How do childcare vouchers work?

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childcare vouchers

childcare vouchersWith nursery costs rocketing, childcare vouchers could save your family around £1,800 per year. So if you’re wondering – ‘how do childcare vouchers work?’ –  find out what they are and how to use them.


What are childcare vouchers?

These are offered by some employers to help working parents meet the cost of childcare.  They work through ‘salary sacrifice,’ which means you can claim a certain amount of your salary in vouchers, on which you pay no tax or insurance.

 

How much can I save?

You can claim childcare vouchers up to the value of £55 per week, or £243 per month, so if you use the full amount you could save around £900 in tax and national insurance payments per year.  And if both parents sign up, that’s a significant saving of £1800. However, there are now some restrictions on higher rate taxpayers.  Higher rate earners who joined the scheme on or after 6 April 2011 can buy £28 per week, while additional rate earners can buy £22.

 

Can everyone save money?

However, vouchers don’t make sense for everyone.  When it comes to Working Tax Credits you can only claim for the childcare element for costs you pay for yourself, not with vouchers, so it could affect the amount you receive.  Also, if your salary is reduced through  vouchers it could affect other entitlements, so use the HMRC childcare vouchers calculator to find how if you’d be better off using them or not.

 

What next?

The first step is to find out if your employer runs a voucher scheme, so ask your HR team.  They may run their own scheme or offer them through a  provider.  If they don’t offer one, why not ask them to look into it?  It doesn’t cost anything and since they don’t pay national insurance on vouchers it could save them money too.

Unfortunately, you do need to be employed to sign up – if you’re freelance or self-employed, you’re not eligible.

 

When and where can I use childcare vouchers?

Still asking ‘how do childcare vouchers work?’ They can be used to pay for any registered or approved childcare, including nurseries, playgroups, childminders, after school and breakfast clubs, nannies and au pairs.  You can use them for as many different providers as you like for children up to the age of 15, or 16 if they are registered as disabled.

You’ll need to check that your provider will accept them, and whether they’d prefer paper or electronic vouchers.  They will then need to arrange payment details with your employer or voucher provider, normally through a simple online sign up process.  Bear in mind vouchers may not cover the whole cost of your childcare, so you’ll also need to agree on how you’ll pay the difference.

 

What is registered childcare?

In order to qualify, the childcare provider you use must be registered or approved, so you can’t use vouchers to pay family or friends.  You can use registered childminders, nurseries and plays schemes, out of hours clubs run by a school or local authority or childcare in your own home which has been approved under a Government scheme.  You’ll find a full list at hmrc.gov.uk .