A small industry of childcare voucher providers seeking to capitalise on a mixture of fear, ignorance and apprehension
The government’s introduction of tax-exemption for childcare vouchers has spawned a small industry of childcare voucher providers seeking to capitalise on a mixture of fear, ignorance, apprehension and – it has to be said – in some instances indolence on the part of employers wanting to enable their employees to have the benefit of the tax breaks but uncertain how best to go about setting up and running a scheme effective to deliver the benefit. This essay attempts to bust the myth that an employer can’t have a childcare voucher scheme unless it uses a childcare voucher provider.
Isn’t the legislation hard to understand?
Yes, some of the legislation governing childcare vouchers is hard for a layman, even an experienced HR professional, to penetrate. HM Revenue & Customs (HMRC) has recognised this, publishing on its website guides purporting to paraphrase the relevant sections of the Income Tax (Earnings and Pensions) Act 2003 as amended by successive Finance Acts. This is to say nothing of various related statutory instruments, also as amended from time to time as the government has sought to refine the scope of the benefit. But even HMRC’s guides, whilst much more comprehensible than the legislation, are difficult to follow.
Childcare voucher providers have taken advantage of this by promoting themselves as genies in the bottle with a simple answer: “Sign here, and leave it all to us.” They are, they say, experts who alone can ensure an employer can have a childcare voucher scheme. But there are other possibilities. An executive with a good analytical mind and plenty of time to spare could create the necessary framework. Or the employer could get its expensive lawyers on to the task. Or, best of all, the necessary components could be purchased at very modest cost from Abacus Voucher Solutions.
We’re being told that using a childcare voucher provider “costs nothing”. Is that correct?
Some childcare voucher providers do indeed assert that to use a childcare voucher provider will cost the employer “nothing” It’s a specious sales line supposedly justified by the argument that the commission charged by a childcare voucher provider will invariably be at a lower rate (usually in the range 4% – 9%) than the rate of national insurance saved by the employer (either 13.8% or 10.1%, depending on the relevant state pension arrangement) on the value of the vouchers.
Putting to one side the extra work assumed by an employer if it has to liaise constantly with a childcare voucher provider, the cost of a scheme should best be measured by comparing the commission payable to a childcare voucher provider with the fixed annual fee charged by Abacus Voucher Solutions. The easiest way to do this is to go to Save with Abacus on the Abacus site.
What will my company get for its money?
Yes, that’s a good question. When a childcare voucher provider says “Leave it all to us”, what exactly is that “all”? What, in short, are the elements of a childcare voucher provider’s activity in supporting an employer’s scheme?
At the outset, the childcare voucher provider will help the employer publicise its scheme. It will provide a pretty poster for display on staff notice boards or its intranet and suggest the wording of an announcement to be circulated with payslips or the subject of a company-wide email. If the employer has a substantial headcount, the childcare voucher provider may send someone to the employer’s premises to discuss the proposed service for the employer and to address the workforce and answer employees’ questions.
Contrast this with what Abacus Voucher Solutions provides to get the scheme launched: a notice – not pretty, just factual – for display on staff notice boards or its intranet and suggested wording of an announcement to be circulated with payslips or the subject of a company-wide email. Abacus does not visit employers, but it does talk to them and it provides guides of very high quality that speak for themselves.
What about documentation for the scheme?
The childcare voucher provider will provide standard documentation intended to vary employment contracts by incorporating salary sacrifice. Often this will be a tripartite agreement – not all that well drafted – under which the employee has to accept obligations to the childcare voucher provider in addition to giving undertakings for the benefit of the employer. By contrast, all the documents provided by Abacus Voucher Solutions – guides for employer and employees and childcarers, templates for salary sacrifice, basic earnings assessments and registration forms – have been carefully designed by a retired solicitor with many years of corporate experience. Some of them can be customised to turn them into the employer’s own documents rather than be off the peg as one size to fit all.
But with a voucher provider there’s no work for the employer, right?
Wrong. An employer using a childcare voucher provider will be required to provide monthly returns to the voucher provider, showing what will be the value of each participating employee’s voucher at the end of the month, or showing at least any change in the values of vouchers since the previous month. The employer will also be responsible for passing over to the childcare voucher provider, in cleared funds, the aggregate value of the month’s vouchers so that the childcare voucher provider may credit in its books the individual values attributable to the individual participants.
An employer doing this might just as easily keep the records for itself. If Jack wants to change the monthly value of his voucher, you will need, whether or not using a voucher provider, to tell your payroll department or bureau. If Jill has decided to send her child to a different nursery, it’s no great burden to give her the form for the new nursery to register with you and then to tell your payroll department to make payments to the new nursery instead of the old one.
What about paying away the voucher money?
A childcare voucher provider will pass over to the participants’ respective childcarers the money represented by the vouchers. It will do this either under the equivalent of a standing order arrangement or in response to requests ad hoc by the participants. If there is no immediate request by the participant for a payment to his or her child’s carer, the childcare voucher provider will have the use of the money retained in its bank account until the request does come to be made.
If a business pays PAYE tax to HMRC (and perhaps also pays pension contributions to a pension provider), it ought to be perfectly capable of paying voucher money to childcarers.
How can we be sure the carer is providing qualifying childcare?
Childcare voucher providers generally require nurseries and others supplying child care to furnish evidence that they are registered with Ofsted (in England) or the equivalent body (elsewhere in the UK), in other words that their child care is qualifying child care. Typically this means that the carer has to give the childcare voucher provider a copy of its (or her or his) certificate of registration and to repeat the process annually. However, this process is not imposed by the legislation, and Abacus Voucher Solutions offers simpler ways of meeting the requirement that vouchers may not be used otherwise than for qualifying childcare as defined.
So what’s the key question in all this?
A childcare voucher provider charges a commission, typically in the range 4% to 9%, on the value of the voucher money passed over to it. VAT, from 1 January 2012 in principle not recoverable by the employer, is added to the commission. By contrast, the Abacus voucher solution is provided at a fixed annual charge based on the number of employees (not scheme participants) on the employer’s payroll: see Annual fees.
The management of a small or medium sized employer with only a handful of participants in its scheme should ask itself whether the commission payable to a childcare voucher provider represents good value compared with the cost to the employer of equipping itself with the materials such as Abacus Voucher Solutions provides and then having its payroll department or bureau make the payments of the voucher money to the nominated nurseries.
Employers with very large headcounts should examine the cost of keeping the entirety of the administration of a scheme in-house rather than outsourcing part of it to a childcare voucher provider. That cost will often be found to be very low, reflecting a small part of the working time of a single junior member of staff in, or liaising with, the payroll department. Abacus has on a number of occasions demonstrated to such employers just how many thousands of pounds can be saved by doing themselves what they had thought could be done only by hiring outsiders professing to be expert in a field where, to put it bluntly, little expertise is needed provided the basic documents have been drawn up competently.
An employer proposing to launch a scheme has to make one important decision right at the start of its preparations. Can its management really afford the time needed to discuss with a childcare voucher provider, still less two or three voucher providers, what each would do and what commission it would charge for doing it? Compare that commission with the Abacus fixed fee: go, as urged above, to Save with Abacus on the Abacus site
If in running your business you don’t call in caterers to brew your mid-morning tea, surely it is not going to be cost-effective to call in a voucher provider when all you need to do is implement the Abacus childcare voucher solution?
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