Home > Cutting Tax Bills > Childcare Voucher Scheme

Childcare Voucher Scheme

By: J.A.J Aaronson - Updated: 1 Sep 2012 | comments*Discuss
 
Childcare Child Care Vouchers Tax

As any parent knows, childcare can be one of the most financially and mentally draining factors to be considered in the lives of those with children. Childcare costs have spiralled in the past few years, and the situation is made doubly hard for those on lower incomes but living in expensive areas, as inflated property costs have had a huge impact on an already costly necessity.

There is, however, a highly useful scheme available from the government that offers Tax Relief on your childcare outgoings. Many parents don't even know of the scheme's existence due to the extraordinary lack of publicity given to it. However, it is surprisingly easy to avail yourself of all the benefits available to those who are required to pay for childcare services.

Tax Efficiency

The Childcare Tax Relief Scheme is known as 'childcare vouchers'. The name in itself may suggest to many people that they are not eligible, as it brings to mind food stamps and similar schemes aimed at those on low incomes. However, the Childcare Voucher Scheme is available almost across the board.

Essentially, it allows parents and guardians to use their pre-tax income to pay for childcare of children up to 15 years old. This can make a huge financial difference, as can be illustrated by a basic example. Imagine that you are paying £100 per week on childcare (a highly conservative estimate in many cases); if you are a basic taxpayer who is not using the Childcare Voucher System, that £100 will be coming from a wage packet that has already been cut by at least 20%. If you use childcare vouchers, however, you will be able to pay that £100 before the taxman has touched your earnings. If you are earning £1,000 per month, HM Revenue and Customs (HMRC) is likely to be taking about £300. Using childcare vouchers, you can simultaneously lower your tax liability and lower the cost of childcare in relation to your 'real' earnings.

Once acquired, childcare vouchers can be used to pay for services provided by any nursery or au pair that is regulated by Ofsted. This describes the majority of reputable childcare services, but if you are unsure as to whether a particular organisation is covered by the scheme, you can visit the Ofsted website for a comprehensive list.

You should also remember that if your child is three or four years old, they are automatically entitled to 12 and a half hours of free education per week for at least 38 weeks in every year. The Directgov website gives information on how to ensure that you receive these benefits.

Drawbacks

Having outlined the considerable benefits of the scheme, it is unfortunate that we must also mention a fundamental drawback. Access to childcare vouchers is severely limited by the fact that they are only available from employers. As a result, if your employer doesn't run a voucher scheme, you will not be able to claim them. However, if you find that your particular firm doesn't make use of the scheme, it should not be difficult to persuade them to do so.

The administration of the scheme itself is taken on by any one of a number of specialist organisations, meaning that it should make no logistical impact on your employer. Furthermore, the scheme has been designed to create incentives for employers to adopt it: vouchers are exempt from employers' National Insurance contributions, meaning that your employer can save literally hundreds of pounds for each employee that makes use of the scheme. Any of the organisations who administer the voucher scheme should be able to contact your employer on your behalf.

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