How do childcare vouchers work and what are childcare vouchers?

Childcare Vouchers are an employee benefit that many businesses offer to their staff. It means that the employer can pay for the childcare and take the costs from the gross wages of the employee. This means that you save the tax and national insurance on your childcare costs. This scheme gives working parents a valuable discount on their childcare costs.

A childcare voucher scheme will typically save parents in excess of £900 per year, for a basic rate taxpayer, and over £600 for a higher rate tax payer. This can be a real help paying for childcare.

What is salary sacrifice and how does salary sacrifice work with childcare costs?

When we are paid a salary we earn our money and then pay tax and national insurance. By having a salary sacrifice scheme your employer will effectively pay you slightly less and then pay the nursery direct. Because you have been paid slightly less you pay less tax and national insurance and so actually end up with more net income after childcare costs.

Childcare voucher example calculation

If you earn £25,000 per year and you wanted to take the maximum advantage of the childcare vouchers you would see a salary reduction to £22,084. However, your employer will pay £2,916 worth of childcare costs and you would be taxed on £22,084 not on £25,000. So the savings are significant.

How do you claim or apply for your childcare vouchers?

Your employer will need to sign up to a voucher scheme such as Edenred, Busy Bees, Fideliti, Sedexo, Computershare or Kiddicare . There are of course other schemes available. All the schemes work in a very similar way and We accept all types of childcare vouchers. You will normally need to complete an agreement with your employer to take advantage of childcare vouchers. Don’t forget that mums or dads are eligible to apply for childcare vouchers.