Paying your nanny with Childcare Vouchers
What is a Childcare Voucher Scheme?
In recent years the government has extended the financial help available towards childcare costs. One of the ways they did this was to introduce tax relief on employer-provided childcare, including Childcare Voucher schemes. Currently, tax relief is available on employer-provided childcare vouchers up to the value of £243 per month.
Under a Childcare Voucher Scheme, the parent’s employer provides them with vouchers, normally instead of salary, and the parent then uses the vouchers to pay for childcare.
Tax savings
The savings for the parent can be considerable. In a year, a parent could receive £2,916 worth of vouchers tax-free, and for a 40% tax-payer this would mean a saving of £1,196 in income tax.
Of course, the savings are only available if one or both of the parents work for an employer who offers such a scheme. Savings are doubled if both parents can participate.
How does a Childcare Voucher Scheme operate?
The parent agrees to sacrifice a portion of salary in return for Childcare Vouchers. The parent’s salary goes down and they pay less tax on their payslip, e.g.:
Saving
| Gross salary | £ 2500.00 per month |
| less sacrifice | -243.00 (value of vouchers purchased) |
| New gross for tax | £ 2257.00 |
| Vouchers purchased | £ 243.00 |
| Reduction in net pay | 167.67 |
| £ 75.33 | |
In this example, the parent buys £243.00 worth of vouchers. The tax and NI on their payslip is reduced by £75.33, so the actual cost to the parent is just £167.67.
The parent then passes the £243.00 of vouchers to the Registered Nanny, along with cash, cheque or transfer to ‘top-up’ to the full amount due per the nanny’s payslip. The best schemes arrange for all of this to be done electronically via the internet.
What does it mean for my nanny?
The nanny will only be able to participate if she is registered under the voluntary section of the OFSTED childcare register. To register, she must have basic childcare training, a valid First Aid certificate and public liability insurance. She will also require a Criminal Records Bureau check.
The nanny is charged about £100 to apply. Thereafter, she will be charged an annual renewal fee to remain on the register.
Entry on the OFSTED childcare register is entirely voluntary and of no financial benefit to the nanny. The scheme has no effect on her tax, since the savings are all on the parent’s payslip. The nanny may enjoy increased status and employability, but her total income remains the same. For this reason, many parents choose to meet the cost of getting their nanny registered.
Your nanny may also incur additional training costs and she will have to pay out for her public liability insurance (specialist policies are available at £60pa – see contacts below). Some parents also choose to meet some of these costs.
How do I get my nanny approved?
Your starting point will be OFSTED. Your nanny can apply online at www.ofsted.gov.uk (follow the links to Voluntary Register) or she can call 0845 640 4045. OFSTED will write to let the nanny know they have received her application and to explain the requirements in full.
The process can take up to 12 weeks, so it is important to make the application as soon as possible. The employer’s Childcare Voucher company may not allow you to join the scheme until the nanny’s registration is complete. They may also prevent you from paying out more than the monthly voucher limit of £243, so do check with them before stockpiling vouchers to pay out at a later date.
More help / useful contacts
Childcare Voucher companies administer these schemes and a good one will provide parents and carers with full documentation and a helpline, via the parent’s employer. Other useful contacts include:
Morton Michel for public liability insurance:
www.mortonmichel.co.uk/nanny/intro.htm 0845 257 0900
OFSTED: www.ofsted.gov.uk (follow 'Forms and Guidance' then 'Childcare' then 'Childcare Register)'
or call 0845 640 4045