childcare vouchers

Working Parents – Save Money On Childcare

In Work and Family by Money Saver Pete1 Comment

Are you a working parent and want to save money on childcare? Then there are a couple of schemes which could save you as much as £2000 per year.

 
As a parent, you soon realise how eye-watering childcare costs can be. This leads to the question of whether it’s worth mums (or dads) going back to work. Why would you work your fingers to the bone, only to give all your hard earned cash to a child provider? Why not stay at home and look after your child yourself?
The government is aware that this is a dilemma facing many parents across the UK. Because of this, they introduced 15 and 30 hours free childcare to help alleviate the cost, but this stops for children once they pass 4.
So, there are two other options available – childcare vouchers and tax-free childcare. Take a look to see which could be the best option for you.

Childcare vouchers

 
What are they?
 
Childcare vouchers are deducted straight from your salary by your employer. What’s the point in that you may ask? Doing it this way means that you don’t pay tax or National Insurance on that part of your wages.
Let’s say you are a basic tax rate payer. If you receive £100 in wages, you will need to pay 20% tax and around 9% NI. That means you will end up with just over £70 after deductions. That’s £30 less to put towards childcare. But take it in childcare vouchers and you can use the whole £100.
 
How much can I save?
This depends on the rate of tax you pay.
  • A basic-rate (20%) taxpayer can claim £55 per week in vouchers, which can give a maximum annual saving of £933.
  • A higher-rate (40%) taxpayer can claim £28 per week in vouchers, a maximum annual saving of £625.
  • A top-rate (45%) taxpayer can claim £25 per week in vouchers, a maximum annual saving of £623.
 
Bear in mind that for basic-rate taxpayers, this is per parent. That means, if both parents work, you could purchase £110 of vouchers between you each week. This isn’t the same for higher/top-rate tax payers though and both parents can only claim if they joined the scheme before 5th April 2011 (and haven’t had a 12-month break from the scheme).
 
What you need to know
You can claim childcare vouchers until your child reaches 15 (or 16 if disabled).
 
You can only use an approved childcare provider. This is to stop people taking advantage of the scheme and using friends or family to avoid tax.
Vouchers will last a decent length of time, so you shouldn’t have to worry about expiry dates. They are generally non-refundable though, so be careful that you don’t buy too many.
What if my company doesn’t do childcare vouchers?
Then ask them. It won’t cost them anything to do and it saves them money as they don’t have to pay NI on the portion of tax you use for the vouchers.
What if I’m self-employed?
Unfortunately, this scheme is not open to you.
Tax credits
If you’re in receipt of tax credits, childcare vouchers may affect how much you receive. You can take a look by using this calculator
 
The childcare voucher system is due to close to new entrants in October 2018. However, it was originally due to finish April but extended, so this date could move again.
 

Tax-free childcare

Tax-free childcare was introduced in April 2017 and looks like it will be the successor to the voucher scheme, although both are currently running.
Am I eligible?

Taken from the government website:

 

You’re usually eligible if all of the following apply:

Your child:

  • is under 12, or 17 if they’re registered as having a disability
  • usually lives with you

You (and your partner, if you have one):

  • are 16 or over
  • live or work in the UK
  • are employed or self-employed
  • are over 21 and earn on average at least £120 a week, unless in your first year of self-employment. Different rates apply if you’re under 21 or an apprentice
  • earn less than £100,000 a year each
  • don’t get other support with your childcare, including from a childcare voucher or salary sacrifice scheme

You may also be eligible if you have a partner and one of you gets any of the following benefits:

  • Carers Allowance
  • Employment and Support Allowance
  • Incapacity Benefit
  • Severe Disablement Benefit
How much can I save?

Far easier to work out compared to the voucher scheme, you will get an extra 20% towards childcare.

Basically, you pay £80 into an account and the government tops it up with another £20. In total, you can receive £2000 in support for your child (or £4000 if you have a disabled child) every year.

It’s called tax-free childcare because the majority of workers pay 20% income tax.

Which is the best option?

This really depends on your situation. For the majority of working parents, I think the childcare vouchers offer better value because you save almost 30%. Plus, you don’t need to earn a minimum amount before you can take advantage of the scheme.

However, if you spend a lot on childcare, have more children or you’re self-employed, then the tax-free childcare could be the better option.

To find out more, visit the government website.

Or use their calculator to see which scheme is better for you.

And if you have a child under 4, take a look at how you may qualify for up to 30 hours free childcare.

 

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