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. Each parent can take a salary sacrifice of up to around £55 per week (£243 per month) in exchange for childcare vouchers. This is taken before Tax and National Insurance is deducted and therefore both the parent and the employer can save some money. 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:
- around £900 a year if you take a salary sacrifice of £55 a week and are a basic rate tax payer.
- around £1,200 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.
Frequently Asked Questions:
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 higher earner.
Contact the ask helpline (08457 585072) to calculate whether you would benefit more by taking a salary sacrifice or claiming the Childcare Element of Working Tax Credit.
I am pregnant again. Will receiving vouchers for my first child affect my maternity pay?
Yes! The best advice is to talk to your voucher provider. Your Maternity Pay is calculated on your salary from week 17 to week 25 of your pregnancy, it could be sensible to cancel your childcare vouchers in these weeks.
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 contact the ask helpline (08457 585 072) for further advice.
Which providers of childcare will accept my childcare vouchers?
All providers of childcare registered with Ofsted (including nannies and other childcare providers on the Voluntary Childcare Register) 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.
I only need childcare during the school holidays; what do I do?
This depends on how yur employer operates the scheme. you may be able to take vouchers just in the holidays or you may need to take an aerage amount thoughout the year.
How do I get started with vouchers?
Ask your employer for details of their childcare voucher scheme. If your employer has not yet started a scheme you could ask them to do so. It 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:
HM Revenue & Customs:
Family Finance Estimates
The Family Information Service (FIS) at ask is able to give estimates over the phone of:
- the savings you would make by taking Salary Sacrifice;
- how Salary Sacrifice would affect your Tax Credits.
To do this we use a web based facility. Personal information (details of income, age etc.) is needed to give an estimate. Although we ask for callers’ names and contact details to record enquiries, no information that could identify an individual is entered on the website. Please contact the LoCall Helpline on 08457 585072 for more information.
