What are childcare vouchers?
Childcare vouchers are simply a different way to pay for childcare which still allows parents to choose what kind of care they think best suits their child. The most popular way of providing childcare vouchers is through a salary sacrifice arrangement, whereby employees agree to a reduction in their salary in return for an equivalent value of childcare vouchers which will be exempt from tax and National Insurance (up to the maximum of £55 per week or £243 per month).
Why do employers offer childcare vouchers?
Childcare vouchers have been proven to increase staff engagement, reducing absenteeism and increasing return to work from maternity. It is a valuable addition to any benefits package improving staff retention and firmly positioning businesses as family friendly.
How do parents make savings?
Essentially, the money that is sacrificed is not subject to tax or NI deductions and therefore employees get more vouchers for their money than they would if they paid cash for childcare.
The Government allows parents to receive up to £243 per month (£55 per week) in childcare vouchers, which are exempt from tax and National Insurance contributions. This means parents could save up to a maximum of £904 per year (for standard tax payers) or a maximum of £1,195 a year (for higher tax payers) depending on individual circumstances.
By using the online savings calculator at HM Revenue & Customs web site employees can calculate the approximate savings they will make per year based on their own circumstances and childcare costs.
New rules from April 2011
The Government is introducing changes to the tax exemption relating to childcare vouchers from April 2011. From 6 April higher rate and additional rate tax payers will be subject to a reduced maximum to make their savings more equitable with standard rate taxpayers.