Childcare Vouchers

Childcare vouchers offered by employers can save many parents with children up to the age of 15, hundreds of pounds a year. These vouchers can be made available through all employers, not only larger firms. As well as helping the employee, they can save employers on national insurance costs.
The key to childcare vouchers is that they enable you to pay for childcare out of your salary before tax and national insurance is taken off.
The vouchers are then paid over to your childcare provider who must be registered by the relevant authorities.
Most employers ask you to do a salary sacrifice which will work out for a basic rate tax payer, being £300 a year better off per £1000 of childcare vouchers. That’s because £1,000 of salary is only worth around £700 in your pocket after tax and national insurance has been taken off.
From April 2013 the childcare limits available for employees are as follows:
* Basic (20%) Taxpayer. £55/week vouchers, max annual gain £930.
* Higher (40%) Taxpayer. £28/week voucher, max annual gain £630.
* Top (45%) Taxpayer. £25/week voucher, max annual gain £590.
This is per parent so two working parents could get £110 a week of vouchers.
The limits are the same no matter how many children you have. 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 during the holidays, you can collect vouchers in advance.
For employees joining schemes after 6 April 2011, the employer must carry out a basis earnings assessment on an annual basis to identify the level of tax relief on employer supported childcare that an individual employee is entitled to.

They’ll not always make you better off!
While many people can save by using vouchers, claiming them means you technically earn less. Sacrificing some of your salary to get vouchers can have an impact on other elements of your finances that depend on how much you earn, such as maternity pay and pension contributions.
For a number of people with children (depending on how many you have), getting childcare vouchers reduces your eligibility for tax credits; potentially costing you money. This is because the amount of tax credits you get depends on how much you pay in cash (ie not vouchers) for childcare.
Should you go for childcare vouchers or not?
Each employee should carefully consider the effect of childcare vouchers on their household income before joining a childcare scheme.
If you’re eligible for tax credits for childcare then you’re likely to be better off sticking with only tax credits and not getting vouchers.
However, if your childcare costs are above £175 a week for one child or £300 for two or more children, you may still benefit getting childcare vouchers.
If you can’t claim tax credits then you will always be better off using vouchers to pay for childcare, as you have no tax credits to be affected.
New Scheme
A new tax-free childcare scheme is due to start at the end of 2015 and will replace the existing childcare voucher scheme. Under the proposed scheme, eligible families will get 20% of their yearly childcare costs (up to £6,000 per child), paid for by the Government. This could mean payments of up to £1,200 per child.