Childcare Vouchers

Childcare Vouchers are currently available to employees, including directors. The vouchers can be paid from an employee’s income before tax and National Insurance (NIC). In addition to this, you the employer can obtain NIC savings. Depending on the employee level of earnings, a percentage of the vouchers can sometimes be issued without having incurred tax and NIC. Childcare vouchers can only be used for a child up to 15 or 16 (if he or she is disabled).

Conditions if an employee joined the scheme before 5 April 2011:

Employees can receive up to £55 per week, or £243 each month free of tax and NICs. The NIC saving for a basic rate taxpayer is £402 a year.

Conditions if an employee joined the scheme after 5 April 2011:

It depends on the employees earnings thresholds.

If:

• Basic rate band, £55 per week or £243 per month
• Higher rate band, £28 per week or £124 per month
• Additional rate band, £22 per week or £97 per month
• from 6 April 2013, £25 per week or £110 per month

Employees with more than one employment will only have one level of exemption.

Mechanics

• Employers can operate a childcare voucher scheme in house or outsource
• Vouchers can be in paper or electronic format
• Important to check that the childcare providers accept childcare vouchers
• Unused childcare vouchers cannot be exchanged for cash.
• Child tax credits may be affected from the salary sacrifice.

Planning point

Spouses or civil partners who are both directors and employees can also benefit from the childcare vouchers scheme. The benefit here is that only employment income is considered when calculating the maximum amount of vouchers, which can be claimed (Tax and NIC free).

This is another way of extracting money from a company without incurring any taxes or NIC.