Childcare vouchers: an introduction for employers

The number of working parents in the UK is on the rise. Figures from the Office for National Statistics show that for the three months to June 2010, the employment rate for lone parents with dependent children was 57.2%, for married or cohabiting mothers was 71.3% and for married or cohabiting fathers was 89.4%. That equates to a very large amount of employees with childcare needs.

All of these workers require childcare that is affordable, accessible and of the highest quality. Childcare vouchers are a fantastic way for employers to give working parents with dependent children help with financial support that is exempt from tax and national insurance contributions.

Alison Chalmers, director of childcare voucher supplier KiddiVouchers, explains: “Many employees find childcare vouchers to be a convenient way of paying for childcare, because they can set up payment instructions so that their vouchers are paid straight to their carer. For busy parents, this means one less job to worry about.”

She adds that childcare vouchers can also help families with budgeting, as parents can choose to order vouchers throughout the year and save them up for expensive times such as school holidays.

The first £55 per week (£243 per month) for basic rate tax payers, £28 per week (£124 per month) for higher rate tax payers or £22 per week (£97 per month) for additional rate tax payers provided through childcare vouchers is exempt from tax and national insurance contributions and each employed parent is able to claim. 

Prior to 6 April 2011 all parents could receive up to £55 per week of childcare vouchers exempt from national insurance and tax, regardless of earnings, and any parent who applied to join a scheme up to 5 April 2011 will receive the former rate indefinitely unless they change employer or leave their current plan.

HM Revenue & Customs estimates that one-third of employees have access to such a scheme as a large number of employers have already signed up. Employers should be aware that vouchers can only be used on Ofsted-registered childcare.

Research shows that a diverse range of employees currently make use of childcare vouchers. Analysis from the Social Market Foundation found that:




  • around 190,000 people were using childcare vouchers in 2007;
  • the vast majority of voucher users are on middle incomes, with around 83% of users paying income tax at the basic rate;
  • childcare vouchers appear to be used more intensively by working lone parents than by couples;
  • manual and unskilled workers are the most common users of childcare vouchers; and 
  • voucher users are diverse in terms of family structure, gender, geographic location and ethnicity.

Childcare vouchers can be offered in a number of ways, depending on the employer’s budget and requirements. They can be given in addition to employees’ existing pay, as a benefit-in-kind or as part of a salary-sacrifice scheme.

 

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