Childcare voucher schemes – what you can save
What are Childcare Vouchers?
Many people would ask us to explain just what are childcare vouchers. This article will answer that question for anybody wondering what childcare vouchers are, and what childcare voucher schemes are and how they operate.
If you are working parent paying for childcare, whether at a nursery or childminder's, you may not know that by using special childcare vouchers you could save a significant amount on your income tax bill, currently more than £1,000 per year.
Childcare voucher schemes are part of the government childcare policy and operate through employer schemes. They allow parents to pay for their childcare needs out of their pre-tax salary under a scheme known as Salary Sacrifice. In this way parents can meet some of their childcare costs without having to pay tax and national insurance.
Many employers in both large and small businesses operate employer childcare voucher schemes for employees. It benefits the employer benefits who offers a valuable service to employees thus increasing goodwill and employee morale, reducing financial stress on employees, helping to attract new employees and aiding staff retention following paternity or maternity leave. Plus one other crucial factor. The employer can also save up to £402 per year in national insurance contributions for every employee that joins the childcare voucher scheme.
For parents the advantages are clear. 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 birth up to the age of 15.
How do Childcare Voucher Schemes Work?
Most employers offer what is known as a salary sacrifice scheme, which effectively means working parents exchange some of their income under the childcare voucher scheme. Some particularly generous employers may offer vouchers on top of existing salaries, but they are the exception rather than the rule.
By taking part in a salary sacrifice childcare voucher scheme, an employee agrees to give up some of their wage and receives childcare vouchers in return. These vouchers have special tax and insurance perks which mean that for every for every £1,000 an employee sacrifices, or £700 net of tax and insurance, they receive £1000 of vouchers, effectively gaining £300. If a working parent receives Child Tax credits then this can have an impact and should be discussed with the scheme provider. Call Early Years now to find out how this may affect your entitlement and how best to cater for this situation.
Do all parents gain the same from Childcare Vouchers?
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 financial year 2011-2012 are:
Basic rate (20%) taxpayers - £55/week vouchers: maximum annual gain £933
Higher rate (405%) taxpayers - £28/22week voucher: maximum annual gain £623
Always remember that childcare vouchers are not determined by the number of children involved. The limits above remain the same whether a family has just the one child or several.