What are Childcare Vouchers?
From 6 April 2005, a new tax incentive was introduced to allow employers to help staff with their childcare costs. This new incentive allows employers to pay up to £50 a week towards approved childcare (includes OFSTED registered childminders) for each parent with a child aged up to 15 (16 with special needs). This can be paid either directly to the childcare provider or in the form of childcare vouchers (used by parents to pay their childcare provider). The value of this benefit is exempt from both tax and National Insurance Contributions.
How does the employee benefit from taking childcare vouchers?
Childcare vouchers can be offered in three different ways by an employer:
- as a benefit in kind on top of the employee’s existing salary;
- as part of a flexible benefits scheme;
- as part of a salary sacrifice scheme (i.e. they give up part of their salary in exchange for vouchers).
In all three cases, employees do not have to pay tax and National Insurance on the childcare vouchers (up to £50 a week or £217 a calendar month), effectively saving the employee money on childcare costs. A lower level taxpayer could effectively save over £800 a year on childcare costs, whereas a 40% taxpayer could save over £1,000 a year. Each employed parent can claim the exemptions, so a two-parent family could save over £1,600 (lower tax bracket) or £2,000 (higher tax bracket).
How does the employer benefit from operating a childcare voucher scheme?
Businesses benefit from operating a childcare voucher scheme by making savings on the National Insurance Contributions they must pay for their employees of up to 12.8% on the first £50 of benefit (voucher) paid each week, as well as saving tax on any additional costs incurred in administering the scheme (i.e., those they must pay the Childcare Voucher Organisation for their services).
How would I, as a childcare provider, benefit from taking childcare vouchers?
Accepting these vouchers will help you to ensure that you are paid for your service on time and without problems, as the payments will be regular, reliable, in most cases made directly into your bank account and the vouchers cannot be spent on anything except childcare. As a marketing tool, it would be good for your childcare business to be able to accept all types of childcare vouchers, giving your parents added payment flexibility and another reason to choose you over providers who may not be willing to accept the vouchers. And the best news is that taking payment by voucher will cost you nothing at all!
What do I need to do to accept the vouchers?
Firstly, you will need to register with the childcare voucher organisations (a list of the main ones is provided below). Simply give them a call and they will send out the relevant paperwork. It is best to register before you have parents wanting to pay by a certain voucher, then you will be able to accept the payment by voucher immediately. Once you are registered with the voucher provider, the parent will pay you in vouchers (or a mixture of vouchers and their usual method of payment, depending on how many vouchers they receive from their employer). You then surrender the vouchers (either by post or some operate a scheme whereby you call them quoting a unique reference number and payment is authorised immediately) to the voucher organisation in return for payment usually directly into your account by bank transfer. There is no cost to yourself as a childcare provider for accepting the vouchers.
Childcare Voucher Organisations
As part of a Local Authority we are unable to recommend a particular Childcare Voucher Organisation, but registering with them all will give you greatest flexibility for your parents. Here is a list of the main organisations currently providing this service:
Further Sources of Information and Support
Bradford Early Years and Childcare Service
Our Business Support Officer would be happy to answer any queries you may have regarding the issue of childcare vouchers, contact details below.
Daycare Trust
Daycare Trust is the national childcare charity, working since 1980 to promote high quality affordable childcare for all. They provide information for parents, childcare providers, employers, trade unions, local authorities and policy makers.
Helpline: 020 7840 3350
E-mail: info@daycaretrust.org.uk
Website: www.daycaretrust.org.uk
HM Revenue & Customs
For advice on tax & National Insurance implications of different childcare support, incl. Working Tax Credit.
Phone: 08457 143143
Website: www.hmrc.gov.uk/childcare
Got a question or want to comment?
Get in touch with the Business Support team for more information on Childcare vouchers.
