If you pay for childcare (children up to 15 years old) on a regular basis and you are employed by a limited company or you run your own limited company, I highly recommend that you consider using childcare vouchers, particularly if you are a higher rate tax payer.
Who can use childcare vouchers?
Only Limited Companies are eligible to set up childcare voucher schemes. Childcare vouchers are a very tax efficient way of paying for childcare as childcare is effectively paid for out of pre-tax and National Insurance income.
Only Limited Companies are eligible to set up childcare voucher schemes. Childcare vouchers are a very tax efficient way of paying for childcare as childcare is effectively paid for out of pre-tax and National Insurance income.
How do they work?
Most schemes work via salary sacrifice which basically involves giving up salary and in return buying childcare vouchers free of tax and National Insurance. For example, a basic rate tax payer sacrificing £1,000 could buy £1,000 in vouchers compared with receiving net pay of £700. By using the scheme, the tax payer saves £300 in tax and National Insurance.
Most schemes work via salary sacrifice which basically involves giving up salary and in return buying childcare vouchers free of tax and National Insurance. For example, a basic rate tax payer sacrificing £1,000 could buy £1,000 in vouchers compared with receiving net pay of £700. By using the scheme, the tax payer saves £300 in tax and National Insurance.
Limits
The maximum childcare voucher payment is £55 per week per parent. Therefore, two working parents amay buy £110 a week of vouchers. Vouchers aren't specific to each child and have a long expiry date. Therefore, if you know you are going to have higher childcare costs in the near future, it might be worth getting the maximum allowance now. (You can also backdate vouchers).
Important changes for higher rate tax payers from April 2011
| Tax band | Current – per parent | New joiners – per parent |
| Basic rate (20%) | £55/wk max Saving £900 | £55/wk max Saving £920 |
| Higher rate (40%) | £55/wk max Saving £1,170 | £28/wk max Saving £610 |
| Top rate (50%) | £55/wk max Saving £1,460 | £22/wk max Saving £590 |
Join the scheme by 6 April 2011 and you can continue to get the current amount of vouchers.
If you are planning to join the scheme and you are a higher rate taxpayer, I highly recommend that you do it before 5 April 2011. If you join the scheme after this deadline, your savings will be halved.
Where to get vouchers from
Vouchers may be obtained from your employer (assuming a scheme is in place) or if you own a limited company you may set up your own scheme. Providers include: Kiddivouchers http://www.kiddivouchers.com/(which donates at least 5% of all profits to various charities) and Employersforchildcare http://www.employersforchildcare.org/(a not for profit organisation).
If you would like any advice in this area or any other areas of accounting or tax, please contact me on 07834988638 or mail@sjhaccounting.co.uk, www.sjhaccounting.co.uk. Sarah Hamilton takes every. care in preparing material to ensure that the content is accurate and up to date. However, no responsibility for loss to any person acting or refraining from acting as a result of this material can be accepted by Sarah Hamilton. You should always ask your accountant to give you specific advice which is tailored to your personal and business circumstances.
Vouchers may be obtained from your employer (assuming a scheme is in place) or if you own a limited company you may set up your own scheme. Providers include: Kiddivouchers http://www.kiddivouchers.com/(which donates at least 5% of all profits to various charities) and Employersforchildcare http://www.employersforchildcare.org/(a not for profit organisation).
Eligible childcare
The provider must be regulated; most nannies, playgroups, nurseries are registered.If you would like any advice in this area or any other areas of accounting or tax, please contact me on 07834988638 or mail@sjhaccounting.co.uk, www.sjhaccounting.co.uk. Sarah Hamilton takes every. care in preparing material to ensure that the content is accurate and up to date. However, no responsibility for loss to any person acting or refraining from acting as a result of this material can be accepted by Sarah Hamilton. You should always ask your accountant to give you specific advice which is tailored to your personal and business circumstances.
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