Childcare Vouchers and pay, benefits and tax credits

Salary Sacrifice may affect the amount of work related payments and benefits such as sickness pay, maternity pay and pension entitlements. It may also affect your entitlement to benefits such as pension contributions and Statutory Maternity Pay and tax credits.

With tax credits (a government payment):

  • You could receive a higher amount of Working Tax Credit as your earnings will reduce
  • You could receive a lower amount of the childcare element of Working Tax Credit as childcare vouchers can’t be counted as childcare costs for this calculation

If you receive tax credits, always check your level of support before signing up to a childcare voucher salary sacrifice scheme.

  • Phone the Tax Credit helpline on 0845 300 3900
  • Use the Childcare vouchers and tax credits – better off calculator on the HM Revenue & Customs website:

to see if you will be better or worse off using childcare vouchers.

For more information about childcare vouchers contact the Family Information Service

  • Phone – 01706 719900 8.30am-5pm Mon-Fri
  • E-mail –

All about Childcare

Vouchers

foremployees

What are childcare vouchers?

They are a government scheme which can save parents with children aged up to 15 (16 if the child is disabled), up to £1,000 per year on childcare (depending on gross salary). The scheme is offered via employers and many large and small businesses take part.

Childcare vouchers allow you to pay for childcare out of your pre-tax and national insurance income which can add up to big savings over a year.

See table below for how much you may save on your childcare

costs:

Tax band / Max per week / Saving
Basic (20%) Taxpayer / £55/week voucher / Max annual gain £933
Higher (40%) Taxpayer / £28/week voucher / Max annual gain £623
Top (50%) Taxpayer / £22/week voucher / Max annual gain £606

When can I use childcare vouchers?

You can use them to pay for registered childcare such as:

  • Nurseries and pre-school playgroups
  • Childminders
  • Nannies and au pairs
  • Out of school and holiday schemes

or a combination of registered childcaresuch as a childminder plus an out-of-school scheme. You can’t use them to pay relatives who look after your child at home.

You can save up vouchers and use them at certain times of the year, such as the school summer holidays. Vouchers aren’t specific to each child and have a long expiry date.

How does the scheme work?

Most employer offering childcare vouchers have a salary sacrifice system – you give up some of your salary in exchange for the same value in vouchers. The tax and national insurance relief means that a basic rate taxpayer will receive £130 worth of vouchers for every £100 lost from their wage packet.

Contact your employer for details of your childcare voucher scheme. You will need to sign an updated contract or an agreement clearly stating the salary reduction you have agreed to, the length of time of the agreement and the childcare voucher amount. Your employer will set aside part of your salary each month and instruct the scheme administrator to give you access to the equivalent in childcare vouchers.

Many schemes use e-vouchers which you access via the internet or telephone or set up a standing order for repeat payments. Paper vouchers are sent to your home address and you use them like cash.

Who can apply?

You are eligible for vouchers if:

  • Your child has not reached the 1st September following their 15th birthday (16 if they are disabled)
  • You have parental responsibility
  • You are using registered childcare
  • You have an employer (most self-employed parents cannot apply)
  • Your salary sacrifice amount does not bring you below the minimum wage.