Childminding UK: Childminding Accounts Made Simple

Childminding UK: Childminding Accounts Made Simple

Becoming a self-employed childminder can be a very exciting, rewarding and lucrative career but it can also feel overwhelming, especially when it comes to managing your childminding accounts and filing your HMRC self-assessment return. However, due to the HMRC putting special arrangements into place for childminders, it is actually quite simple and we hope that the following information can reassure anybody considering becoming a childminder how simple the process can be. Being a childminder means that you’re self-employed as a sole trader. As a sole trader, you are the sole owner and operator of your business and this means only you are responsible for paying any tax owed.

Registering as self-employed with HMRC

As soon as you register as a Childminder with Ofsted, it is important to register with HMRC for self-assessment and class 2 national insurance.

To do this you will need a Government Gateway user ID and password to sign in through your business tax account. Please click here for more information about how to do this. You will receive a letter with your Unique Taxpayer Reference (UTR) number within 10 days and you will need this to be able to access your self-assessment forms each year and submit them to HMRC.

You will then receive reminder letters or emails telling you to complete a self-assessment tax return before it’s due. A tax return must be completed and submitted if, in the last tax year (6th April to 5th April), you were self-employed as a ‘sole trader’.

Employing an Accountant

There is no requirement to employ an accountant, provided:

• your income Is under £150,000 
• you do not intend to claim any capital expenditure 
• you are not VAT registered

If any of these apply to you, it is recommended to employ an accountant as completion of full accounts would be required.

What does ‘Cash basis’ / simplified accounts mean?

HMRC state that:

‘If you run a small business, cash basis accounting may suit you better than traditional accounting. This is because you only need to declare money when it comes in and out of your business. At the end of the tax year, you will only pay Income Tax on money received in your accounting period.’

The advice given in this blog, is based on using the ‘cash basis’ for your accounts. ‘Cash basis’ is simply a way of working out your income and expenses for your self assessment tax return as a sole trader.

Important Deadlines

At the end of each tax year (6th April to 5th April), HMRC will ask you to complete a self-assessment. The deadlines to complete your forms are as follows: 

• Register for self-assessment by 5th October 2023
• Paper Tax Returns by midnight 31st October 2023
• Online Tax Returns by midnight 31st January 2024
• Pay the Tax you Owe by midnight 31st January 2024
• 2nd payment deadline where you can make advance payments towards your next year’s tax bill is 31st July 2024.  

If you are late filing your tax return or paying your tax you will be charged a penalty.

Figures to enter into your tax return?

• The total amount of income you have received for the tax year
• Your total expenditure
• Your total earnings

A simple example is:

Income / Turnover – you earned £20,000

Expenditure is £9600 which comprises:

• 10% of your income against wear and tear on your home - £2000. This should be
• taken off before any other expenses.
• Amount you can claim for your gas/electricity/council tax/water is £6600.
• Other expenditure - £1000

Total Profit is Income/turnover minus all expenditure = £10400 and this is the amount you would be required to pay tax on. However, your personal tax allowance would then be taken into account which, provided you are entitled to the standard personal allowance of £12,570, you wouldn’t pay any tax on this amount.

Make sure your Childminder/parent contracts state very clearly when payment is due. Review the contracts annually making changes as necessary. They enable you to record the contracted hours for a child, state the payment rates and to note when payments are due. Making sure this document is accurate and updating it when necessary will help you get your money in on time. Some childminders decide to charge a late payment fee but this is down to you as an individual.

If you are using the simplified expenses which childminders usually do, you will need to ensure the money is in your account before including it in your income for the tax year.

If you are not registered for government funded places but would like to register, please contact your Local Authority and speak to the Early Years team as it is them who register you.

Any money you are paid to childmind is considered to be your income. This may be:

• Money from parents for looking after their children
• Money received from your Local Authority for government funded childcare places
• Any grants you may have been paid
• Money from milk claims
• Payments from colleges/universities if you are caring for a child of one of their students.
• Care to Learn
• Social Services/Police

What is your expenditure?

Your expenditure is anything at all that you have paid out as a result of childminding. This may include:

Food and drink 

If you have a child for breakfast, lunch and dinner, you can claim an amount per day that it costs you to feed them. For example, you could claim £6 per child per day for breakfast, lunch and dinner, £4 for lunch and dinner or £4 for breakfast and dinner or £2 for lunch etc. You will need to do some initial costings to work out what those charges are and keep those costings in case HMRC ask to see them. It is important to note that this does not include the cost of fuel for cooking as this is calculated separately. Or you can claim against the value of the food purchased but you can’t do both.

