These provide a tax efficient way for employees to cover the cost of childcare. Employees can sacrifice up to £55 per week.
The vouchers can be used to cover childcare costs up to a child’s 15th Birthday (or 16th birthday for disabled children). Vouchers can be used for;
- Childminders and nanny/au-pairs
- Breakfast and after school clubs
- Play schemes
- Holiday clubs
- Certain elements of boarding fees.
- Vouchers can be claimed by both parents.
How does it benefit the employee?
Basic rate employees can save £915 per year on the cost of their childcare due to tax and NI savings. Higher rate tax payers are restricted to £28 per week of vouchers and additional tax rate payers are restricted to £25 per week, so their savings will be reduced to £611.
Benefits for Employers;
- Improve employee stress by reducing the burden about covering the costs for childcare.
- Reduce amount of time employees need to take off by providing a solution towards childcare costs.
- Potential to obtain new talent and retain existing employees.
- Save 13.8% employers NI (most childcare voucher providers charge a small percentage admin fee which will reduce this saving).
- Warnings – you cannot continue to give an employee childcare vouchers if they start using the Tax-Free Childcare scheme.
Childcare vouchers are great – but unfortunately, they are not open to new members from 4th October 2018. So what are the other options for parents?
The is where an employer provides a nursery for their employee’s children to use. Importantly, even if used under a salary sacrifice arrangement there is no tax and NI liability (unlike the changes to childcare vouchers) and nothing needs to be reported to the HMRC. Employers can provide fully funded childcare or supply childcare at a reduced cost.
Also, supplying a workplace nursery does not stop employees applying for tax free childcare which could be used to supplement childcare costs.
The Nursery Must;
- Be a registered nursery and meet the defined HMRC rules for a workplace nursery – http://www.gov.uk/government/publications/e18-how-can-you-help-your-employees-with-childcare
- Available for all employees and be wholly or partly financed by the employer (meaning that the care can be sub-contracted out to a registered nursery).
- Although not essential it is advisable to confirm in writing how the nursery meets the criteria.
- There is no limit on the amount that can be sacrificed (apart from the fact that you cannot take employee below NMW). However, any salary scarified can have other implications such as eligibility for statutory payments.
Supporting Childcare Options for Employees benefits from Employers;
- Reduce time employees need to take off by providing a cost-effective solution for childcare.
- Improve recruitment and employee retention.
- Claim back tax relief on costs associated with providing the nursery.
- Save on Employers NI.
Tax Free Childcare
- Launched April 2017
- Claim 20% tax relief on childcare costs up to a maximum of £2,000 per child (£4,000 for a disabled child). When an employee tops up their account with £8 the HMRC will automatically add £2 up to a maximum of £2,000.
- Eligible to children under 12 (eligible until the 1st September following the child’s 11th Birthday) or under 17’s for disabled children.
- Both parents must be in work and earning between £125.28 a week (£111 for parents under 25) and £100,000 per annum.
- Can also be claimed by self-employed workers as long as they meet the lower earnings limit in their first year of self-employment known as their ‘start up period’.
- Great for parents with more than one child as you get a £2,000 limit per child not just a limit per parent like childcare vouchers.
- Suitable for higher childcare costs (above £9330 of childcare costs when both parents are claiming maximum number of childcare vouchers and are basic rate payers).
- Parents are entitled to claim up to 15 hours per week for 3- and 4-year olds.
- In England parents can claim 30 hours if both parents work over 16 hours per week and neither earn above £100,000.
Childcare Tax Credits
- Worth up to £3,000 per year
- If both parents work above 16 hour per week and have a combined income of less than £46,000
- Parents cannot get this if they claim tax free childcare.
Signposting to other government Incentives
As a responsible employer you can add value to your employees by helping them to understand the options available for parents to help with childcare cover. Having an employee how to guide to signpost them to the relevant options. Organisations such as Employers for Childcare provide free advice helpline, so parents can help find the best solution based on their circumstances.
Take Home Messages
- Review your options available for post childcare vouchers. Could creating a workplace nursery be a viable option for your business?
- Think about how you going to engage your employees with your childcare support.
- As employees start to understand different options available to them you might see several employees leaving your existing childcare voucher scheme. Consider how you will deal and manage with these requests.
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