Do you pay for Childcare? Do you earn too much to qualify for tax credits? If so you could save tax by using a government scheme for Mums & Dads called childcare vouchers.
How it works
Rather than paying for your childcare out of your net pay, you pay for your childcare before your earnings are taxed. A 20% tax payer can buy a voucher for a maximum of £55 per week or £2,860 per year. This means that you reduce your salary by £2,860 which would pay tax on and in return receive £2,860 in childcare vouchers which are tax free.
How much would you save?
A 20% tax payer taking the full £55 per week voucher would save £933 per year!
If you are a 40% tax payer you are only allowed £28 per week of vouchers but you would save £623.
The Childcare vouchers is per parent, so if both parents are 20% tax payers the tax saving is doubled to £1,866 per year!
If you are claiming tax credits then 99% of the time the Childcare Vouchers costs you money, because the Childcare paid by the voucher does not count towards the amount of childcare that can be funded by tax credits.
If you don’t qualify for tax credits, you should still qualify for Childcare Vouchers
How does this affect your employer?
Your employer saves money as well. Employers pay employers national insurance on your salary, they don’t have to pay Employers NI on Childcare vouchers. So for a 20% employee is taking £55 per week the saving for the employer is £402 per year and if it’s a 40% employee taking £28 per week the saving is £205 per year.
Childcare Vouchers will be replaced by a new scheme called Tax-Free Childcare, this scheme will be open to self-employed parents and the maximum possible saving is £2,000 per year. Contact us to register to receive more information about this when it is launched.
Try HMRC’s calculator to see if you would be better off with Childcare Vouchers