As a tax adviser and accountant, my main objective is to optimise tax efficiency for my customers. However, there are instances where unexpected opportunities arise that can provide financial benefits through indirect tax-related means, such as the possibility of receiving free childcare as a Dentist.
In a conversation with a recently joined dentist, they mentioned having a 2.5-year-old and a 5-year-old. This dentist expressed a need to include his wife on the company payroll to benefit from the free childcare.
Whilst I was aware that from April 2024, parents of two-year-olds will get 15 free hours per week during term time, with children from nine months included from September 2024, I hadn’t realised that:
- From September 2025, parents with a child aged nine months to school age will be entitled to 30 hours of free childcare a week.
- There is a requirement for both parents to be working, meaning If one parent is not in paid employment, you will not usually be eligible. However, there are exceptions for those on parental, maternity, paternity, adoption, or sick leave.
- If either parent has a total income of over £100,000, they will not be eligible.
What the dentist I was talking to had realised was that adding his wife to his company payroll as either a paid company director or secretary would give them access to free childcare that wouldn’t be available if she wasn’t on his company payroll.
In summary, this is what I have reported back to the dentist: –
- To qualify as working for their free childcare, both parents must have a minimum annual company salary of £8,668.
- If you meet the earnings threshold, there is no working hours requirement – this is great for a company director or secretary who isn’t a practising dentist to meet the working criteria.
- Certain types of income will not count towards the minimum amount. These include dividends, interest, income from property and pension payments.
- If either partner has a ‘net income’ of more than £100,000, they will not qualify. Net income is your total income from all of your income types minus your pension, gift aid and self-employment losses.
- Having met the criteria for free childcare places, you can also save in the online tax-free childcare scheme and its government top up of 25% up to a maximum of £2,000 per child per tax year.
A quick search tells me the average cost of a full-time nursery (50 hours a week) for a child under two in Britain is nearly £15,000 a year, according to the charity Coram.
For this dentist and any dentist with young children or who plans to start a family and doesn’t meet the criteria for free childcare or the tax-free top-up. This shows there is a way to use a limited company to save £1,000’s on the cost of their childcare.
Please remember these considerations before taking any next steps:
- This scheme is only for England; Wales, Scotland, and Northern Ireland have different schemes.
- Finding a free place will be challenging as demand is expected to exceed supply.
- Always get professional advice before taking action to ensure you get the intended outcome without adverse consequences.
