into the account, uncles, aunts, grandparents, and others can also contribute. It appears that many families who are eligible for this scheme are yet to set up their accounts.

The scheme is available to all qualifying parents including the self-employed and those on a minimum wage, paid sick leave and on paid and unpaid statutory maternity, paternity, and adoption leave.

To be eligible, parents must work at least 16 hours per week and be at least earning the National Minimum or Living Wage. If either parent earns more than £100,000, both parents are unable to use the scheme.

This tax-free childcare account scheme is gradually replacing the previous childcare vouchers scheme which many employers continue to provide to employees. Childcare vouchers are free from tax and national insurance (within specified limits) and can be used to pay for childcare until the child is sixteen. Unfortunately, childcare voucher schemes can no longer be set up but employees already in these schemes can continue to benefit.

As Wolverhampton’s leading accountants, we are here to help!

The team at TAG Accountants Group is here to support you and your business.

If you have concerns regarding SEISS claims, need further guidance on childcare accounts or indeed on any other tax or accountancy matters, please call us here on 01902 783172. Alternatively, click HERE to contact us online and one of our experts will be in touch.

We look forward to hearing from you.