Boost your income with childcare vouchers
A recent survey by the Daycare Trust charity shows that the average cost of nursery care in Britain for children under two increased by nearly 6% last year.
With the average cost of a part-time nursery place for a child under two now more than £100 a week or £5,000 a year, it’s a price hike that will quite simply be too much for many working families.
What’s more, the issue is set to escalate significantly over the next four years with a report from the Social Market Foundation suggesting that childcare costs will rise by an average of 13.5% by 2015/16.
These above-inflation increases are bad news for families, heaping further pressure on their already-stretched budgets.
Not surprisingly given these facts, over 90% of parents are concerned about the cost of childcare. Overall, nearly 5% of respondents said they would be forced to leave work due to the cost of childcare if it wasn’t for the support offered by tax-free childcare vouchers.
Childcare vouchers can be a vital source of support to working parents. Indeed, for some families, these vouchers offer a solution that saves nearly £1,000 a year.
Higher-rate taxpayers can also use the vouchers to reduce the impact of recent cuts in child benefit announced in the Budget. Following the chancellor’s proposals, child benefit will now be gradually withdrawn from higher-rate taxpayers earning between £50,000 and £60,000.
The benefit will be reduced by 1% for every £100 earned over £50,000 and completely removed for those earning over £60,000. This means around 1.2 million families will now have their child benefit payments reduced and around 840,000 of those households will lose all of the benefit.
However, working parents can use childcare vouchers, alongside other salary sacrifice schemes, to reduce their taxable income to take it below the threshold.
Childcare vouchers are free from tax and National Insurance up to £243 a month depending on the rate of taxpayer. They are usually offered via salary sacrifice which means they are taken from a parent’s pre-tax salary and, what’s more, both parents can claim these vouchers if their employer offers the scheme.
The age range covered by the vouchers means that parents of older children can also benefit. Many parents mistakenly assume that childcare vouchers are only for young children whereas they can be used to pay for the care of children until the first September after their 15th birthday or the first September following their 16th birthday if they are registered disabled.
For parents with older children, the vouchers can be spent on a wide range of activities such as after-school clubs, holiday clubs, breakfast clubs or put towards nurseries, childminders and nannies for those with younger children.
Employees who have children in education will therefore find the vouchers invaluable if they are unable to pick them up from school straight away or find it difficult to take time off work during school holidays. From the employer’s point of view, this can then help them manage the needs of a number of employees wanting to take leave during the same period.
Any type and size of business can implement a childcare voucher scheme even if they have just one qualifying parent within the organisation. The company saves National Insurance on the value of the vouchers, so it has cost saving benefits for the business.
Working parents should investigate if their place of work offers childcare vouchers as part of their employee benefits package and speak with their human resources department to find out more.
By Laura Czapiewski, product manager at childcare voucher provider Edenred
This article was written for our sister website Money Observer
A tax-efficient way of receiving staff benefits, where an employee agrees to forego a proportion of their salary for an equivalent contribution into their pension scheme or in exchange for company car, gym membership, childcare vouchers or private medical insurance. A salary sacrifice scheme is a matter of employment law, not tax law, and is often entered by an employee who is about to move into the higher 40% tax bracket.
A scheme originally established in 1944 to provide protection against sickness and unemployment as well as helping fund the National Health Service (NHS) and state benefits. NI contributions are compulsory and based on a person’s earnings above a certain threshold. There are several classes of NI, but which one an individual pays depends on whether they are employed, self-employed, unemployed or an employer. Payment of Class 1 contributions by employees gives them entitlement to the basic state pension, the additional state pension, jobseeker’s allowance, employment and support allowance, maternity allowance and bereavement benefits. From April 2016, to qualify for the full state pension, individuals will need 35 years’ of NI contributions.
An increase in the general level of prices that persists over a period of time. The inflation rate is a measure of the average change over a period, usually 12 months. If inflation is up 4%, this means the price of products and services is 4% higher than a year earlier, requiring we spend and extra 4% to buy the same things we bought 12 months ago and that any savings and investments must generate 4% (after any taxes) to keep pace with inflation. Since 2003, the Bank of England has used the consumer prices index (CPI) as its official measure of inflation (see also retail prices index).
A special government scheme operated through employers that allows you to pay for childcare from your PRE-tax salary. The vouchers cover childcare up to 1 September after your child’s 15th birthday (16th if they are disabled) and can be used at any registered and regulated nursery, playgroup and for nannies, childminders or au pairs.