The vouchers cover childcare up to 1 September after the child’s fifteenth birthday (sixteenth if the child is disabled).
Basic Rate tax payers (and higher/top rate tax payers who joined before 5 April 2011) can pay for up to £243 of childcare with vouchers each month (£55/week). This is PER PARENT, so two working parents could get £486 a month in Childcare Vouchers.
From 6 Apr 2011, new joiners to a Childcare Voucher Scheme paying higher/top rate tax had their allowance capped, bringing all tax payers roughly the same maximum tax gain. The new limits are: Basic (20%) Taxpayer: £55/week vouchers, max annual gain £920. Higher (40%) Taxpayer: £28/week voucher, max annual gain £610. Top (50%) Taxpayer: £22/week voucher, max annual gain £590.
The employee will then decide on the value of monthly vouchers (maximum £ 243 a month). The employer will receive an invoice for the amount from the voucher agency and this will be either deducted or added to the employee’s salary, depending on the scheme the employer operates.
Once the employer has made payments towards the Childcare Vouchers on the employee’s behalf, the vouchers will then be made available to the employee to make an electronic payment to the child minder or nursery.
Joining a Childcare Voucher Scheme may impact on personal tax, especially if you are a limited company contractor.
Both employee and employer must comply with the conditions that apply to the National Minimum Wage Act.
The scheme may well impact on employee’s eligibility to Working and Child Tax Credit. The number of children the employee has does not impact on Tax Credits, however, as the limits are the same whether there is one child or more.
Childcare Vouchers are not specific to an individual child and have a twelve-month expiry date. It is advisable therefore to look at whether your childcare costs are likely to increase within twelve months, and if they are, to apply for the maximum allowance then.
- Setting up a Childcare Voucher Scheme;
- Advise which scheme to go for; many people go for the salary sacrifice scheme, but this is not always the best choice;
- DNS can look at your other income and personal conditions to see how the Childcare Voucher Scheme could impact on your tax return or other entitlement such as Tax Credits;
- DNS would ensure you comply with all of the conditions, such as the National Minimum Wage Act as a director of the company;
- DNS would advise on processing payroll with a childcare entitlement.
Childcare Voucher Scheme FAQs