From April 2005 the childcare
vouchers benefit became much more
attractive to working parents with the implementation of a tax exemption.
vouchers were only exempt from National Insurance Contributions.
Now they are exempt from both Tax and National Insurance Contributions
offering substantial benefits to working parents.
The aim of the exemptions is to encourage employers
to help their staff with the cost of their childcare. Three types
of employer support for childcare now attract exemptions from
income tax and National Insurance Contributions (NICs):
Childcare fees in the UK are very high – the most expensive in Europe –
so any assistance which reduces fees is most welcome. Offering savings from £700 -
£1195 per annum childcare vouchers can become an integral part of an employer’s
benefits package and offers a new opportunity to improve staff retention and recruitment.
A childcare voucher scheme is very easy to implement and
requires little ongoing administration from the employer.
In fact, employers also save money when they implement a childcare voucher scheme.
The Government allow a working parent to salary
sacrifice up to a maximum of £55 per week (£243 per month) in return for which
they receive the childcare voucher benefit. Childcare vouchers can only be used
to pay for registered childcare. Both parents can participate in a childcare
voucher scheme and childcare vouchers can be used to pay
for their childcare up to a child’s 15th birthday.
A lot of parents believe that childcare vouchers
can only be used to pay for childcare in nurseries but this is not the
case. Childcare vouchers can be used to pay for out of school clubs and holiday playschemes.
The tax point for childcare vouchers is the date
at which they are issued not spent, so parents can also ‘save’ their childcare
vouchers to spend when needed. Childcare vouchers can also be used
flexibly so that they can be used to pay for childcare
when the fees become due e.g. weekly, monthly or termly.
To participate in a childcare voucher scheme a
parent must be in paid employment and their salary must not fall below the
National Minimum Wage after their salary sacrifice.
Unfortunately, the self employed are not eligible.
Parents who are on a low income do not usually
benefit from a childcare voucher scheme and should consider applying for the
childcare element of the working tax credit instead.