What is your biggest monthly expense? It might not be your utility bills or groceries, or even the cost of the home you live in. If you are a working parent, it could be your childcare costs. Unlike many other expenses, parents have very little control over how much they spend on childcare and the impact it makes on their monthly budget. Any help available to reduce the expense, such as the Childcare Voucher Scheme, is well worth considering.
This scheme was set up by the government in 1989 and works using parents making a “salary sacrifice”. Your employer deducts gross wages from your paypacket and gives them to you in the form of childcare vouchers. So, for example, rather than receiving £68 net pay after 20% tax and 12% National Insurance are deducted from £100 gross pay, £100 of vouchers are given to you instead.
There are several eligibility conditions for “childcare vouchers”. The main criteria is you must be an employee. Sole-traders and those in partnerships cannot apply: see next week’s blog on “tax free child care” instead. Company directors can either “salary sacrifice” in exchange for vouchers or the company can pay a childcare provider directly on your behalf. (This may create a P11D benefit.)
Additionally, the parent applying needs to have parental responsibility of the child. The children must be in Ofsted registered care that covers a considerable range of childcare, such as traditional nurseries and childminders, a number of school clubs and holiday companies and many nannies and au pairs will be required to be registered. To find out if your childcare is Ofsted registered, check the Ofsted website at https://www.gov.uk/government/organisations/ofsted
An age limit for the children also applies: vouchers may be used up to 1 September following the child’s 15th birthday, or 16th birthday if your child is registered disabled.
If you are applying for a scheme after 6 April 2011, there is a limit to the amount of vouchers each parent can claim as follows:-
- £55 a week (or £243 a month) for basic rate taxpayers.
- £28 a week (or £124 a month) for higher rate taxpayers.
- £22 a week (or £97 a month) for additional rate taxpayers.If both parents work and are basic rate taxpayers, they can each claim £243 a month that over a year equates to a household saving of £1,866 in tax and National Insurance.
Do bear in mind that claiming childcare vouchers can negatively impact the tax credits you are entitled to. To check, use the government’s calculator at https://www.gov.uk/childcare-vouchers-better-off-calculator, You will also be able to calculate the effects of your company paying a childcare provider instead of making a salary sacrifice.
If you are interested in childcare vouchers, time is of the essence. The scheme is closing to new applicants from this autumn due to the new “tax free child care” provisions recently introduced by the government. These provisions may be more beneficial to you than the childcare voucher scheme: be sure to check Southside Accountants Wimbledon next week’s blog to find out more.