London allowance and childcare vouchers

cashorcheque

Hi there,

I have a new job starting in September and the salary on my contract is £41639, plus a London Weighting Allowance of £2323.

If the LWA counts as part of my basic salary then that tips me into the higher tax bracket, doesn't it? But if it doesn't, then I'm in the lower tax bracket. I ask because I have a young daughter (aged one) and she will be in nursery four days a week, and it makes quite a big difference to the saving I can make through childcare vouchers.

Does anybody know if LWA figures in your basic salary, or if it counts as a sort of bonus?

princessdon

Weightings are taxable and subject to NI

KiddiVouchers

Hi there,

Your London Weighting Allowance would be included in your earnings assessment for a childcare voucher order, therefore your relevant earnings would be £41,639 + £2,323 = £43,962, which you’re right, would tip you into the higher-tax bracket for childcare vouchers (an employee’s relevant earnings should be less than £42,475 to be treated as a basic-rate taxpayer for childcare vouchers.) However, you will be pleased to hear that the earnings assessment is based on post-sacrifice earnings. This means that your employer can deduct the amount you would receive in childcare vouchers throughout the year when calculating your relevant earnings. The maximum tax-free voucher entitlement is £243 a month, which equates to a yearly amount of £2,916. When calculating your relevant earnings, your employer can deduct this £2,916, which would bring you back down into the basic-rate taxpayer bracket for childcare vouchers, meaning that you could receive the full £243 a month. Please do bear in mind, however, that there are other factors which might have an impact on your entitlement, such as if you receive any commission. If you are looking into joining a childcare voucher scheme, it might be worth asking your employer to conduct a full earnings assessment for you to confirm your entitlement before you join the scheme.

I hope that helps,

KiddiVouchers