This is one of the ways employers can assist their employees with the costs of childcare. Childcare vouchers are exempt from National Insurance Contributions (NIC) for employers and from tax and NICs for employees.
Working parents can ‘purchase’ vouchers up to £55 a week or £243 a month. Vouchers are offered usually as part of a salary sacrifice scheme. Both parents may be able to access vouchers if their employers offer this scheme. The vouchers pay for Ofsted registered or approved childcare and can be saved up to pay for e.g. summer holiday care as well spent throughout the year.
‘Salary sacrifice’ means that an employee formally agrees to a reduction to their taxable salary and receives this reduction in childcare vouchers. Employers can receive up to 12.8% in NIC savings and employees up to 11% (along with savings on their tax). The contract between employer and employee must be updated and incorporate changes as result of the salary sacrifice. The voucher company that has been contracted to the employer will provide the vouchers to the employees to ‘pay’ for their childcare. The childcare provider redeems the value of the voucher directly with the voucher company. Childcare providers will need to register with the childcare voucher company in order to receive payment.HM revenue & Customs have put together a calculator to help parents decide whether they would be better off receiving tax credits or, instead, taking childcare vouchers from their employer to help with childcare costs. www.childcare-vouchers.org.uk