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Childcare Vouchers
Childcare Vouchers
What are childcare vouchers?
Childcare vouchers are one of the ways in which employers can assist their employees with the costs of childcare. Childcare vouchers are exempt from National Insurance Contributions (NIC) for employees so they can help you save money with your childcare fees.
How does a childcare vouchers scheme work?
Your employer will normally sign up to a childcare voucher company and will pay that company an administration fee for their service. The voucher company will either supply you directly with your childcare vouchers or they will provide your employer with them, which they will distribute to staff accordingly. Employees in receipt of childcare vouchers can use them to 'pay' their childcare provider. The childcare provider will then redeem the value of the voucher from the childcare voucher company, usually by direct payment into a bank account.
How do childcare vouchers save me money?
Childcare vouchers can be offered to you in addition to your cash salary but are more commonly offered as a "salary sacrifice". This means that you sacrifice a specific amount of your salary and instead receive that amount in childcare vouchers up to a limit of £55 per week, or £243 a month. This is exempt from Tax and National Insurance Contributions (NIC), so you will only pay tax and NIC on the reduced level of your salary.
What is a salary sacrifice?
Salary sacrifice means that an employee formally (by a change in their contract) agrees to a reduction in their salary and instead receives that amount in childcare vouchers. (The first £55 per week of the value of childcare vouchers is exempt from NIC and tax).
The contact between employer and employee will need to be updated or a signed agreement included within to reflect the salary sacrifice agreement. This should make clear the reduction in salary the employee has agreed to, the length of time of the agreement and the amount they will receive in vouchers.
How much can I receive in vouchers?
Tax Change post 6 April 2011
As from 6 April 2011 changes will be implemented that will affect those on the higher or additional tax rates. The change will only affect those joining the childcare voucher scheme on or after 6 April 2011.
Employees who join the scheme on or after 6 April 2011 will only be eligible to sacrifice the amounts shown below
Basic Rate Tax Higher Rate Tax Additional Rate Tax
Weekly £55 £28 £22
Monthly £243 £124 £97
Annual £2915 £1484 £1166
Employees who are registered onto the scheme on or before 5 April 2011 will still be able to sacrifice as they are now. Childcare Vouchers are to be used to help towards the cost of Registered Childcare. Examples of registered childcare below
- Day Nurseries (private, community or local authority)
- Workplace nurseries
- Childminders and approved childcarers (e.g. Home Childcarers)
- Pre-school playgroups
- Nursery schools
- Out of school clubs and holiday clubs
NB: Childcare provided by a relative** of the child is generally not eligible for help via the childcare element of the Working Tax credit or the tax and NICs exemptions on employer-supported childcare. The sole exception to this is the situation in which a relative has been registered or approved as a child-carer, and happens to care for a related child, but whose primary or main paid child-caring is for children to whom they are not related. In short being a paid child-carer for the child to whom they are related is INCIDENTIAL to their usual paid child-caring. This care must be provided outside the child's own home."
**A relative of the child means a parent, grandparent, aunt, uncle, brother or sister - whether by blood, half blood, marriage or affinity.
Can all childcare providers accept payment through childcare vouchers?
Yes, as long as they have a bank account. In order to receive the childcare voucher reimbursements the childcare provider will need to register their details with the childcare voucher company. This is usually a record of contact details, registration number where appropriate and bank details. There is no cost to the childcare provider in receiving payment through childcare vouchers. Information packs explaining childcare voucher to childcare providers are available from most voucher companies, should your childcare provider have any concerns.
Child Tax Credit and Working Tax Credit:
The Child Tax Credit (CTC) offers parents support with general family costs, and is available to nine in ten families. Working Tax Credit (WTC) supports those on lower incomes and working parents may be eligible for additional help towards registered childcare costs. The amount of help parents receive will depend on a number of factors including their income, the size of their family and the amount they pay in childcare.
The receipt of childcare vouchers through a salary sacrifice can affect parents' entitlements to these tax credits in a couple of ways. As your average earnings will effectively be reduced, you could receive a higher payment through the WTC. However, the value you receive in childcare vouchers from your employer cannot be declared as childcare costs when calculations are made for your entitlement to the childcare element of WTC. This is to ensure that you are not claiming for the same assistance with childcare twice. The childcare element of WTC may therefore be reduced.
