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Many parents these days are facing huge dilemmas over childcare costs. As tax credits have been cut, some working mums are having to make difficult decisions over whether it is financially worthwhile for them to continue working. Although there is more and more awareness of childcare vouchers, many people are still not sure how to go about getting them or whether there are other ways to reduce the cost of childcare. John Woodward, CEO of the employee benefits company, Busy Bees Benefits, gives some advice and deals with some misconceptions.
Childcare vouchers were introduced by government as an employee benefit scheme to help working parents save money on the cost of childcare. They operate as a salary sacrifice scheme operated by a childcare voucher provider, which is available via your employer. This basically means that you can “sacrifice” or exchange up to £243 per month/£55 per week from your salary in return for a voucher which is used to pay directly towards childcare costs. The savings come from the fact that no income tax or National Insurance is paid on the childcare voucher. If you sacrificed the maximum amount, you would save just over £77 a month, or around £933 a year (for a basic rate tax payer).
It’s a common myth that childcare vouchers can only be used to pay for babies and toddlers in nursery care. In fact they can be used for children up to the age of 16 at nurseries, pre-schools, playgroups and crèches, independent schools’ boarding fees (up to year 1), childminders, qualified nannies and au pairs, after-school clubs, out of school clubs, holiday schemes, activity camps and play schemes. In fact, this is the beauty of the childcare voucher scheme – it puts the choice of the style of childcare in the hands of parents. After all, there is no one right answer – some parents want their children to be cared for at home, others at a childminder’s house and others at a nursery setting.
You can only get childcare vouchers if your employer offers a scheme, so ask them if they have one in place. If not, make the case that it’s in their interests to do so. As well as helping skilled parents to return to work by making childcare more affordable, working parents feel more valued and are able to make work pay, which is one of your concerns. Businesses also benefit financially. If an employee takes the full amount of vouchers, a business can save over £400 per year per employee in employer National Insurance contributions. Both parents can join a scheme through their employer and potentially double the savings available, so check if they have access to a scheme too.
What to look out for
Like all things related to tax, there are a few things to be aware of.
If you receive Working Tax Credits, Child Tax Credits, and other employee benefits, you should check if childcare vouchers are the best option for you. Visit http://www.hmrc.gov.uk/calcs/ccin.htm and use the calculator to check.
If in future you are using childcare vouchers and are expecting again, you should be aware that maternity pay is calculated during weeks 17–25 of pregnancy. You should therefore speak to your employer to find out if your maternity pay is affected by taking childcare vouchers. If your maternity pay is statutory only, you could suspend taking any childcare vouchers between weeks 17–25 to ensure your maternity pay is not affected.
If your pay is close to minimum wage, your employer needs to ensure that by taking childcare vouchers, your pay does not fall below the minimum wage level. If it does, you may still be able to have childcare vouchers, but not the full amount.
For the majority of working parents, childcare vouchers make sense. It’s surprising that more employers don’t offer a scheme and more parents don’t use them. The savings can make a big difference to the pockets of working families, so make sure you take advantage of them.
*John Woodward is CEO of the employee benefits company, Busy Bees Benefits. Busy Bees Benefits is part of the Busy Bees Group, the UK’s largest childcare provider with 214 nurseries nationwide. Busy Bees Benefits offers employee benefit schemes including Childcare Vouchers, Emergency Childcare, Retail Discounts, Will Writing, Cycle to Work, Car Care and services including Employment Law Support and Ticketing and Hospitality.
As well as campaigning to increase the cap on Childcare Vouchers, which has not changed since 2006, John is amongst the leading campaigners backing the introduction of Care Vouchers in the future which would provide tax benefits to those who have care responsibilities to elderly or dependent relatives.