This a scheme run by the government through your employer, which enables you to pay some or all of your childcare costs BEFORE you pay any tax or national insurance. This means that your tax and national insurance payments will be less.
How much are the vouchers worth?
Basic rate tax payers can pay for up to £243 of childcare with vouchers each month. Each parent is eligible, so if there are two of you, you could use £486 a month of vouchers between you. This amount stays the same regardless of how many children you have in childcare.
From 6 Apr 2011 new joiners paying higher or top rate tax had their allowance dropped so that all tax payers have roughly the same maximum tax gain. The limits are currently:
Basic (20%) Taxpayer. £243/week vouchers, max annual gain £933.
Higher (40%) Taxpayer. £124/week voucher, max annual gain £623.
Top (50%) Taxpayer. £97/week voucher, max annual gain £606.
How do you get vouchers?
Your employer must opt to offer this scheme, so check with your HR department or manager. Frequently, your employer will opt to administer the scheme through an external voucher company, so your employer should give you some forms to register with that company.
The voucher company will also need to check that we are registered with themselves and send us some more forms if they aren’t.
What happens next?
After all the forms have changed hands and everyone is signed up, the money will usually be taken out of your pay before it even reaches your account and paid directly to us in the form of an e-voucher. Some voucher companies require you to make an online transfer. A remittance advice is usually emailed to us, so that we can match up the payments to your account. The whole process can take a few weeks to sort out, so you will need to pay your nursery bill in an alternative way until you are sure the first payment has gone through.
The scheme means that you are physically earning less and that can mean that you reduce your entitlement to some benefits and tax credits. This government website helps you to work out if it is worth it, financially: https://www.gov.uk/childcare-vouchers-better-off-calculator
What if your childcare costs are more than £243 a month?
You can still use the scheme – just ‘top up’ the voucher using alternative means (usually a standing order).