Car expenses

45p per mile can be offset against your income for any journeys taken specifically for childminding.

Other costs

The following items are examples of what you can claim for in expenses: 

• Ofsted registration fees
• Membership to Childminding support organisations
• Public Liability Insurance premiums
• Training relating to Childminding including your Paediatric First Aid Course, Introductory Training Course, Safeguarding Training
• Cost of advertising
• Computer equipment
• Cost of telephone/internet used for childminding purposes
• Toys
• Resources
• Equipment such as prams, buggies, high chairs, car seats
• Childminding conferences
• Outings to farms, parks, parent/toddler groups, childminding groups. This includes entry fees, fuel costs, ice creams/drinks/snacks purchased for the children whilst there. You would be able to claim for your entry fee and your childminded children but not for your own children.
• Books
• Safety equipment
• Stationery
• Travel fares
• Wipes, tissues, toilet rolls for childminding  

It is important to note that you are not really claiming these items back as such. You are simply taking the cost of them off your overall income. For example, your overall income is £20,000 and you spend £2,000, you would declare £18,000 as your profit and this is what you would pay tax on.

On the chart below you will see the percentages of your gas, electricity, water and council tax bills you can include as an expenditure. The percentage depends on the number of hours worked each week. For example, if you work 30 hours per week, you are entitled to claim 25% off your heating and lighting and 7% off your water bill and council tax. 

In addition to the above, a deduction of 10% of your income can be claimed against wear and tear of your furniture and household items. HMRC state that ‘this is intended to include household items which are not used wholly and exclusively in childminding. A childminder claiming this deduction may not, however, claim relief for the cost of replacing such household items. Reasonable costs of cleaning household items where the need for cleaning is as a result of childminding activities may be allowed as a separate item’.

Provided the cost of an item is under £10, you do not need a keep a receipt. For example, 2 ice creams at £5, would not need a receipt, but buying 5 ice creams for £12.50 would require one. This is to make it easier whilst out and about because parent/toddler groups and ice cream vans are just 2 examples of when receipts are not usually issued.

Any setting up costs can be claimed in the first year’s self-assessment including:

• Training including Paediatric First Aid Training Course
• DBS Certificates
• Health Declaration Form
• Toys
• Resources
• EYFS support and recording materials
• Equipment
• Health and safety equipment
• Any other costs that you may have incurred whilst registering as a childminder.

Grants 

There is now a £600 start-up grant available to new childminders who registered with Ofsted from the 15th March 2023 onwards. New childminders will be able to claim for the grant from September 2023.

Staff

What is capital expenditure

Capital Expenditure is when you have purchased larger items such as a car, or a large cabin for the garden. These items are expensive to start with but they do decrease in
value over the years.

If you wanted to claim for a car rather than using the simplified method of claiming 45p per mile, we would recommend employing an accountant as you would need to file full accounts and use a method called Capital Allowances.

Do you need to be VAT Registered?

It is unlikely that as a Childminder you would need to be VAT registered because for 2023/2024 tax year, the VAT registration threshold is set at £85,000 and the majority of childminders earn under this amount. Whilst this threshold has remained the same for a number of years, it can change annually.

If, over the last 12 months, your turnover for a rolling 12 month period exceeds £85,000 at any point, you will need to register for VAT.

This would require full accounts so employing an accountant would be recommended because you would have to use the ‘making tax digital for VAT’ reporting to HMRC.

Making Tax Digital
The government have announced their intention to make tax digital. This was originally going to be in place in 2024 but it has now been delayed until 2026 so you don’t have to worry about this at the present time. When this is implemented, you may be required to report your income and expenditure quarterly. For more information about this, please see here.

It is recommended that you save a percentage of your total income every month for your tax and national insurance bills.

Your deadline for paying your tax bill is 31st January 2024 for the period April 2022 to April 2023. You may then be required to pay in advance for 50% of your tax payable for the period April 2023 to April 2024 at the end of July 2024. You can use the HMRC ready reckoner which will tell you how much you need to put aside to pay your tax bill at the end of the year - click here to view. 

About Childminding UK

Childminding UK has been supporting childminders for over 30 years. Formed in 1991 by and for local working childminders in Northamptonshire, we now support childminders across the country. A registered charity, we are the only national organisation that solely supports childminders and we have recently achieved the Princess Royal Training Award for ‘Ensuring high quality childcare through training and support’. All staff are experienced childcare professionals, have been childminders themselves and our trustees are working childminders or have knowledge of childminding, so we have a good understanding of the sector.

To find out more about Childminding UK or to get in touch - childmindinguk.com.

The information in this article is provided by Childminding UK and does not represent Morton Michel.