Childcare Voucher Scheme

How employers can help you offset childcare costs

This scheme can seem complicated but is certainly worth pursuing with your employer if they have a responsible attitude to childcare and see the benefits of retaining staff with young children.

How does it work?

Your employer, in conjunction with a specified administrative company (e.g. Busy Bees) has introduced a more flexible way to meet the costs of childcare, under which part of your wages / salary can be given up or "sacrificed" in exchange for Childcare Vouchers. Within specified limits, these vouchers are non-taxable and exempt from National Insurance Contributions and therefore represent a saving for employees. Childcare Vouchers are issued from your employer (in conjunction with the specified partner) and are then exchanged, in whole or part, for the childcare services you use (i.e your nursery).

Read the information taken from the web (last update October 2010):

All about Childcare Vouchers*

Childcare vouchers are a little known scheme, which can save many parents with children aged up to 15, over £1,000 a year on childcare. They need to be offered via employers, but many large and small companies take part.

The key is it enables you to pay for childcare out of your PRE-TAX and National Insurance income. While this doesn’t sound much, the benefit is huge. Most employers work it on a salary sacrifice system, which works something like this (basic rate tax example)...

You give up £1,000 of salary, worth £700ish in your pocket. You get £1,000 of Childcare vouchers. This means you're £300 better off per grand.

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 meaning some families will gain £1,000s from this over a year. To find out more read the full Childcare Vouchers Guide

Warning! Childcare vouchers can impact on credits

If only it were that simple, sadly while childcare vouchers are conceptually great, they interact with the amount of Childcare Tax Credits you're entitled to. So while many gain from the vouchers, some people, especially on lower incomes are WORSE off using the vouchers.

This happens because..

· Vouchers don't count as paying for childcare

· The more you pay in childcare, the more tax credits you're eligible for, but any amount you pay in vouchers, doesn't count towards that. For example if you pay £100 a week for childcare, but use £60 of vouchers, for tax credit purposes you're only spending £40 a week on childcare, so it's this figure you must enter on your Tax Credit claim form.

· You must notify the tax credit office within a month that you start using childcare vouchers, so any changes can be taken into account. You may be fined if you don't.

· Salary sacrifice means you've a lower income

· If you're giving up salary to get vouchers, then for benefit purposes you earn a lower amount, this will increase your eligibility for tax credits.

When's it worth using them

Hard and fast rules are very difficult as there are so many variables... but here's some rough guidance.

· If you're not eligible for childcare tax credits. In this case, there's no problem, so if you're a couple where one works under 16 hours a week, or a single parent who does, or your income is too high to qualify, then there's no impact. So go for the vouchers.

· Family income above £36,000? You are likely to be better off accepting childcare vouchers unless you've more than three children.

· Childcare costs above £175 for one child, £300 for two or more? You will always be better off using vouchers for any amount above that, and may be better off for amounts below (the higher your salary the more likely).

· Family income below £42,000? (depending on how many children you have): Providing you're eligible for tax credits you're likely to be better off getting them than using vouchers if you're earning: under £24,000 (one child); under £30,000 (two kids); under £36,000 (three kids); under £42,000 (four or more kids).

Do remember this is only rough guidance, but that's about as good as it gets. If this impacts you it's important to do a more detailed comparison use the Government’s HMRC vouchers vs. credits calculator to check in detail or call the Tax Credit Helpline on 0845 300 3900. http://www.hmrc.gov.uk/calcs/ccin.htm

Heads Up: Childcare Voucher changes Apr 2011

The Childcare Voucher changes announced by the government during the June 2010 Emergency budget don't start to take effect until Apr 2011 so now's a good time to start using the scheme if you don't already.

From that time, the value of vouchers will remain at £55 a week for basic rate taxpayers, but will be reduced to £28 and £22 per week for higher and additional rate taxpayers respectively (rather than the Labour government proposed changes that higher rate tax payers will get 20% tax relief instead of the current 40%).

James & Jeannette

Oct 2010

*Taken from research on the internet. Please check carefully re your own circumstances.

A scenario of how this may work for you:

If either partner is employed and you think that this will save you money, visit the nursery and get some leaflets and information explaining the deal.
Make an appointment with your employer; manager or HR department. Show them the information and discuss if they would be able to work with you in introducing the scheme. With them work out what you might save, depending on your present salary. Agree that you both want to go ahead with the scheme.
To go ahead with the scheme, you must complete an Order Form and sign the agreement to vary your Terms and Conditions of Employment. You will give this to your employer, who will then do the necessary paperwork to provide you with Childcare Vouchers as part of your salary. Your employer will work with one of the administrative companies.
Your childcare provider (e.g. Raunds Rainbow Nursery School) will register with the company that is providing the vouchers for you own company (there are several of these, acting as overall administrators of the funds). The childcare provider has to be registered with OFSTED.
You will provide your childcare provider with the voucher to pay for all or offset some of the cost of your childcare costs, depending on how much the care comes to.
Your childcare provider will knock the amount of the vouchers off what is owed to them. In many cases, covering all the costs. Your provider will reclaim the voucher cost from the special company administering the voucher system.

There are a number of other questions that you will have about this. The above is only a general overview of how it works and how much you might save. However, it might save you a considerable amount of money and could be well worth pursuing. Please contact us as well as your employer for more information.