Save thousands of pounds with childcare vouchers

If you have school-age children or younger and don't use childcare vouchers you could be missing out on thousands of pounds of tax savings - particularly if you pay the higher rate.

However, a change to the rules in April this year means higher-rate taxpayers that join the scheme after the start of the new tax year will see their savings fall from a maximum of £1,196 a year to just £608.

So if you want to cash in, you need to act fast.

Q: What are childcare vouchers and how do they work?

A: Childcare voucher schemes are offered by employers and enable you to buy vouchers worth up to £243 a month from your pre-tax salary to pay for childcare. Over a year, the income tax and national insurance (NI) savings add up to £1,196 for higher-rate taxpayers and £903 for basic-rate taxpayers.

The savings can potentially be doubled if both parents buy vouchers.

Q: What's changing in April?

The Finance Bill is likely to restrict the tax relief offered to higher-rate taxpayers. The government wants to match the tax relief offered to basic-rate taxpayers, but because of the difference between the NI paid by higher and lower earners, higher-rate taxpayers actually save less than those who pay the lower rate (£608 compared with £903 a year).

The good news at least is that the changes only apply to members joining schemes on or after 5 April.

Q: What happens if I change jobs or take a break?

A: Unfortunately, tax relief at the higher rate will only be preserved for as long as you remain in your current scheme. As soon as you start a new job and join a new scheme you'll be considered a new member and will only receive tax relief at the lower rate.

If you take a break from buying vouchers, don't stop the contributions for more than 12 months, otherwise the new rules will apply to you too.

Q: I earn just below the higher-rate tax threshold. What happens if I get a pay rise after April?

If you stay with your current employer and become a higher-rate taxpayer, the new rules will not apply to you and you'll still benefit from higher-rate tax savings.

Q: My wife is expecting a baby in July. Can I start buying childcare vouchers now?

A: Unfortunately, if you're expecting a baby after April 2011, you can't start buying vouchers until the baby is born. If your baby is due (and born) before 5 April, you can start ordering vouchers as soon as the baby is born.

If you have recently had a child but don't expect to need childcare until after the April deadline, then you can start buying vouchers now to spend later.

Q: Aren't childcare vouchers just for nurseries?

A: You can use vouchers to pay for a wide variety of childcare providers, including childminders, nannies and nurseries for the under-fives, as well as for after-school and holiday clubs for older kids.

To be eligible, the care provider needs to be registered with Ofsted or an equivalent body. The vouchers can be used until the September that falls after your child's 15th birthday (or 16th if they are disabled).

Q: How do I get childcare vouchers?

Ask your employer - even if your workplace doesn't currently offer a scheme, it's worth pointing out the benefits. Vouchers save employers around £373 in NI for every employee that signs up.

Childcare voucher services like KiddiVouchers and Computershare Voucher Services can take care of all the administration. There's a charge for this, but even with the most expensive providers, the savings will still top £300.