childcare vouchers

The 2006 Budget saw an increase in the tax-free amount for childcare vouchers from £50 to £55 per week per employee.

Employees who receive vouchers from their employer which can be used to pay for childcare, or where the employer contracts directly with the nursery, can make large annual savings as there is no tax or National Insurance due on the first £55 per week’s worth of childcare. For a higher rate tax payer, this equates to saving Tax and National Insurance of £1,172 per year!

Taxpayers who receive only the child element of Tax Credits, i.e. £545 pa, who decide to take childcare vouchers will not see their award affected, however, for any other taxpayers who receive more than the basic amount, there is a distinct possibility that Tax Credits would be reduced, even to the point that the loss of Tax Credits would outweigh the Tax/National Insurance savings. In these circumstances, we would suggest that you contact us in order that we calculate what the savings, or cost, may be.