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Tax-free childcare with Childcare Vouchers

Short Answer

Employee Childcare Vouchers can be taken from your salary before tax is deducted. If you currently pay for Childcare this is well worth taking advantage of

What are Childcare Vouchers?

Childcare Vouchers are coupons that you can use to pay for childcare with registered childcare providers.

In normal circumstances when you take money out of your small company be it as dividends or as salary, HMRC will tax you on that money. Childcare Vouchers are an exception, you can pay for the Childcare Vouchers out of your pre-tax earnings (ie you get something from the company without having to pay any income tax on it). Furthermore, this is an allowable expense for the company so you get 20% Corporation Tax relief on the cost too!

How much can I claim?

The amount that you can claim this way depends on whether you are a higher rate tax payer or a basic rate tax payer:

  • Basic rate taxpayers (those with total earnings less than £43,000 in 2016/17) can receive Childcare Vouchers worth £243 per month without paying any income tax.
  • Higher rate taxpayers (those with total earnings over £43,000 in 2016/17) can receive Childcare Vouchers worth £124 per month without paying any income tax.

How do I claim Childcare Vouchers?

To take advantage of Childcare Vouchers you need to appoint a third party Childcare Voucher Provider (search Google for ‘childcare voucher providers’ or ask your Caprica Accountant for a recommendation).

The Childcare Voucher Provider will administer the scheme for you at the cost of a few pounds per month. Your company also pays the Childcare Voucher Provider for the vouchers themselves.

How does this impact my Payroll?

It is necessary to add the Childcare Vouchers to your payslip as additions and deductions. We can easily do this for you. Just let you Caprica Accountant know the month you start to receive Childcare Vouchers and we’ll make the changes for you.