Benefits and savings

Financial

Employees can take childcare vouchers from their employer, tax-free and NI-free up to the value of £2,916 per annum, instead of salary.

The benefit:

• a basic rate taxpayer will save up to £904 each year
• a higher rate taxpayer will save up to £1,195 each year

Each parent can take vouchers if their respective employers offer the option. So both parents can enjoy these savings.

For some new entrants to an employer’s scheme on or after 6 April 2011, the tax benefits will be reduced: see the new rules.

Ease of use

It's an easy way to pay for childcare - with the Abacus scheme your employer pays your childcarer directly each month. So you simply pay any difference between the carer's invoice and voucher value.

Pitfall – beware!

If you benefit from – or are entitled to - Working Tax Credit (WTC) you might be worse off sacrificing salary in exchange for childcare vouchers. If your award of WTC includes a component for childcare costs, and using vouchers would leave you having to pay the carer less each week than £175 for one child (or £300 for two or more children) on top of the vouchers, then the childcare component of your tax credit will be reduced. This reduction may be greater than your saving in tax and NI from taking vouchers instead of salary. To check the interaction of WTC with vouchers, use the Childcare Indicator provided by HM Revenue & Customs.