Tax free childcare vs childcare vouchers

Cazza

toph wrote: »

its a confusing tricky calculation

http://www.computersharevoucherservices.com/parents/pages/how-much-can-i-save.aspx

you'll get £28 per week in childcare vouchers = ~£112 per 4 week month or £1456 per year (52 weeks). the childcare voucher sites all claim you can save a max of £623. I really don't understand how they reach that value (i guess calculated as to how much tax you would have paid at 40% but that doesn't = £623 i make it £582.4)

I think the difference may be due to NI. You don't pay tax or NI on Childcare Vouchers, but only save tax on the Tax Free Childcare scheme. Not completely certain and happy to be corrected....

rpc

The difference is NI. It should be 42%, not 40%.

It's a bit of a mis-advertising of the tax relief really, because of the 20% vs 40% tax they cut the voucher entitlement in half. But because of NI, the comparison should really be 32% vs 42%.

With £4800 per year, you save 20% (£960) with tax free childcare. with £600-ish saving from vouchers it is an easy choice.

toph

42% of £1456 is £611.52

623/1456 x 100 = 42.79%

its odd that HMRC would choose a percentage with decimals.

rpc

toph wrote: »

42% of £1456 is £611.52

623/1456 x 100 = 42.79%

its odd that HMRC would choose a percentage with decimals.

There are not exactly 52 weeks in a year, which probably accounts for the small percentage error.

£124 is allowed per month for a higher rate taxpayer, £1488 per year. 0.42*£1488=£624.96

toph

Page 8 has a table summarising the amounts for different earnings

https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/368483/employer-qa.pdf

Max £124 per month or £1484 per year. £1484*0.42= £623.28.

Mystery solved