Childcare Vouchers
Childcare Vouchers
Childcare vouchers can save parents £1,000s a year, the problem is not enough people know about them. They're operated through employers and allow you to pay for childcare from your pre-tax salary. This might not sound a big deal, but the potential impact is huge.
What are Childcare Vouchers? It enables you to pay for childcare out of your PRE-TAX income. While this doesn’t sound much, the benefit is huge. It usually, though not always, works via salary sacrifice. Most employers work it something like this (basic rate tax example)Trade-in £1,000 of pre-tax salary for £1,000 worth of vouchers.
Tax & NI means you're only losing around £700 take-home pay, thus you're £300 better off per £1,000.Of course, once you no longer need to pay for childcare, you simply get your salary back.
BOTH parents are allowed to get a maximum of £243 per month worth of vouchers, and the gains are even bigger if you’re a higher rate taxpayer, meaning some families will gain £1,000s from this over a year.What counts as childcare? The vouchers cover childcare up to 1 September after your child's 15th birthday (16th if they are disabled), and they are useable by any nursery, playgroup, nanny, childminder or au pair who is registered and regulated by Ofsted. If you ask, most providers will simply tell you if they're registered, but there is an official way to check:
- In England. Go to the Ofsted website or call 0845 601 4771
- In Wales. Go to the Care Standards Inspectorate
- In Scotland. Go to the Care Commission
- In Northern Ireland. Contact your local Health and Social Services Trust via the DHSSPS website.
Alternatively go to ChildcareLink where you can find local registered childcare.Those whose relatives look after a child ‘in the child's own home' won't be eligible to receive the vouchers. Yet vouchers can be claimed for carers' that are registered childminders' looking after a child in their own home.
Further help with childcare costs There are other schemes in place to help with childcare costs, including tax credits, holiday provision, and at least 12.5 hours a week free childcare for all three and four year olds for up to two years before they reach school starting age (term time only). Read the Childcare Costs guide fro more info.
Where do you get the vouchers from?Any parent, or those with parental responsibly for a child living with them, is eligible for the vouchers. Yet sadly, to get them, your employer must run a scheme. Therefore follow these steps:
- Ask your employer if it runs a childcare voucher scheme.
Check with your Human Resources / Personnel department to see if yours does. Most big employers, such as Lloyds, Barclays and Sony offer the schemes. Many NHS Trusts and Ministry of Defence departments do too. Until 2006 teachers weren't allowed to use the vouchers, but thankfully that's now changed. Sadly, if you're a sole trader you're not eligable, 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 on the vouchers, it actually makes them serious money - £100s per employee!Therefore why not try and persuade them, perhaps chat to other parents and go as a group to request the facility. Feel free to print out this article to show them. Firms can offer voucher schemes 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 national insurance, so they'll still profit.
These providers include: Busy Bees, Faircare, Early Years Vouchers Ltd, Leap Frog Day Nurseries, Accor Services Childcare Vouchers, Kids Unlimited, Sodexho, Gemelli Childcare Vouchers, Vouchers4Kids, Voucher Solutions, Kiddivouchers (which donates at least 5% of all profits to various charities) and Employersforchildcare (a not for profit organisation).Many of these companies will also contact your employer for you upon request.
How the vouchers work in practice A few very generous employers will simply give you the vouchers on top of your normal salary, but most will ask you to do what's called a 'salary sacrifice' for the vouchers.
How does salary sacrifice work? You give up some of your salary in exchange for the same value in vouchers. Yet the tax and national insurance relief means for every £100 a basic rate taxpayer loses from their pay packet, they get around £130 worth of vouchers back (and higher rate taxpayers get even more).Savings are substantial, around 31% for basic rate tax payers or 41% for higher rate tax payers up to the limit of £243. For an accurate figure on how much you can save have a look at the savings calculators on Accor or Busy Bees.
How many vouchers can you buy? If your employer offers it’s own scheme or one through a voucher provider, you can pay for up to £243 of childcare with it each month. Do note this is ‘per parent' so for two working parents you could get £486 a month of vouchers. Yet the number of children you have doesn't impact this, the limits are the same whether you've one child or an entire Brady Bunch. Vouchers aren't specific to each child and have a long expiry date, so if you know you're going to have higher childcare costs in the near future get the maximum allowance now. 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.
Warning! It can impact your tax credits Most working people earning under £40,000 are also eligible for cash to pay for childcare in the form of tax credits. Getting childcare vouchers can impact your entitlement to the childcare tax credit, and in some cases will actually mean you lose out, so it's crucial to check this.
As a rough rule of thumb, if you earn under £16,000 you're rarely better off getting the vouchers. There’s a useful calculator on the HM Revenue & Customs which will calculate if you're better or worse off taking the vouchers.
You'll also need to check how it would affect your pension contributions and any other benefits you may be receiving such as Statutory Maternity Pay. Some people who get childcare vouchers and then go on maternity leave may legally be entitled to get them for free.
When filling in claims for Tax Credits you must make sure you declare what childcare vouchers you're receiving as it will impact what you're entitled to. If you don't you may find you have to pay back overpayments.Size of the SavingThe savings are huge: a basic rate tax payer using the full allocation of childcare vouchers can save £75 per month. That's £900 over the course of a year. Higher rate taxpayers can save even more, and as it's calculated per adult, that means the biggest possible gain for a family is £2,392 a year! To find out how much you save there's a useful calculator at Busy Bees.
Your Tax Band
(each parent can separately gain vouchers)Monthly Childcare Costs £50 £100 £150 £200 £243 Higher Rate £246 £492 £738 £984 £1,196 Basic Rate £186 £372 558 £744 £904 Source: Busy Bees
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