Parents are advised to find out what level of support they could be entitled to through the CTC and WTC before they sign up to a childcare voucher salary sacrifice scheme. In some instances parents may be financially better off opting to receive help through the WTC rather than through their employers childcare voucher scheme.
How do I know whether I would be better off with Tax Credits, or with a voucher scheme?
The following points provide a rough guide as to whether you would get more help from Tax Credits, or from employer-supported childcare, but you should also make sure that you check your individual situation carefully before you decide which benefit is better for you
- You will always benefit from taking a tax and NIC free voucher if it is offered in addition to your salary.
- Generally, if you are getting £545 or less a year in total from Tax Credits, you will be better off using vouchers.
- Generally, if you are getting more than £545 a year in total from Tax Credits, you will not gain from claiming the tax and NIC exemptions - unless you are a higher rate tax payer.
For more information on Tax Credits view the website at the end of the page or call 0845 300 3900.
Work related payments:
Some payments made to you by your employer are based on your average earnings and the amount that you substitute to receive in vouchers is not included as part of your average earnings when work related payments are made. However, Childcare Vouchers can be classed as Notional Pay, which means that most employers do not let your benefits become affected.
Statutory Maternity Pay (SMP) and Statutory Sick Pay (SSP) - calculations made for SMP and SSP are based on your average earnings excluding the amount you receive in vouchers meaning the rates of SMP and SSP you receive may be reduced. However, as pregnancy is a "life-changing event" it should be possible to review your amended contractual arrangements (which permitted the orginal salary sacrifice) and you should be able to leave the scheme before working the eight weeks period on which your SMP will be based - and thus ensure it will not be affected.
If your average weekly earnings excluding the amount you receive in vouchers falls below the Lower Earnings Limit (LEL), which is currently £5,304 per annum, you will not be entitled to SMP or SSP, but may be entitled to Maternity Allowance and Incapacity Benefit respectively.
Speak to your employer about how salary sacrifice could affect these and other work related payments before you sign up to a childcare voucher scheme.
Contribution-based benefits:
Your entitlement to some benefits is calculated according to the level of National Insurance Contributions (NIC) you have made. Should you sign up to a childcare voucher salary sacrifice scheme, your NIC will be reduced, which in turn could reduce your entitlement in the future to some of the following contribution-based benefits.
Incapacity Benefit
If your earnings fall below the LEL (£5,304 p a) you may not be entitled to receive Incapacity Benefit. In this instance you would need to claim Income Support.
Jobseekers Allowance (contribution based)
If your earnings fall below the LEL or if your NIC have been reduced to a lower amount, you could become ineligible to receive the contribution-based Jobseekers Allowance. In this instance you would need to make a claim under income-based Jobseekers Allowance.
State Pension
On your retirement, the amount you receive through your State Pension could be reduced if you have not paid NICs or if these have been paid at a lower level.
Further information can be obtained from these external agencies:
- Her Majesty's Revenue and Customs (HMRC) (www.hmrc.gov.uk)
- The Daycare Trust (www.daycaretrust.org.uk)
21 St. George's Street, London, SE1 6ES. Tel: 020 7840 3350.
Contact details of some organisation who can offer childcare voucher packages:
- Sodexo Pass Ltd (www.sodexopass.co.uk)
Telephone: 01276 687 000 - Leapfrog Childcare Vouchers (www.leapfrogdaynurseries.co.uk)
Telephone: 0800 783 7624 - Childcare Vouchers (www.childcarevouchers.co.uk)
Telephone: 0800 247 1233 - Kidsunlimited (www.kidsunlimited.co.uk)
Telephone: 0800 0326 777 - Busy Bees (www.busybees.com)
Telephone: 0800 043 0860
This information has been complied by Kingston Families' Information Service (FIS) and was accurate to the best of our knowledge at the time of inclusion. Inclusion on this list does not signify recommendation or endorsement.
For further information contact:
Kingston Families' Information Service
Room 16, Guildhall 1
Kingston
KT1 1EU
Telephone: 020 8547 6582
Fax: 020 8547 6667
Email: fis@rbk.kingston.gov.uk
Visit: Monday to Friday 9am to 5pm