Could childcare vouchers save you money in 2010?

childcare vouchers baby girl

 

After a shaky finish to 2009, childcare vouchers have bounced back and now is just the right time to start investing in them, according to Simon Moore, Managing Director of Computershare Voucher Services, the UK’s largest childcare voucher provider.

He says the Government’s decision to increase National Insurance contributions in 2010 can be offset by salary sacrifice schemes such as vouchers which allow you to pay a substantial amount of your childcare costs without paying national insurance or tax on the money.

He adds that the vouchers scheme allows parents to save the equivalent of 31% on the first £243 a month they spend on childcare costs, including after school clubs.

Many mums who use vouchers wrote to www.workingmums.co.uk at the end of last year after an announcement at the Labour Party conference that tax relief was going to be phased out on childcare vouchers, meaning effectively that they were dead in the water. However, after a strong campaign by working parents and MPs the Government has done a U-turn.

Despite the campaign and although around 340,000 parents in the UK use childcare vouchers [with 120,000 of them using CVS’ scheme], Moore says that appreciation and awareness of the voucher scheme is low. He thinks this is because employees think they will be complicated and not offer many savings. Dads are proving particularly resistant.

“It’s a problem of education as employees don’t realise how childcare vouchers work. They get put off by words such as salary sacrifice, National Insurance contributions and tax relief. Most people just glaze over when they hear those terms, but it is a very, very simple scheme,” he says.

Simple scheme

Employees just sign up and their employer assigns some of their pre-tax, pre-NI contributions salary to pay childcare costs. “People think they have to register and it is going to be complicated, but it’s not,” says Moore, “and for employers it offers them a way of giving employees a benefit which costs them nothing. In these days when employers may find it hard to afford pay rises this is an easy way to motivate and retain staff.”

Moore was in the audience at the Labour Party conference when the statement about withdrawing tax relief on vouchers and devoting the money to free childcare places for some two year olds was announced. “I was very surprised,” he says. “It’s very laudable to offer free childcare to some two year olds, but not at the expense of other parents.”

He adds that, at the time, the argument was that childcare vouchers were being used mainly by wealthy parents, but says this is not the case. A survey by Computershare Voucher Services [formerly Busy Bees] found that 75% of people using vouchers were on basic rate tax. “The majority are hard-working parents who need support,” he says. Most are working in small or medium-sized companies and this is the sector CVS is targeting most.

He is confident that the main political parties now get the message that childcare vouchers are valued by ordinary working parents and adds that the average cost of nursery care is just over £8k a year, “an awful lot of money”. “I am confident from talking to the Conservatives and from their public statements that they will support and endorse childcare vouchers,” he says.

He adds that the scheme is transparent in that the money can only be used for childcare and that it allows companies to make longer-term savings because it means mums are more likely to return to their old jobs if they can afford childcare, reducing recruitment and retraining costs.

After school costs

One area which he thinks requires more development is work with parents of older children. The vast majority of people who use vouchers have children under five, although the vouchers can be used for children up to the age of 16 to pay for things like after school clubs. “Most people think the major childcare costs are before the age of five, but after school costs can mount up,” he says.

CVS will continue to work on educating and promoting vouchers and has a benchmarking scheme to check that organisations do not just introduce the scheme without following up with future employees and promoting it as a staff benefit.

Solicitor

One person who has benefited is Tessa McInnes. She is a solicitor working for law firm Wright Hassall LLP. She has two children, aged five and 20 months and has been using childcare vouchers for three years.
“It makes quite a difference because like most people who work we have a high mortgage. I have to work to pay the mortgage and bills and would like to work for more than just to break even,” she says.She works four days a week and says that, unlike most people’s perceptions, a solicitor’s salary is not high. Her salary if she worked a five-day week would be £24,000 a year before tax. Her husband works in the public sector and is also able to claim vouchers.She says when she heard that the scheme might effectively be dropped she felt “an icy clutch in my heart”. “It’s not about having money to go on foreign holidays,” she says. “It’s about having the money to pay the bills. It didn’t make sense. The Government has been keen to encourage women to get back to work and, by doing so, women are paying National Insurance contributions and contributing to their pensions. It seemed crazy to cut a scheme that was helping them,” she says.



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