Childcare vouchers become tax-free

The tax and national insurance rules applying to childcare vouchers change today.

Childcare vouchers of £50 per week will be exempt from tax and National Insurance Contributions (NIC) in an attempt to encourage parents who have been put off in the past by expensive childcare costs, to start or to remain in work.

In addition, the provision of childcare vouchers as an employee benefit offers the employer and employee the opportunity to save up to £1,400 a year in PAYE tax and NIC where the vouchers are provided as part of a ‘salary sacrifice’ arrangement.

A ‘salary sacrifice’ is a simple deduction from an employee’s normal salary in return for childcare vouchers of up to £50 per week, saving the tax and NIC which would otherwise be paid on that amount of salary.

Alison Courtier, at law firm DWF, said: “Childcare vouchers are just one of a selection of benefits which an employer can offer to create a tax-efficient remuneration package.  Since the rates of NICs increased in 2003, inventive employers are increasingly looking to make cost savings for themselves and their employees by way of salary sacrifice.

“Care must be taken, however, to structure arrangements correctly in order that advantage can be taken of such exemptions, which also apply to pension contributions and the loan of bicycles and computers.”

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