If you pay for your children to be in care while you are at work, you may be able to use special childcare vouchers, which can save £1,000s in tax each year. The vouchers are in place as part of a scheme in which the government uses employers to pay for childcare before tax is taken out of your salary. This can mean the amount that is taxed is less, saving money in tax. The scheme comes from HM Revenue & Customs.
Who Can Use Them?
Childcare vouchers can be used by parents with children up to the age of 15. Though it is only available through your employer, many large and small companies are a part of the scheme. Some employers give you the vouchers on top of your normal salary, but most do not. Instead, you will have to use a “salary sacrifice”. For every £`1,000 of salary you give up, you get £1,000 worth of vouchers. The money is only worth about £700 after tax and National Insurance, but the vouchers are used before tax, so you save £300 per thousand.
This depends on if you are eligible, and exact calculations may vary slightly, but it can save a large amount. You will also have to make sure you can get your full salary back after you no longer need the vouchers, though this is unlikely to be much of an issue.
Childcare that Accepts Vouchers
Monthly, you can pay for £243 worth of childcare, per parent, with the vouchers, if you are on the basic rate of tax, or are on a higher rate and joined before April 5, 2011. After that date, new higher rate taxpayers who joined the scheme saw a drop in allowance to ensure that all tax brackets have similar gains in terms of tax.
Basic taxpayers get £55 per week, with a maximum per year per parent of £933. Those in the middle, at a 40% rate, get £28 per week, or a gain of £610. Finally, those on the 50p tax rate get £22 per week, with a maximum gain of £590. The rates are unaffected by how many children you have. The vouchers are not specific to each child and expiry dates are fairly long. You must have a child to be able to sign up and you may be able to backdate the vouchers by up to six months, depending on your employer. If both parents work and gain the vouchers, then over a thousand can be saved, at around £1,866.
Childcare facilities where you can use your vouchers must be regulated and registered. This is easy to find out, by asking them, discussing it with Family Information Services, or checking online. However, as long as these requirements are met, any type of registered care will accept the vouchers.