From April 2005 employers have been encouraged to provide their staff with childcare vouchers in exchange for a salary sacrifice. Although employers do not have to provide childcare vouchers for their staff they do have to consider any request for vouchers made by an employee. The key incentive is that the first £55 of vouchers each week (£233 each month) will be free from both employer and employee Tax and National Insurance contributions. You can use these vouchers to pay for childcare with any registered provider. Your provider can then cash the vouchers with the company that issued them in a quick and simple process.
If you are a working parent, childcare vouchers are a flexible, simple and cost effective way to cover or support your childcare costs.
You may be able to make significant savings:
- up to £904 a year if you take a salary sacrifice of £55 a week and are a basic rate tax payer.
- up to £1,195 if you are a higher rate tax payer.
Not all parents, however, gain from a salary sacrifice. You should consider carefully the effect, or potential effect, that a reduction in your pay may have on:
- your future right to your original (higher) salary.
- any pension scheme to which you are contributing.
- your entitlement to Working Tax Credit or Child Tax Credit.
- your entitlement to State Pension or other benefits such as Statutory Maternity Pay and Statutory Sick Pay.
How will it affect my pension?
You must check this with your employer. Paying reduced National Insurance contributions may affect your state pension although you may feel the savings in childcare costs may balance that. Some employers may base their pension contributions on your lower salary.
I currently receive the childcare element of Working Tax Credit; would I gain more from childcare vouchers?
Most parents will be better off receiving the childcare element of Working Tax Credit if they are eligible for it. As a general rule tax credits favour the lower earner; childcare vouchers benefit the average and above average earner.
Phone ask to find out which is the best option for you.
I am pregnant again. Will receiving vouchers for my first child affect my maternity pay?
Yes! The best advice is to stop receiving vouchers from 15 weeks before your expected date of delivery. Then your maternity pay should not be affected.
(It is possible that the extra maternity pay could be less than the tax and NI savings from continuing to receive vouchers.)
Will I receive a new contract?
Not usually; most employers have a form for you to agree to the variation in your terms and conditions of employment; you will be asked to sign this.
If I take a salary sacrifice, my hourly rate will be below the National Minimum Wage; does this matter?
Yes! This cannot happen - you would be better advised to seek support with childcare costs through the Working Tax Credit route.
Which providers of childcare will accept my childcare vouchers?
All providers of childcare registered with OFSTED (including those on the Voluntary Registeror) can register with a childcare voucher provider. If they have not already registered, encourage them to contact your employer or the voucher provider your employer is using. Registration is very straightforward and the childcare provider cannot lose out as they are guaranteed to receive their fees in a way that suits them and within a timescale that suits them.
My childcare costs are different every week; what do I do?
You can usually order a different amount each week or each month, however as vouchers are valid for 12 months you can order a standard amount and then use more or less each week according to your needs.
I only need childcare during the school holidays; what do I do?
As above, you can order them during the year and then use them during the holidays or, you can just order them for the holiday periods.
How do I get started with vouchers?
Ask your employers for details of their childcare voucher scheme. If your employers have not yet started a scheme you could ask them to do so. I might be worth pointing out that they could save up to £373 a year for each employee participating in the scheme!
(Employers can run either their own in-house schemes, or use a third party voucher provider.)
Useful Links
Some Childcare Voucher Providers:
Find your local:
HM Revenue & Customs:
