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Childcare vouchers


Childcare vouchers

From April 2005 the childcare vouchers benefit became much more attractive to working parents with the implementation of a tax exemption. Previously childcare 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 vouchers 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.


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