The process of receiving and paying with childcare vouchers is designed to be simple and straightforward for both employers and employees.
Most employers who provide childcare vouchers do so through a salary sacrifice scheme. This means you agree to reduce your salary by a certain value, and receive childcare vouchers to the same value but pay no tax or National Insurance on these vouchers.
To join your employer’s childcare vouchers scheme you first of all need to complete a salary sacrifice agreement. Your employer will give you directions on how to do this.
After your agreement has been submitted to your employer, they will reduce your salary by the requested amount and arrange for vouchers to be provided to you.
|Status||Annual Tax exempt amount*||Savings*|
|Basic rate (contracted out) 20% tax 10.6% NI||£2,916||£892|
|Basic rate (contracted in) 20% tax 12% NI||£2,916||£933|
|Higher rate category 40% tax 2% NI||£1,484||£623|
|Additional rate category 45% tax 2% NI||£1,325||£623|
If you are found to fall into the higher rate category (as a rough guide this is likely to be those earning between £44,781 and £151,484) you will be able to get £124 a month tax and NI exempt (£28 a week).
An example for someone earning £20,000 per annum, £1,666.67 per month.
|Monthly Gross Salary||£1,666.67||£1,666.67|
|Childcare vouchers per monthGross salary sacrifice total||£243.00
|MONTHLY GROSS SALARY SACRIFICE||£243|
|Monthly Gross Salary after salary sacrifice
Monthly NIC contribution (12%)
Monthly income tax contribution (20%)
|MONTHLY NET SALARY REDUCTION||£1,357.19 minus £1,192.07 =||£165.12|
|MONTHLY SAVING||£243.00 minus £165.12 =||£77.88|
|ANNUAL SAVING||£77.88 x 12 =||£934.56|