Childcare vouchers
Your employer may be able to provide you with Childcare vouchers which you can use to pay for registered childcare (such as nurseries and day care). These could save you money in the long-run and are well worth looking in to. Speak to your employer to find out whether they provide Childcare Vouchers.
How much could you receive?
In the case of Vouchers (and directly contracted childcare) there is an allowance of £55 per week or £243 per month. Up to these amounts you will not have to pay tax or National Insurance. This applies to each individual parent if you both have access to a scheme. You can receive more vouchers than this amount but you will have to revert to paying the tax and National Insurance contributions for any value over this limit.
So there is no limit on the amount you can actually use. You can also store them up as for example childcare requirements will often end up being higher in the school holidays.
How would you receive childcare vouchers?
There are a couple of ways your employer could provide you with the childcare vouchers namely:
- in addition to your salary; or
- as part of a salary sacrifice scheme.
In the first case this will not normally change your tax situation as the additional amount (within the above limits) is not taxed anyway. However, a salary sacrifice scheme is different as this reduces your overall income and therefore reduces the amount of tax and National Insurance that you pay. If you’re claiming State benefits to boost your income they will be revised downwards to account for this.
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Example 1:
Jenny pays nursery fees of £120 per week. Her employer gives her £55 a week in childcare vouchers to use towards paying the fees. This is paid to her in addition to her salary but she doesn’t pay tax or National Insurance contributions on the £55 per week she receives in vouchers. If we assumed Jenny would normally pay tax and National Insurance at about 30% then she has the benefit of not paying £16.50 a week or £71.50 a month in tax on the part of her salary used to pay for her childcare.
Example 2:
John’s childminder fees are £120 per week. His employer gives him £55 a week in childcare vouchers to use towards paying the fees. This is through a ‘salary sacrifice’ scheme that means John receives the vouchers instead of the equivalent amount of pay, therefore John doesn’t pay tax or National Insurance contributions on the £55 per week he receives in vouchers. If we assumed John would normally pay tax and National Insurance as Jenny then he’d save £16.50 a week or £71.50 a month in tax and National Insurance contributions too. However, John also received Child Tax Credits and Working Tax Credits, the amount he receives from these are reduced to cancel out the tax and National Insurance savings he’s made. |
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These situations are individual and can get a bit complicated so it’s worth taking advice from your employer and discussing it with HMRC or your benefits office when you’re making these decisions.
Different bodies regulate Government registered childminders, nurseries and day care facilities in different UK countries, they are:
- Ofsted in England
- The Care and Social Services Inspectorate for Wales
- The Scottish Commission for the Regulation of Care
- A Health and Social Services Board or Trust in Northern Ireland
A list of registered providers in your area is available on the Government direct website: www.schoolsfinder.direct.gov.uk
Childcare Voucher Checklist
- Check whether your employer’s childcare vouchers are a benefit that is paid on top of your normal pay or whether you are expected to give up salary
- Work out how your tax credits will be affected
- If your cash pay is affected, check to see how your other earnings-related payments will be affected (pension, overtime rates, pay rises etc.)
- If your cash pay is reduced, will your benefits-related payments be affected? (State Pension etc.)
- If your cash pay is reduced, will your student loan repayments be affected?
To find out which other benefits you’re entitled to, take a look at our Benefits Calculator.