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HMRC Tax Guidance for Childminders Income and Expenses

November 15, 2018 12:00 am
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2.Childminding costs and allowable expenses

Costs/Expenses:

It is not cost free for you to provide childcare; any costs associated with providing the service that are incurred as part of your being a childminder are deductible from income/turnover before any tax due to HMRC is calculated.

Some of these costs/expenses are easy to identify (things you buy such as nappies or toys), some of them are less easy to identify or calculate for the purpose of the ‘business’ (such as household expenses like heating and lighting).

Pre-Tax Profit:

Once you have taken away costs and allowable expenses from your turnover, you can calculate your profit. This is the amount on which you will pay tax as a childminder – your taxable profit/income.

It is also important to remember that you’ll need to pay National Insurance Contributions, some of which you must pay at a flat rate and some of which you will pay depending on your total taxable profits.

Again, we’ll go into more detail on how to work out both tax due when you’re a childminder and NICs (National Insurance contributions)

Your Income/Earnings:

Once you’ve calculated your turnover, deducted your costs and expenses, and paid and associated tax and NICs the total remaining is your net income or ‘take home’ pay.

Both the running costs of your childminding business and your day-to-day expenses need to be deducted from your income in order to work out your taxable profit. To make this easier for childminders, HMRC came to an agreement with PACEY (formerly the National Childminding Association) which includes easy to work out rates for household expenditure, motor expenses, cleaning costs, wear and tear, food and drink and other small purchases.

Childminders can also make use of what HMRC call ‘simplified expenses’ for things like household expenditure and motor expenses – so it may be a good idea to work out which method is most appropriate depending on your circumstances (full details are given below).

The costs and expenses related to running a childminding business can include:

  • Portions of the fixed costs of your household (rent, council tax, insurance etc)
  • A portion of heating and lighting bills
  • A small portion of telephone and internet bills
  • Computer Equipment
  • Association Memberships
  • Insurance
  • Ofsted Registration Fee’s
  • Disclosure and Barring Service and Health Check Certificates
  • Training Costs (such as first aid)
  • Motor Costs (if needed as part of running the business)
  • Health & Safety Equipment (such as fire safety equipment, stair gates, plug covers)
  • Contracts/Record Books/Accident Books
  • Advertising and Marketing Expenditure
  • EYFS Support and Recording Materials
  • Cleaning Materials
  • Wear & Tear of Household Items
  • Toys & Play Equipment
  • Stationery & Craft Supplies
  • Food & Drink
  • Nappies & Wipes etc.

Under the special HMRC childminders’ expenses agreement, receipts are not required for small purchases under £10.

Receipts are also not required for food and drink expenditure – you are allowed to make a ‘reasonable estimate’ for these outgoings.

Additionally, you can use a flat rate for ‘wear & tear’ to cover the usage of general household furniture and items. This flat rate is 10% of your total income, however, it is important to note that items included for the purposes of this flat rate cannot then be counted as an expense when they are replaced for new.

How to calculate household costs:

As mentioned above, you have two ways of calculating how much of your household costs you can apportion to your childminding business for tax purposes. You can use the rates agreed for childminders by HMRC or the ‘simplified expenses’ method for the self-employed. You will need to choose the most appropriate depending on your income and costs. The tables below show how to work them out.

The childminders agreement is based on how many hours you work, not how many children you look after, and can be calculated using the following table:

Hours Worked/  % of Heating & Lighting/  % of Rent, Council Tax and Water Rates
10 8% 2%
15 12% 4%
20 17% 5%
25 21% 6%
30 25% 7%
35 29% 9%
40 33% 10%

 

This table and further information can be found here Business Income Manual

To use the ‘simplified expenses’ method that can also apply if you run a business from home, simply work out the total costs for the premises, then deduct a flat rate per month (depending on how many people live there) to work out personal use. The remainder can then be counted as business expenses:

Number of People/  Flat Rate Per Month
1 £350
2 £500
3+ £650

If you use a car for the purposes of the business you can also claim expenses and mileage to cover the costs associated with it within HMRC’s Simplified Expenses Model 

Click next page to view useful resources to help you manage your business and see how you can work out your taxable profit… 

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