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 Following the chancellor’s proposals, child benefit will now be gradually withdrawn from higher-rate taxpayers earning between £50,000 and £60,000.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.

Tax free

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