Childcare and childcare vouchers

How will you provide childcare?

It’s worth researching childcare in your local area as soon as possible, as many providers may have waiting lists – particularly the popular ones.

Don’t forget to consider all of your options as it might be possible for you to not have to pay for childcare. You may be able to manage with help from friends and family members. If they live close, grandparents can be a great source of childcare and it can be a great time for them to bond with their new grandchild. However, you should be aware that if you use relatives to care for your children, you may not be able to claim tax credits for childcare.

You can also get extra help from the Government in the form of the Childcare element of Working Tax Credits.

To find a registered childcare provider in your area, contact your local authority or Families Information Service (FIS). Further information is available on Direct Gov website.

How can your employer help?

Your employer may have facilities, such as a workplace nursery or contract childcare schemes that could help you with the cost of your childcare. They may also offer additional cash payments to you to contribute towards your childcare costs or pay towards the costs directly on your behalf. The thing to remember with these options is that the amount they contribute is still liable to tax and National Insurance (NI) and you will still be liable for this. There is, however, an option now available which means that your employer can save you from being liable for tax and NI for the amounts of this assistance. This option comes in the form of Childcare Vouchers.

Childcare Vouchers

Your employer may be able to provide you with Childcare Vouchers, which you can use to pay for registered childcare (such as nurseries and day care). These could save you money in the long run and are well worth looking in to. Speak to your employer to find out whether they provide Childcare Vouchers.

How much could you receive?

In the case of Vouchers (and directly contracted childcare) there is an allowance of £55 per week or £243 per month. Up to these amounts you will not have to pay tax or NI. This applies to each individual parent if you both have access to a scheme. You can receive more vouchers than this amount but you will have to revert to paying the tax and NI contributions for any value over this limit. So there is no limit on the amount you can actually use. You can also store them up as for example childcare requirements will often end up being higher in the school holidays.

How would you receive Childcare Vouchers?

There are a couple of ways your employer could provide you with the Childcare Vouchers namely in addition to your salary; or as part of a salary sacrifice scheme.

In the first case, this will not normally change your tax situation as the additional amount (within the above limits) is not taxed anyway. However, a salary sacrifice scheme is different as this reduces your overall income and therefore reduces the amount of tax and NI that you pay. If you’re claiming state benefits to boost your income they will be revised downwards to account for this.

It’s worth taking advice from your employer and discussing it with HMRC or your benefits office when you’re making any decisions. Different bodies regulate Government registered childminders, nurseries and day care facilities in different UK countries, they are:

• Ofsted in England
• The Care and Social Services Inspectorate for Wales
• The Scottish Commission for the Regulation of Care
• A Health and Social Services Board or Trust in Northern Ireland

Childcare Voucher Checklist

• Check whether your employer’s childcare vouchers are a benefit that is paid on top of your normal pay or whether you are expected to give up salary.
• Check whether your employer’s childcare vouchers are a benefit that is paid on top of your normal pay or whether you are expected to give up salary.
• Work out how your tax credits will be affected.
• If your cash pay is affected, check to see how your other earnings-related payments will be affected (e.g. pension, overtime rates, pay rises etc.).
• If your cash pay is reduced, will your benefits-related payments be affected? (State Pension etc.)
• If your cash pay is reduced, will your student loan repayments be affected?