How does it work?
Childcare vouchers are provided under a salary-exchange arrangement – you swap a set amount of your salary in return for them.
The amount of salary you can swap depends on the amount you earn and the tax band you fall in. The salary you swap is free from tax and national insurance (NI).
Typical tax and NI savings per annum are:
|Basic Rate Tax Payer (20% PAYE & 12% NI)||Higher Rate Tax Payer (40% PAYE & 2% NI)||Additional Rate Tax Payer (45% PAYE & 2% NI)|
|Max monthly vouchers||£243||£124||£110|
|Annual tax & NI saving||£933||£625||£620|
Any registered or approved childcare that you pay for children aged up to 15 or 16 will qualify. For children under five, this will usually be for paid nursery childcare.
Activities such as after-school clubs and school holiday clubs can also be paid for with childcare vouchers, and the cost of registered childminders and nannies (depending on their status) are also covered.
The vouchers do not apply to school fees, though.
As your salary has been reduced in lieu of childcare vouchers, there are some possible implications to be aware of:
- Paying less NI can affect your state pension record and your entitlement to certain benefits.
- When possible, your employer will use your notional salary (in other words, your salary plus childcare vouchers) for calculating other employee benefits, such as life assurance and your pension.
- There is a small, but correctable, effect on statutory maternity pay.
- When applying for mortgages or loans, a lender might work on the basis of your reduced salary.
- If you claim working-tax credits you could be worse off by swapping your salary for childcare vouchers.
How do I join?
You need to identify the amount of paid childcare that you will have in the year ahead and then swap the equivalent amount of salary.
Talk to your HR department and ask if your company already has a childcare-voucher scheme, or is willing to start one. It can register an interest through this website.
Once your employer has registered with us, you should receive an email explaining that your employer is joining the scheme, including a link to a registration form. On receipt of your completed form, we will make some initial checks to see if it is likely that you and your childcare provider meet the rules for the tax-free vouchers.
If you decide to proceed, your employer will amend your contract of employment, which will avoid any future issues with HM Revenue & Customs.
You cannot claim childcare-tax credits assistance for childcare costs met by your employer or with childcare vouchers.
To find out more, visit www.hmrc.gov.uk/childcare, click on “tax credits”, and then on “tax credits leaflets” or “tax credits questions”.
You can also visit HMRC’s calculator at www.hmrc.gov.uk/calcs/ccin.htm to assess your own situation.
How will the process work?
A payment request is issued to your employer at the beginning of each month detailing the amount of salary that you wish to swap.
Upon receipt of your employer's payment, you will receive an email notification of your childcare vouchers. Please note that we cannot issue your vouchers until we have received the relevant payment from your employer. You can log on to our website at any time to view vouchers received, payments made and the balance of your account.
When you want to pay your childcare provider, login to your online account, select the provider you want to pay and enter the amount. The payment should go to the provider on the next working day, and the provider will receive an email notification from us.
For more information about our services or to arrange a meeting with one of our consultants, simply complete our enquiry form, send us an email or call our Cambridge office on 01223 720209 or our Norwich office on 01603 692733.