Childcare vouchers

One of the benefits employers have been able to offer to their employees has been childcare vouchers. They are free of tax and NIC as long as long there are within a certain threshold. The new budget has introduced changes however that introduce a new level a complexity.

The current situation (per parent) is as follows:

• Basic (20%) Taxpayer. Allowed £55/week vouchers, maximum annual gain £890
• Higher (40%) Taxpayer. Allowed £55/week voucher, maximum annual gain £1,170
• Top (50%) Taxpayer. Allowed £55/week voucher, maximum annual gain £1,460

For new joiners after 6 April 2011 it will be:

• Basic (20%) Taxpayer. Allowed £55/week vouchers, maximum annual gain £920
• Higher (40%) Taxpayer. Allowed £28/week voucher, maximum annual gain £610
• Top (50%) Taxpayer. Allowed £22/week voucher, maximum annual gain £590

Therefore if, as an employee, you can join a childcare scheme, and if you are suffering the higher rates of tax, you should do it before before 5 April 2011. Remember, most vouchers have a long date on them (e.g. three years) so even if you don't quite need them yet, but definitely will, it's worth getting into the scheme (even if only buying small amounts as you can increase payments once in the scheme) before the allowances plummet.

There are also more administrative burdens for the employers under these new rules and so, a word of warning: if, in the interests of simplicity, the employer decides to close the scheme to new entrants from 6 April 2011 to avoid these complications, the scheme is then no longer open to all employees and all current recipients of vouchers or directly contracted childcare will be taxable and NICable in full!