Childcare Voucher Scheme Facts in a Nutshell
If you’re a working parent and are currently paying for childcare, whether at a nursery or at a childminder’s, joining a childcare vouchers scheme could save you almost £1,000 a year in tax? That may come as a surprise, but it is a fact, and let’s face it, any extra money that can be saved at the moment really has to be useful.
Childcare voucher schemes are an integral part of the current government’s childcare policy and are operated through employers. They allow parents to pay for their childcare needs out of their pre-tax salary, which effectively means that parents can meet some of their childcare costs without having to pay tax and national insurance contributions.
Lots of large and small employers operate employer childcare voucher schemes for the benefit of their employees. It might seem overly generous, but it makes sense when you think about it: the employer benefits by offering a valuable service to workers, promoting good will, a better work/life balance. Childcare voucher schemes are also crucial for attracting new employees and helping to aid staff retention after the birth of a child. Employers also stand to benefit from the scheme can as they can save up to £402 per year in national insurance contributions for every employee that joins their childcare voucher scheme.
The advantages of joining a childcare vouchers scheme for parents are clear and the childcare vouchers schemes are most definitely 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, equating 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.
How do childcare voucher schemes work?
Most employers offer what is known as a ‘salary sacrifice’ scheme, which effectively means working parents swap some of their income for childcare vouchers. A few more-generous employers might offer vouchers on top of existing salaries, but they are unusual. Taking part in a salary sacrifice childcare voucher scheme means that an employee agrees to give up some of their wage, and receives childcare vouchers in return. These vouchers offer special tax and insurance advantages which mean that for every for every £1000 an employee sacrifices, or £700 net of tax and insurance, they receive £1000 of vouchers, effectively gaining them £300. There may be differences if a working parent is also receiving Child Tax credit.
Does every parent stand to gain the same amount?
Basic rate tax payers, and higher rate taxpayers who joined a childcare voucher scheme before the 5 April 2011, can pay for up to £243 worth of childcare through the childcare voucher scheme. Higher rate tax payers joining after the 6 April, 2011, have had their allowances dropped, but all taxpayers get roughly the same maximum tax gain. The figures for the current financial year are:
Basic rate (20%) taxpayers - £55/week vouchers: maximum annual gain £920
Higher rate (40%) taxpayers - £28/week voucher: maximum annual gain £610
Top rate (50%) taxpayers - £22/week voucher: maximum annual gain £590.
The important thing to remember is that the vouchers are not determined by the number of children involved. These limits remain the same whether a family has one child or several.
For more details on the Early Years Vouchers Childcare Vouchers Scheme or browse the Early Years Vouchers website pages.