Childcare Vouchers
If you pay for childcare, using childcare vouchers saves many parents £1,000s a year in tax. These vouchers – available via a special Government scheme and operated through employers – allow you to pay for childcare from your PRE-TAX salary.
It might not sound big, but the impact can be huge. If you’re not taking advantage, check them out as a matter of urgency, as you could be paying more than you need to.
How childcare vouchers work
Childcare vouchers can save many parents with children aged up to 15 over £1,000 a year on childcare. Frustratingly, they’re only available via employers, but many large and small companies take part.
The key is they enable you to pay for childcare out of your PRE-TAX and national insurance income. While this doesn’t sound much, the benefit is huge.
It works by ‘salary sacrifice’
Most employers will ask you to do what’s called a ‘salary sacrifice’, which, if you’re on basic-rate tax, works something like this ;
You give up £1,000 of salary …but after tax & NI that’s only worth £700ish in your pocket. In return, you get £1,000 of vouchers… so you’re £300 better off.
How many vouchers can you buy?
Basic-rate taxpayers can pay for up to £243 of childcare with vouchers each month (£55/week). This is PER PARENT, so two working parents could get £486 of vouchers each month.
On 6 April 2011, new joiners paying higher or top-rate tax had their allowance cut so all taxpayers have roughly the same maximum tax saving. The limits in terms of vouchers you can buy are:
- Basic-rate (20%) taxpayer: £55/week voucher, max annual tax/NI saving £930.
- Higher-rate (40%) taxpayer: £28/week voucher, max annual tax/NI saving £630.
- Top-rate (45%) taxpayer: £25/week voucher, max annual tax/NI saving £590.
The number of children you have doesn’t affect this, so the limits are the same whether you’ve one child or an entire Brady Bunch. So, if you can’t meet your entire childcare cost using the vouchers, you will have to pay the setting directly for the rest.
Vouchers tend to last for a long time, so if you know you’re going to have higher childcare costs during the holidays, collect vouchers in advance.
Beware! Vouchers are usually non-refundable, so don’t collect more than you can use.
Also many providers will let you backdate vouchers up to six months, although your child must be born for you to be able to sign up. Check your individual provider’s procedures first.
What counts as childcare?
The vouchers cover childcare up to 1 September after your child’s 15th birthday (their 16th birthday if they are disabled).
The provider must be regulated. They’re usable by any nursery, playgroup, nanny, child minder or au- pair who is Ofsted registered.
Where to get vouchers from?
Any parent, or those with parental responsibility for a child living with them, is eligible for the vouchers. Yet sadly, to get them, your employer must run a scheme. Follow these steps:
Ask your employer if it runs a childcare voucher scheme.
Check with your human resources or personnel department to see if yours does. Most big employers, including Lloyds, Barclays and Sony, offer the schemes. Many NHS trusts and Ministry of Defence departments do too while teachers can also use the scheme. If you’re self-employed as a sole trader, you’re not eligible as you’re not classed as an employer.
What if your employer doesn’t offer a scheme?
Providing childcare vouchers shouldn’t cost your employer any money. In fact, as they don’t pay national insurance (NI) on the portion of tax you use for vouchers, it actually reduces their costs significantly! So try to persuade them. You could chat to other parents and go as a group to request the facility.
Firms can offer voucher schemes in one of two ways, either by operating the scheme themselves or by using one of the many voucher companies to do all the admin for them. The fee for this should be less than the firm gains in NI, so they’ll still profit.
Voucher Scheme Providers (as of October 2015)
Allsave Limited
Apple
Busy Bee Benefits
Care-4
ChildcareVouchers.co.uk
Co-operative Employee Benefits
Computershare
Early Years Vouchers
Edenred
Employers For Childcare (a not for profit organisation)
FairCare
Fideliti
Gemelli
Kiddivouchers (donates at least 5% of profits to charity)
Kids Unlimited
PES
Saycare Pass
Voucher Solutions
Vouchers4Kids
Many of these companies will also contact your employer if you ask them to.
