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How Do Childcare Vouchers Work?
Childcare vouchers help working parents with childcare costs. The scheme allows parents to swap some of their salary for vouchers before tax and National Insurance (NI) contributions are taken out.
The vouchers can then be used to pay for childcare. Parents benefit because they buy the vouchers using their pre-tax salary.
Resulting tax and NI savings can be as great as £1,000 a year (source: www.moneysavingexpert.com).
Who can claim them?
Anyone with parental responsibility can buy childcare vouchers to pay for approved childcare, such as a registered childminder, nursery or after-school club, once the provider is happy to accept vouchers.
You need to be working and paying tax and NI. It is a per parent benefit, so two parents can claim at the same time.
Vouchers can be claimed for children up to the age of 15, or 16 if they have a disability.
Depending on how much you earn and when you join a scheme, up to £55 a week of childcare can be paid for using vouchers (based on the basic rate of tax).
However, claiming them may impact on tax credits. It is advisable to find out if you would be better off with childcare vouchers, or not, before making a decision. There is a free calculator available at the government website Gov.uk.
How to claim them
Childcare vouchers are claimed through employers, who usually operate the scheme on a salary sacrifice basis.
Speak to your employer to see if they currently operate a scheme. It is not mandatory, but if your employer doesn’t currently run the scheme, find out if they would consider one.
There are also NI savings to be made for employers, so it benefits them financially as well as positioning them as a modern, family-friendly business.
Employers can run the scheme themselves through payroll, or use one of the many voucher companies.
The scheme closes to new applicants in April 2018 as the government is bringing in a new tax-free childcare scheme.
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