Would you like to save over £2,000 a year on the cost of childcare?
Of course you would! Well, if your child is cared for by a nursery, a childminder or even a nanny, then you could save a fortune with childcare vouchers. You can also use childcare vouchers to save money on holiday clubs, play schemes and sometimes even babysitters.
The benefits of using childcare vouchers are a well-kept secret so, before we go any further, let's take a look at what's on offer. If you're a basic-rate taxpayer, using childcare vouchers could save you £962 a year, while higher-rate taxpayers can save up to £1,196. Vouchers can be used by both parents, so families can save over £2,000 each year.
There's no means-testing for childcare vouchers and you don't have to fill in any forms to claim your saving. However, you can only use childcare vouchers if your employer is willing to sign up to the scheme.
Now, before you start thinking that your employer won't want to sign up, there's something else you need to know: childcare vouchers save money for employers. For every employee who joins a childcare voucher scheme, employers save up to £373 a year. On top of the financial incentive, setting up a childcare voucher scheme can help employers to attract and retain staff.
As more and more companies hear about the benefits of childcare vouchers, new schemes are popping up all over the place. If you're not sure whether your employer offers vouchers, why not have a word with your personnel department?
If your employer hasn't yet got a scheme sorted out, there's nothing to stop you pointing them in the right direction.
Alternatively, you can register your interest at www.kiddivouchers.com and the KiddiVouchers team will help your employer to get the ball rolling. Meanwhile, read on for our no-nonsense guide to childcare vouchers.
What are childcare vouchers?
Childcare vouchers are simply vouchers which you can use to pay for childcare. Childcare vouchers can be used like traditional gift vouchers, but increasingly people pay their childcare providers online with e-vouchers.
How can childcare vouchers save me money?
Your employer can provide you with up to £55 a week or £243 a month in childcare vouchers. The vouchers are usually provided through a "salary sacrifice" arrangement, which just means that your employer gives you vouchers instead of part of your salary. In other words, for every £1 that you receive in childcare vouchers, your receive £1 less of your gross salary.
Unlike your salary, you don't have to pay any tax or national insurance on childcare vouchers. If you take the maximum allowance of childcare vouchers, then each month you'll get £243 of tax-free vouchers instead of £243 of taxable pay. Over a year, the saving in tax and NI is worth around £1,000.
You don't have to do anything to claim your saving – you'll just find that the tax and national insurance amounts shown on your payslip are lower than they used to be, leaving you with more money to take home.
How do childcare voucher schemes work?
Although employers can run their own voucher schemes, many prefer to leave the day-to-day administration to a specialist company. In either case, when you sign up to the scheme you're usually asked to choose how much of your salary you want to swap for vouchers. Some employers allow you to change this amount monthly, but others ask you to keep it fixed for a year.
Once you've chosen how many childcare vouchers you want, your employer will usually buy the vouchers for you and reduce your gross salary by the same amount.
You'll normally receive the vouchers on or around your usual payday, and you can then use them to pay your childcare provider. If you're using e-vouchers, the vouchers will be added to your online account and you can make payments from there straight into your carer's bank account. For convenience, you might prefer to set up automatic regular payments, so that each month some or all of your vouchers are passed straight on to your childcare provider without you having to do anything.
What do I need to know about salary sacrifice?
"Salary sacrifice" is just a name for the process of swapping part of your salary for vouchers. When you sign up for childcare vouchers, you'll enter into a "salary sacrifice agreement" with your employer, which means that you'll agree to receive a reduced salary in exchange for getting childcare vouchers. The salary sacrifice agreement usually lasts for a fixed period, such as a month or a year. If you don't renew the agreement at its expiry date, then your salary will just go back to the higher level.
When you agree to salary sacrifice, your gross salary is temporarily reduced, so any benefits which are based on your salary can be affected. In theory, your overtime pay, bonuses and company pension contributions could all be based on your lower salary. However, most employers will keep a record of your unreduced salary and base your benefits on this instead, to make sure you don't lose out.
Statutory benefits, like maternity pay, are automatically based on your reduced salary. If you're expecting to receive any statutory benefits, you should think carefully before joining a salary sacrifice scheme. However, child tax credit is also based on your reduced salary, which means that using childcare vouchers could entitle you to a higher tax credit.
Your employer, or the company which runs your employer's childcare voucher scheme, should be able to give you more information about how salary sacrifice could affect you. Your local tax office can also give advice, which should be tailored to your individual circumstances. It's always sensible to look into the implications of salary sacrifice, but in most cases the savings from childcare vouchers far outweigh any reduction in benefits.
Are there any restrictions on using childcare vouchers?
You can use childcare vouchers up to the 1st September following your child's 15th birthday (or 16th birthday if they're disabled). To qualify for childcare vouchers, you must either be the child's parent, or live with the child and have parental responsibility for them.
Vouchers can be used for many kinds of childcare. The key eligibility criterion is that your childcare provider must be registered with Ofsted (or the equivalent authority in Scotland, Wales or Northern Ireland), or approved under the voluntary Childcare Approval Scheme.
Some state sector teachers are currently ineligible for childcare vouchers. This is because a national pay agreement prevents local authorities from varying teachers' pay, so they can't enter into a salary sacrifice arrangement. The Department for Education and Skills has carried out a consultation exercise to assess whether salary sacrifice schemes should be available to teachers, but the outcome has not yet been published. Teachers can sign a petition and find out more information at www.kiddivouchers.com.
Will my childcare provider accept childcare vouchers?
Most carers support childcare vouchers, but it's sensible to check with your childcare provider before joining your employer's scheme.
Vouchers make childcare affordable for more parents, which has got to be a good thing for childcare providers. Vouchers can also help parents to pay carers on time and, with e-vouchers, childcare providers benefit from having fast, secure payments straight into their own bank account.
If your childcare provider wants to know more about childcare vouchers, you can download a childcare provider information pack.
How can I get started with childcare vouchers?
For more information about childcare vouchers, visit www.kiddivouchers.com. You can register your interest here, and the KiddiVouchers team will do the rest. You could be just a few steps away from saving £2,000 a year on childcare. Don't forget to tell us what you decide to spend it on!
© May 2006, CRF Enterprises Ltd, trading as KiddiVouchers
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