Welcome to the Childcare Account

Helping to make childcare more affordable with childcare vouchers

From April 2005 the government enabled tax concessions for employer supported childcare vouchers. The aim of the exemptions is to encourage employers to help their staff with the cost of their childcare. Three types of employer support for childcare now attract exemptions from income tax and National Insurance Contributions (NICs):

• Childcare vouchers ­ up to £55 per week (£247 per month)
• Payments to childcare providers ­ up to £55 per week, and
• Workplace childcare provision ­ up to the full amount for which the employer subsidises the childcare
• The exemption means that employees pay neither income tax or NICs on the support and the employers pay no NICs.

Childcare vouchers are a method of payment that allows an employer to contribute specifically to its employees' childcare costs, either by a paperless "e" voucher or a paper voucher, redeemable by the childcare provider. Employers using a childcare voucher provider will pay a management fee, sometimes a percentage of the amount of vouchers purchased.

Benefits and Savings

For a parent given £55 per week worth of childcare vouchers in addition to salary they gain around £2860 a year as they pay no tax or NICs.

For a parent given £50 per week worth of support a week after taking an equivalent salary sacrifice to receive the vouchers the annual saving on tax and NICs is likely to be between £960 and £1195 a year depending on the rates of income tax and NIC paid and whether or not the parent is contracted in or out of the state second pension. The employers own NIC savings will be around £373 per year.

Childcare Vouchers and Salary Sacrifice

An employer must provide the support to a parent. The exemption applies to benefits an employer gives to an employee therefore unemployed and self-employed parents are not eligible. Each employed parent is entitled to claim the exemption towards childcare vouchers.

The parent must have an eligible child to be in receipt of child care vouchers.
Childcare Vouchers can only be used to pay for registered childcare.
The exemption must be available to all staff

How does a childcare voucher scheme work?

An employer will normally contract a childcare voucher company to provide child care vouchers to their staff. Vouchers can be offered as a benefit-in-kind on top of existing pay, as part of a flexible benefits package or most commonly as part of a salary sacrifice scheme. Childcare voucher companies normally offer an e-voucher scheme where payments are made directly to a providers bank account. Alternatively, some childcare voucher companies issue paper vouchers to the employer which can be distributed to staff accordingly, though some childcare voucher companies may post vouchers directly to the employee's home. Those employees can use the vouchers to 'pay' their childcare provider. The childcare provider will then redeem the value of the voucher directly from the childcare voucher company. For paper childcare vouchers payment to the childcare provider is usually made by direct payment into their bank account. The employer will negotiate a management fee to the company for their service, however usually the savings made on NICs more than cover the cost of this fee.

What is salary sacrifice?

Salary sacrifice means that an employee formally agrees to a reduction to their taxable salary and instead receives that amount (equivalent to the reduction) in childcare vouchers. The value of the child care vouchers is exempt from NICs for both employer and employee, and from tax for the employee. This means NIC savings of up to 12.8 per cent for employers and up to 11 per cent for employees, plus the savings employees make on not paying tax. The contract between employer and employee must be updated and a signed agreement incorporated to reflect the changes agreed within the salary sacrifice.

How will we benefit as an employer by offering childcare vouchers?

Employers who provide support for their staff through childcare vouchers benefit in a number of ways including:

• NIC savings of up to 12.8 per cent ­ around £372 a year.
• Tax and NIC savings for employees ­ helping them with childcare costs.
• Demonstrates commitment to your staff and enhances your company image
• Improves staff motivation and morale, therefore increasing productivity
• Improves staff recruitment and retention
• Reduced absenteeism

What sort of childcare can they be used to pay for?

Childcare vouchers can be used to pay for any form of legal childcare, but the first £55 a week received in vouchers will only be tax and NICs exempt if it is used to pay for registered* childcare.

This includes:

• Childminders, nurseries and playschemes registered by Ofsted.
• Out of hours clubs run by a school on the school premises or by a local authority.
• Childcare schemes run by registered providers.
• An approved foster-carer (the care must be for a child who is not the foster carer's foster child)
• In England only, a childcarer who is approved by Ofsted to care for your child or children in your own home ­ these are childminders who have further qualified to become "home childcarers"
• In England only, childcare given in the child's own home by a domiciliary worker or nurse from a registered agency who cares for the child or children.
• In Scotland only, childcare given in the child's own home by (or introduced through) childcare agencies, including sitter services and nanny agencies, which must be registered.

Can all childcare providers accept childcare vouchers?

Yes, as long as the provider has a bank account. In order to receive the reimbursed value of a child care voucher, childcare providers will need to register their details with the childcare voucher company. This is usually a record of contact details, registration number where appropriate, and bank account details if the company intend to make payments directly into the back account of the carer. There is no cost to the childcare provider in receiving payment through vouchers. Information packs that explain the voucher processes for childcare providers are available from most childcare voucher companies.

How much will it cost?

The only cost to an employer who signs up to a childcare voucher scheme is the management fee to the child care voucher company. These vary and are often negotiable with the company. Some may charge a set rate whilst others may charge a percentage of the overall value of childcare vouchers requested by an employer. However the savings a company makes in terms of reduced NICs usually exceeds the management fee charged by the voucher company.