I recently presented a money management and budgeting webinar for Childcare.co.uk which includes some of this information in more detail. If you are a Childcare.co.uk gold member you can watch it again here -
https://www.childcare.co.uk/webinars/player
As we finish our 2022-23 accounts and set up for 2023-24 tax year, I thought it might be useful to tackle some of the most commonly asked questions from my inbox and groups online:
How do I include the 10% wear and tear?
Your figures from childminding for HMRC are –
**Total income – everything you have earned from childminding.
**Total expenses – everything you have spent on childminding, including a percentage of your house usage detailed in the HMRC BIM 52751 document and 10% of your total income, all added together as 1 figure.
**Total income minus / take away total expenses.
BIM 52751 – https://www.gov.uk/hmrc-internal-manuals/business-income-manual/bim52751.
Can I include my personal allowance in my expenses?
No, your personal allowance is a figure HMRC work with when they are deciding how much to charge you for tax and national insurance.
How much can I claim for food?
You can claim expenses on a ‘reasonable estimates’ of food and drink provided for childminded children.
To find out what is reasonable, I suggest you work out your average spending by keeping some supermarket bills and adding up what you actually spend.
You can then revisit your figures every so often to check they are still correct – for example, if a new child joins your setting or if prices have risen at your chosen supermarket.
Can I claim a percentage of my mortgage on expenses?
While the answer technically is ‘yes’ it causes all sorts of problems when you come to resell your house, so the advice is strongly, ‘no’.
Should I register as a limited company?
Usually childminders are registered with HMRC as sole traders, not limited companies. While accountants might suggest that limited companies can be more tax efficient, it does mean that you will need to submit extra accounts, including for Corporation Tax. There is less work to do as a sole trader and taxable profits can be easily reported on the self-assessment form.
My advice is that you take advice before changing to a limited company, because it could also mean extra charges for, for example, your council tax band and waste removal.
How can I claim for vehicle use?
You can either use the simplified expenses method at 45p/mile (that covers everything you do with your car, so you cannot put insurance or other costs through your expenses) or you can actual cost of expenses, but that’s quite a complicated way of doing things, so I recommend you employ an accountant to work it out for you.
Do I use ‘cash basis’ on my accounts submission?
Usually yes, you do your accounts using the ‘cash basis’. According to HMRC, ‘cash basis’ means, ‘you only need to declare money when it comes in and out of your business’. This means that, at the end of the tax year, you will only pay tax on money received in your accounting period.
https://www.gov.uk/simpler-income-tax-cash-basis.
Why is my tax bill so high?
You need to bear in mind that you need to pay for tax and national insurance twice a year – the first year by the end of January and then it’s likely that you will have another tax bill in advance at the end of July.
This might mean putting away more money from your monthly income than you first thought. In my early years setting, I save a % of total income every month for my tax and national insurance bills in a separate account where I don’t touch it.
Why do I pay national insurance?
There are 2 types of national insurance which self-employed typically pay –
**Class 2 national insurance – nearly all childminders will need to pay class 2 NI. It is a weekly amount and you will see it added to the bottom of your HMRC invoice. It is currently (02.2023) £3.15 / week. It pays for the health service and towards your state pension, when you are eventually of an age to retire.
**Class 4 national insurance – if you earn over the annual threshold. The threshold is currently (02.2023) 9% on profits over £6726. Class 4 NI can sneak up on you, so you should keep a close eye on your incomings and put away extra money to cover the payment.
Can I include staff wages in my expenses?
Yes, if you pay staff then they are an allowable expense. You will already have filed Real Time Information (RTI) submissions to HMRC when you report the monthly payroll to them, so they should know that your balance of income vs expenses might be different to a typical childminder’s income vs expenses, due to taking on staff. In relation to staff costs, I advise you to read this recently written (03.2023) blog –
https://independentchildminders.weebly.com/staff/childminders-and-staff-wages
Do I have to pay VAT?
It’s unlikely that a childminder working on their own will earn more than £85,000 in the year to pay VAT but, if you do, then you must register with HMRC and I advise you to take advice from an accountant, because you will also have to use the ‘Making Tax Digital for VAT’ reporting to HMRC.
How often should I update my accounts?
It’s up to you, but the best way to check your accounts are running smoothly is to keep them updated regularly. Looking at them in a flurry 2 days before reporting to HMRC in January does not help you to, for example, check you are making a profit through the year or take account of fluctuations in food costs.
Do I have to worry about making tax digital?
Not for a while... when Making Tax Digital for self-employed is introduced eventually (delayed to 2026 and only for higher income brackets), you will have to report your income and expenses quarterly – you might find it helpful to prepare for that by sitting down with a calculator to work out your income vs expenses quarterly from now onwards, but that’s your choice.
I hope this helps. Sarah.