I have just had a very interesting meeting with a childcare voucher provider and there are definite savings to be made for both the employer and employee and there is very little administration from either perspective.
Requirements
- There must be an employer, this cannot be used for the self employed
- The employee must use an OFSTED recognised childcare service (including childminders and after school clubs)
For employers
- They will need to set up a scheme
- They will be charged a percentage of the salary sacrifice, or a fixed annual fee depending on the scheme chosen
- By reducing the employees salary they will save employers NI of £400pa per employee based on the maximum tax free voucher of £243pm
- For higher rate employees the saving is £200pa per employee due to reduced level of allowances
- They will have to amend the payroll to reduce the employees salary accordingly
- They will receive tax relief of the payments to the childcare voucher company
For employees
- Instead of receiving all of their pay with tax and deducted they can elect to sacrifice part of the salary and receive it in childcare vouchers
- Once the scheme is in place they will have to register their interest
- They will be credited the £243pm to an account which they can use a little like online banking to pay their childcare provider
- For higher rate taxpayers only £124pm can be paid
- By receiving vouchers instead of salary the extra cash (due to tax savings) the employee receives is £933pm and £623pm for basic and higher rate employees respectively
Owner managed businesses
- As employees the scheme is open to owner managed businesses
- It is a very effective way of withdrawing money from the business tax free
This only covers some of the matters to consider so please seek professional advice before taking any steps based on the information shown. This is based on my discussions with Kids Unlimited about their childcare voucher scheme. If you would like advice in this or other areas feel free to call. Alastair Wood, AW Accounting, Gravesend, Kent – Accountants who “speak your language”