Skip to main content

Childcare Vouchers

This employment guide explains how you can benefit your staff – and your business - by providing employees with childcare vouchers.

Introduction

Many forward-thinking employers set up a scheme to provide childcare vouchers for their employees. This can save employees who are parents or guardians of children thousands of pounds per year and shows that you fully support your staff who have to make childcare arrangements.

Advantages to the employee

Childcare vouchers can save many parents with children aged up to 15 over £1,000 a year on childcare. The key reason for the savings is that employees pay for childcare out of their income before deductions for tax and National Insurance.

It is called 'salary sacrifice'. Your employees swap part of their salary, free of tax and National Insurance, to contribute towards their childcare costs.

The following illustrations demonstrate the level of the savings your employees could enjoy via a childcare voucher scheme:

  • Basic-rate (20 per cent) taxpayer: £55/week voucher, max annual tax/NI saving £930.
  • Higher-rate (40 per cent) taxpayer: £28/week voucher, max annual tax/NI saving £630.
  • Top-rate (45 per cent) taxpayer: £25/week voucher, max annual tax/NI saving £590.

Advantages to your business

The beauty of a childcare voucher scheme is that, in reality, it does not cost you anything. In fact, it may save you money as you do not need to pay employers’ National Insurance on the portion of salary your employees use for vouchers.

Importantly, you will also be seen as a ‘family supportive’ employer. In today’s competitive market for recruiting – and retaining – the best staff, this can be a real advantage.

Managing the scheme

You must make sure that after making the salary sacrifice your employee is still earning more than the national minimum wage. You can therefore refuse any applications from employees that would bring their level of earnings below this.

You can offer childcare vouchers either by setting up a scheme yourself or by using an external supplier. Most businesses take the second option because, even with the costs of paying for this service, they still make money through National Insurance savings by avoiding any cost of administration.

Please note that from April 2018, no new entrants will be able to join the current childcare voucher scheme. It is being replaced with a similar scheme called Tax-Free Childcare.

Getting it right

If you want further information or advice on childcare voucher schemes under the existing rules or the new Tax-Free Childcare system, we would be happy to assist.

For further help and advice, speak to one of our advisors by calling 01455 444222 or complete our online enquiry click here and an advisor will contact you shortly.