Childcare Vouchers Benefits for Parents and Employees
How do childcare vouchers work?
Childcare voucher schemes are an integral part of the government’s childcare policy and are operated through employers. They allow parents to pay for their childcare needs out of their pre-tax salary. For parents the advantages are both clear and beneficial. Working parents can claim up to £55 per week in childcare vouchers operated through the scheme. That allowance applies to each person, so a working couple could actually claim two sets of vouchers which equates to £486 per month. Childcare vouchers can be used from the moment a baby is born right up to the age of 15, or 16 if the child is disabled.
What is the major benefit of the childcare voucher scheme?
The principle benefit of childcare vouchers is that they are tax-efficient and offer significant tax and national insurance savings. Generally most employers offer what is known as a ‘salary sacrifice’ scheme, which effectively means working parents exchange some of their income for childcare vouchers. A few more-generous employers might offer vouchers on top of existing salaries, but that’s rare. By taking part in a salary sacrifice childcare voucher scheme, an employee agrees to trade some of their wage and receives childcare vouchers in return. These vouchers offer special tax and insurance advantages which mean that for each £1000 an employee sacrifices (or £700 net of tax and insurance) they receive £1000 of vouchers, effectively gaining £300.
Currently the childcare voucher allowance is £55 per week for basic rate taxpayers, and higher rate taxpayers who joined the scheme before 5 April 2011. This means that working parents are able to claim £243 of childcare each month, which equates to a maximum annual gain of £920. Higher rate taxpayers (40%) who joined the scheme after 6 April, 2011 only qualify for £28 per week of childcare, but this still equates to a saving of £121.33 a month or £610 per annum. It is, however, important for parents to remember that these limits are not determined by the number of children involved. The limits remain the same whether a family has just the one child or several.