Childcare vouchers

obeywan_kenobe

From 1st April 2005 the inland revenue has introduced new rules designed to provide a strong incentive to employers to encourage them to provide or assist their employees with the cost of childcare.

As an employee you can save Income Tax and NI on up to £50per week (or £217per month). Your employer also save as NI is not liable on these amounts.

A key facet of these rules is that the employer doesnt have to pay the employee an additional amount to qualify. It can me done through salary sacrifice.

Example

Andrew and Suzanne both work and send their son Ben to Nursery. Bens fees are £1000 per month. Andrew is a higher rate tax payer while suzanne pays at standard rate; both work for family friendly companies. Both of them agree with their employer to sacrifice £217 of their salary each month. This means that their income is reduced and they are not liable to income tax on that amount saving £160.58pcm
Andrew and Suzanne now reduce their monthly standing order from £1000 to £566 and their employer can either make an arrangement with a company providing childcare vouchers or they can contract directly with the nursery to pay the balance of £434.

To qualify to the scheme the employer must offer this to any of its employees and the nursery must be ofsted approved.

irs101

A couple of further points on this.

If you already benefit from the childcare element of WTC you can't claim both the voucher and the tax credit for the same childcare cost - although if, say, your childcare costs were £150 per week and you've got a £50 voucher, you can claim the remaining £100 through tax credits.

Secondly, if you receive more than the Family Element of CTC (you get more than £10 per week), you are unlikely to benefit from the voucher system compared to claiming the childcare element of WTC.

irs

Spendless

irs101 wrote:

A couple of further points on this.

If you already benefit from the childcare element of WTC you can't claim both the voucher and the tax credit for the same childcare cost - although if, say, your childcare costs were £150 per week and you've got a £50 voucher, you can claim the remaining £100 through tax credits.

Secondly, if you receive more than the Family Element of CTC (you get more than £10 per week), you are unlikely to benefit from the voucher system compared to claiming the childcare element of WTC.

irs

Hi irs, I was hoping you'd do a post on this subject. Husbands employer offers these vouchers and since we only get the family element of CTC I think we'd benefit from them.

I've had a quick look at the disadvantages and don't think they apply to us (e.g mortgage on a salary sacrifice amount, bonus scheme etc).

Edit - meant to ask I haven't seen anything that says you both have to work unlike tax credits where you both have to work at least 16 hours to qualify for childcare help.
I'm hoping this is correct as we could use the vouchers to subsidise childcare whilst I studied prior to looking for a job-Is this right? do you know?

irs101

meant to ask I haven't seen anything that says you both have to work unlike tax credits where you both have to work at least 16 hours to qualify for childcare help.

That's right. The benefits are received through Income Tax, so it's all done on an individual basis.

You raise another important issue - possible non-tax disadvantages of the voucher scheme. If you sacrifice salary to get the voucher it may reduce the size of mortgage you can get, reduce future pay rises (if they are worked out as a % of cash salary), reduce your pension contributions etc.

But against tax credits there is the fact that you both have to work and the complicated rules around calculating your childcare costs (especially if you change the amount of childcare you get during school holidays etc).

irs

obeywan_kenobe

I must admit I have approached my company regarding this matter and I had a luke warm reception. Most private companies will thinks this is more red tape. My wife however works for the council and are seriously looking at this.

irs101

Good timing from the BBC who outline the issues here

irs

Spendless

irs101 wrote:

Good timing from the BBC who outline the issues here

irs

Thanks irs, but it missed out the point that you might be better off if it enables a current SAHM (like myself) to go out to work, especially if you use it in conjunction with the non means tested funding at 3.

The one thing that might affect us is hubbys pension, if it did then we have to work out whether we're better off having 2 incomes now or only one but a bit better pension at the end of it.

irs101

but it missed out the point that....

Of course, you are right, but we already know that between us we know much more about these things than journalists (and even 'expert' accountants)

leftieM

My employer, a university, has the voucher scheme up and running and as both my husband and I work there we saved £140 this month. It is possible to keep a 'nominal' salary so pay rises, employer pension contributions and salary for mortgage payments are unaffected. I'm going on maternity leave soon and my salary for this is also based on the nominal salary. We apply for the vouchers on a monthly basis.
So it can be done!
I've heard some employers are dragging their heels and I just don't understand this - there are companies who administer the scheme for an employer in return for a fee which is less than the NI savings made by the employer so it costs them nothing.

Spendless

Thought I'd resurrect this as hubby has asked his HR dept today about them.

HR have told him it won't affect his pension contributions as they take his salary and deduct pension from that 1st. None of the other possible disadvantages apply to us, and since we are already paying for daughter to attend nursery one afternoon it makes sense to fund it this way.