Childcare is expensive, but there are ways of reducing that cost. If you or your partner are working, you can get help from your employer with childcare vouchers. Please note, the childcare voucher system is changing in 2017 (exact date to be confirmed) and unless you have registered to use childcare vouchers, you will no longer have access to them. So, if you are interested in taking advantage of then, register now.
You can use childcare vouchers for payment toward nurseries, registered childminders and if you have older kids, then you can even use them to pay for after school and breakfast clubs.
Few people seem to know about the childcare voucher scheme and are potentially missing out on up to £243 each month towards their childcare costs.
It is basically a salary sacrifice scheme, so either you and/or your partner will give up some earnings in exchange for childcare vouchers. However, you make savings on tax and national insurance in return –basic tax rate payers can save up to £77 a month.
Your employer will also make savings of up to 13.8% on national insurance – so everyone is a winner.
|You||Maximum voucher allowance per month||Maximum annual saving|
|Basic rate tax payer (20%)||£243||£933|
|Higher rate tax payer (40%)||£124||£624|
|Additional rate tax payer (50%)||£110||£620|
Note: As announced in the Budget 2016, childcare vouchers will be phased out by 2018 and closed to new entrants. It will be replaced by the tax-free childcare scheme in early 2017.
You should join your employer’s childcare voucher scheme now so that you can keep your options open in 2018.
Where can you use them?
Childcare vouchers are not just for nurseries, here’s a list of where you can use them:
- Breakfast & after school clubs
- Education centres
- Pre-school playgroups
The vouchers must be used with childcare providers that are registered with Ofsted in England, CSIW in Wales, Care Inspectorate in Scotland or the HSC Trust in Northern Ireland.
You should check with the childcare provider whether they accept childcare vouchers.
Note: Getting childcare vouchers can have an impact on your entitlement to tax credits. See what works out better for you using the HMRC calculator.
The scheme costs your employer nothing to set up, and although most employers will provide this scheme, if they don’t, ask them to.
Under government rules, the scheme must be made available to all employees, as long as their pay does not drop below the national minimum average after salary sacrifice.
The scheme is only available to parents, step-parents or the legal guardian/s of the child.
Childcare voucher providers
Below is a list of some major child care providers – if your employer doesn’t have such a scheme in place, you could approach a provider direct, or your employer, to set one up:
|Busy Bee Benefits|
|Co-op Employee Benefits|
|Early Years Vouchers|
|Employers for Childcare|
|Vouchers 4 Kids|
Note: Childcare vouchers can have an impact on tax credits. You should use what works out better for you financially. Use this Gov.uk calculator to see which one you would be better off with.
Small business owners
Small business owners can also take advantage of the childcare voucher scheme. As long as it is limited company, childcare vouchers can be provided to the company directors as Addition to Salary benefit, which is also free from tax and national insurance.
Unfortunately, childcare vouchers are currently only available to parents who are employed. There is a call on the government to make more help available to self employed parents.
However, a new tax free childcare system due to come into force next year (2017) will allow parents to claim 20% back on childcare costs of up to £2,000 and will be available to self-employed.