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Childcare vouchers provided by employers

At a time when the abuse of children is sadly in the news on a daily basis, parents may feel increasingly concerned to make sure that their children are properly looked after at all times.

There are a number of ways in which employers can provide help with childcare costs in a tax efficient manner.  These include providing a workplace facility, or care arranged through a third party at a private nursery.  However, maybe the simplest and most flexible method is by giving employees vouchers which they can use against their childcare costs.

Employers can give each employee up to £2,916 per year tax-free in childcare vouchers, saving 13.8% Employer’s National Insurance Contribution on this figure, and saving parents up to £933 each in Tax and National Insurance.

These figures apply to each individual employee.  They are not affected by the number of children in the employee’s family.  On the other hand, both parents can receive a childcare benefit.

To qualify for tax breaks, the scheme must be open to all employees, and cover only registered or approved childcare facilities.

Childcare may of course be provided in addition to an employee’s normal salary.   More normally, however, it is offered on the basis that it will replace part of the existing salary (known as salary sacrifice).  For this to be effective for tax purposes, it must be covered by a proper contractual arrangement.

Operating your own voucher scheme can start to get quite complicated.  In addition to the points covered above, you would need to keep a log detailing the name and date of birth of each child using the scheme, and maintain details of the all childcare providers used (including their Registration or Approval Number and date of expiry).

However, there are a number of well-established providers who will manage the entire childcare voucher scheme for you.  This includes initial staff surveys, dealing with salary sacrifice agreements, notifying HM Revenue & Customs, calculating employee requirements, registering all the employees and their childcare providers, liaising with your payroll, submitting vouchers and finally redeeming vouchers with carers.

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