The childcare voucher scheme allows parents to receive up to £55pw or £243pm of childcare vouchers from their employer, free of tax and National Insurance. The vouchers can be used for a range of childcare for children up to the age of 15.
Childcare vouchers are often provided through salary sacrifice. Swapping taxable pay for tax-free childcare vouchers saves basic-rate taxpayers up to £933 a year. At the same time, employers save up to £402 a year in employer National Insurance contributions.
The tax-exempt thresholds are:
- Basic-rate taxpayer £55/w £243/m
- Higher-rate taxpayer £28/w £124/m
- Additional-rate taxpayer £25/w £110/m
However the vouchers can also be provided in addition to salary which could be useful for directors. The current monthly lower limit of £641 could be increased to £884 per month. The employer then pays the childcare provider £243 directly and then £243 is deducted from the employee’s payslip to leave them net pay of £641.
The result of this is that the employer can then show £2,916 in their accounts as Childcare Voucher costs which the director would have had to pay anyway.
Unfortunately, child care is not a deductible expense for sole traders / self-employed.