Pay for childcare without tax and National Insurance

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Middle income families are set to lose their child benefit if one parent earns £60,000 or more.

Or they could see it reduced if the figure is over £50,000, as the benefit becomes means-tested.

If you’re working during the school holidays, it is likely you will need to pay for childcare.

Did you know that you can do this by opting to pay via childcare vouchers?

This is a special government scheme operated through employers that allow you to pay for childcare from your pre-tax salary and National Insurance income.

They can be used by any parents with children aged up to 15.

And, if each parent works, they can both claim for childcare vouchers, so there’ll be twice as many to use.

Basically, the scheme means you pay less tax.

In addition, if signing up for childcare vouchers brings down your net income to below the £50,000 threshold, you will keep your child benefit.

A wrongly-held belief is that childcare vouchers are only useful for paying for pre-school nursery places.

They can actually be ‘banked’ and used in one go for older children during the holidays.

Employers can either give you vouchers in addition to your normal salary as a perk, or they may ask you to sign up for a ‘salary sacrifice’ scheme in which part of your pay is turned into vouchers.

You might be thinking it all sounds like a bit of a faff or that you will have less money in your pocket each month, but the voucher scheme can save you more than £1,000 a year – a basic rate taxpayer can pay for up to £243 of childcare with vouchers each month.

So for example, if you give up £1,000 of salary a year (but after tax and National Insurance that’s only worth around £700 in your pocket) in return, you get £1,000 of vouchers, so you are £300 per £1,000 better off.

The vouchers aren’t specific to each child and can be used as and when they are needed.

So if you need to use more of them to cover the school holidays, you can store them up.

They can be used to pay for registered and regulated nurseries, playgroups, nannies, child-minders and holiday play schemes.

If you’re employer already runs a childcare voucher scheme themselves it will be easy to get signed up.

If they don’t, don’t be afraid to ask them to start one.

It needn’t cost them anything – and in fact they’ll save money as they won’t have to pay National Insurance on wages you use for vouchers.

Self-employed people are also entitled to childcare vouchers.

For most people there is no catch, though if you claim Child Tax Credits, using childcare vouchers may affect the amount you receive.

It’s worth checking if you’ll be better off by going to the HMRC’s online calculator