Am I paying too much for childcare?

Childcare is a huge issue for the majority of working parents, especially as career pressures continue to weigh on mothers, and the cost of living rises.

Some are fortunate to be able to rely on family to help provide childcare whilst working. For others, the need to access some form of paid childcare can be extremely costly.

Those on low incomes can benefit from financial assistance, but if you are a working parent that doesn't qualify for such assistance, and paying for childcare, you could be missing out on hundreds of pounds of savings each year by not using childcare voucher schemes.

Childcare vouchers can seem confusing at first sight and there aren't many conversations where the phrase "salary sacrifice scheme" crops up. Over the years myths have no doubt played a part (including that they are a State Benefit for those on low incomes only), holding back those who could benefit.

In simple terms, childcare vouchers are where you 'sacrifice' part of your salary up front to pay for childcare fees. That sacrificed money - it could be up to £243 per month - is not taxed and you pay no National Insurance (NI) on it. It becomes a voucher which you can offer your childcare provider.

The combined tax and NI saving can be as much as £1,866 per family each year, depending on individual circumstances.

Childcare vouchers can be used for a wide range of childcare options, not just nursery fees! As well as being used towards the cost of nursery care, nannies and au pairs they are accepted by many registered breakfast and after school clubs, holiday clubs, play schemes - even music lessons.

Both parents can purchase these vouchers as long as they work for an employer who offers a scheme. If your employer doesn't offer a scheme, ask them to start one. A scheme requires just one member to get it started!

It is also worth noting that your employer could also benefit from saving Employers National Insurance which could more than fund any administrative costs associated with running a scheme.

Another myth is that vouchers can only be used for the under 5s. In fact, childcare vouchers can be used up to the age of 15 and for children who are registered as disabled up to 16.

Childcare vouchers are not a Statutory Benefit. They are a tax efficient payment scheme designed to help working parents whether they are Basic rate, Higher rate or Additional Rate taxpayers. Basic Rate taxpayers can purchase up to £243 childcare vouchers per month, Higher Rate taxpayers up to £124 and Additional Rate taxpayers up to £110 per month.

Vouchers can be saved over the year and used simply for the school holidays if that is when they are needed, or paid over to your childcare provider on a regular basis.

New childcare scheme for 2015

From Autumn 2015, there will be a new tax-free childcare scheme introduced in which you will get 20% of your yearly childcare bill paid for by government. Operating the scheme via an online account through means that any payments you make will be topped up with a 20% contribution, up to a maximum contribution of £2,000 a year per child.

It will be available to families of under 12s where both parents are working (and working single parents) who are not already claiming tax credits to help with childcare costs.

Beware: accepting childcare vouchers from your employer may have an impact on your tax credits. If you are already getting tax credits to help with childcare costs, you're probably better off not opting for salary sacrifice. That's because you can only claim tax credits for the childcare you pay for with your own money, rather than with vouchers.

As always, it is important that you seek independent advice to ensure you fully understand the financial implications of using these schemes. Want to know more? Get in touch. Call 0844 800 3370 or email