Childcarer Vouchers
It is possible for employers to offer vouchers to pay for employees’ childcare in a way that can offer considerable savings to both employer and employee. Early versions of the scheme were too complex or restricted, but we feel that the current version (or one of the current versions) could be of some interest to a number of clients.
Mr. and Mrs. Jones, owner-Directors of the Jones Sweet Shop Ltd, set up a simple childcare voucher system, inviting all their employees to join. Mr. and Mrs. Jones can give themselves a pay rise if they want to, but by receiving £55 each for little Esme’s playschool, they save tax at their marginal rates, plus NIC (lower taxable earnings, lower tax). On £2680 each the company also saves 12.8% NIC on 2 x £2680. To cover the £55 per week for a year a 40% taxpayer would cost the directors and Company over £5,000 each. Bert in joinery has a one year old and Mrs. Bert is thinking of going back to work part-time. Bert checks the Revenue calculator and because his salary brings their tax credit down, it is beneficial for him to apply; he uses the company “salary sacrifice” letter to take a Pay cut in exchange for tax-free vouchers, which he will save up for a few weeks until Mrs. B starts work, meanwhile saving 21% x £55 plus NIC each week. The Directors consider that the administrative cost of putting vouchers in his pay packet is more than paid for by the company NIC savings
Basically, the employer gives a childcare voucher, redeemable at Registered or approved child-minders, instead of salary. The employer can pay up to £55 free of tax and NIC, which also saves them employer NIC.
This is likely to be of interest to company owner-managers, and to some employees. It is important to understand that Statutory Maternity Pay, statutory sick pay, second state pension, and Working Tax Credits are all affected by lower earnings or in the case of tax credits the withdrawal of the childcare allowance where it is “paid” by the employer.
There are a number of different implementation methods, but the one that is often more practical is that the employee receives vouchers which can be redeemed by providers of Registered Childcare or Approved childcare. Childcare, according to HMRC, needs to be provided by registered or approved persons, and can include:
- Nurseries
- Childminders
- Play schemes
- School “clubs”
- Childcare schemes for holidays or after school (and by implication, breakfast clubs)
- Childcare at the carer’s home (car by relatives only qualifies if it is not in the child’s home and ins part of a childcare business)
- Music teachers, martial arts, etc (if approval has been obtained)
The scheme has to be available to all employees, and it is worth noting that a child can be aged up to 15, and broadly includes children for who are resident with the employee and maintained to some extent, with parental responsibility. The Revenue website provides some calculators to see if childcare is likely to be beneficial, and of course you do need a minder who willaccept the vouchers which have to be redeemed on presentation.
