Childcare vouchers are a government initiative that allows parents to ‘buy’ vouchers from their employer to pay for childcare, by deducting the money from their salaries. Vouchers can be used on a wide range of childcare providers for any child up to the age of 15, or 16 if the child is disabled. This can include, but is not limited to, childminders, nurseries, after-school clubs and activities like theatre or sports.
How do childcare vouchers work?
With childcare vouchers, parents pay for childcare out of their pre-tax and national insurance income. For example, a parent could give up £1000 of their pre-tax salary for £1000 of childcare vouchers, which would save them the money they would otherwise have paid in tax on that amount. Depending on how many vouchers they buy, and how much tax they normally pay, this could result in significant savings.
The downside of the voucher system is that employers are not required to offer childcare vouchers to their employees at all. Parents are also not eligible if they are self-employed, or work as a contractor.
What is a registered child carer?
The childcare provider must be registered with Ofsted to accept childcare vouchers. If you need to find a local provider, you can start with a search for registered childminders in your local area, or a place in a nursery school.
Examples of childcare providers include:
- Before- or after-school clubs
- Sports or arts coaching
Benefits of childcare vouchers for parents
The most obvious benefit of the childcare voucher scheme is that there are no eligibility checks. Childcare vouchers are available to any parent, or a person who cares for a child, as long as their employer offers it.
If a parent is a basic-rate taxpayer, they can take up to £55 per week or £243 per month from their salary before tax and national insurance to spend on childcare, saving them a potential £930 a year.
Benefits of childcare vouchers for employers
Childcare vouchers don’t just benefit parents (and their children), it has benefits for employers too. If an employer offers childcare vouchers through a salary sacrifice arrangement, they won’t pay employer’s national insurance contributions on that portion of the salary. The precise amount a company could save varies, but potentially it’s over £400 a year per employee.
Aside from financial savings, providing childcare vouchers can help parents feel valued in the workplace, and ensure they stay in their job longer.
Keep in mind that an employer offering childcare vouchers has to follow HMRC’s rules. Therefore, the company needs to be able to prove the following:
- That the scheme is available to all employees.
- That the child qualifies for the scheme by keeping a record of the child’s date of birth and relationship with the employee.
- That the childcare is registered; ask the employee to provide the carer’s name and registration number.
How Tax Agility can help
Whether you are an employer or an employee, it’s best to contact experienced advisors who can help you navigate government childcare schemes. At Tax Agility, we know how to optimise your earnings by using the schemes available to you. If you are uncertain of what works best for your circumstances, why not give us a call on 020 8108 0090 or get in touch with us via our contact page to arrange a complimentary, no obligation meeting.