Child Care Vouchers

The Probe - September 2007

The Government has introduced exemptions to encourage more employers to help employees with their childcare responsibilities. There are a few options but I’m going to explain the route that most dental principals are likely to take which is offering childcare vouchers to their staff. Provided various conditions are met – such as the childcare is registered or approved (ie you can’t get your mother-in–law to help for the day and hope to qualify) and you offer the benefit to all staff - you can give your staff £243 per month free of tax and Class 1 NICs. So for a member of your team that is paying basic rate of tax that’s a monthly saving of £80.19 or £962.28 a year. In addition as the employer you could also be saving another £373.25 a year in employers National Insurance. To set it up you can use a third party such as Busy Bees or Accor Services but having recently implemented the scheme at Essential Money for all the staff here, it is very simple to do it yourself and avoid paying an administration fee. All you need to do is produce a voucher – examples are on the HM Revenue & Customs website, which your employee gives to the nursery or childcarer. The voucher is then returned to the employer to pay. It’s key that the employee takes a reduction in their income, often called “salary sacrifice” to fund the vouchers, otherwise you’ll end up paying for their childcare costs. So if you are paying your receptionist £15,000 a year and they pay £243 a month in childcare costs, you write a letter to them amending their contract to £12,084. You then pay the nursery directly and the employee pays the balance. You should ensure your employees understand the impacts on benefits, especially tax credits. There’s a very useful tax credits calculator available on www.hmrc.gov.uk. It could also affect their pensions, income protection and the amount they can borrow for a mortgage, so make sure they seek advice before they sign up to the scheme. This can also work for any principals that have recently incorporated as they will now be classed as employees. You don’t need to do salary sacrifice either so it’s even simpler – just print off the vouchers. The figures above are for guidance only and reflect the position at the time of writing. Essential Money Limited is authorised and regulated by the Financial Services Authority.