How much can I save?

Updated on 18 May 2019

Childcare

This page explains how much you can save by taking childcare vouchers offered by your employer. Different rules apply depending on when you joined your employer’s scheme. The rules for claiming childcare vouchers changed from 4 October 2018 – see our Who can claim vouchers? page for more information.

How do I save money from childcare vouchers?

Childcare vouchers are an employer-provided non-cash benefit (except that, as explained on our Who can claim vouchers? page, when taken via salary sacrifice they may be treated effectively like cash pay for the purposes of working out entitlement to them when claiming statutory maternity pay). Normally benefits provided by your employer are taxable and subject to National Insurance contributions (NIC).

However, to help parents with childcare costs, the Government allows employers to give eligible employees childcare vouchers on a tax- and NIC-free basis (up to certain limits). 

Most employers do not give these vouchers on top of salary, but in conjunction with a salary sacrifice arrangement. Salary sacrifice schemes save employees money, because no tax and NIC is payable on the amount of salary that is sacrificed for the vouchers. For a basic rate taxpayer this saves 20p tax and 12p National Insurance on every £1 of vouchers. 

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How much can I save?

How much tax and National Insurance you can save depends on when you joined your employer’s childcare voucher scheme. Note that no relief is available for new joiners to such schemes from 4 October 2018, as explained on our Who can claim vouchers? page.

The rules for higher rate and additional rate taxpayers changed from 6 April 2011 so that they are now entitled to less tax and National Insurance relief than previously. If both parents have employers who offer the scheme, they can both claim vouchers and save tax and National Insurance. 

  Joined your employer's scheme before 6 April 2011 Joined your employer's scheme on or after 6 April 2011
Basic rate taxpayer

 - Can claim up to £55 a week in vouchers that are tax free and National Insurance exempt
 - Maximum saving of £933 a year

 - Can claim up to £55 a week in vouchers that are tax free and National Insurance exempt
 - Maximum saving of £933 a year

Higher rate taxpayer

 - Can claim up to £55 a week in vouchers that are tax free and National Insurance exempt
 - Maximum saving of £933 a year

 - Can claim up to £28 a week in vouchers that are tax free and National Insurance exempt
 - Maximum saving of £625 a year

Additional rate taxpayer

 - Can claim up to £55 a week in vouchers that are tax free and National Insurance exempt
 - Maximum saving of £933 a year

 - Can claim up to £25 a week in vouchers that are tax free and National Insurance exempt
 - Maximum saving of £621 a year


*Note: Following the introduction of Scottish income tax and Welsh income tax, the Scottish and Welsh governments set their own income tax rates and thresholds for non-savings, non-dividend income. However, eligibility criteria for employer provided childcare vouchers are not devolved to the Scottish and Welsh governments and, therefore, the basic, higher and additional income tax rates mentioned above are the UK rates. This means that the same limits apply for all employees in the UK in receipt of childcare vouchers even if they are Scottish or Welsh taxpayers. The actual tax savings for Scottish taxpayers may differ from those set out in the table above, as they will pay income tax according to the Scottish rates and bands. For 2019/20, there will be no difference in the tax paid by Welsh taxpayers.

If you take vouchers above these limits, the excess will be liable to tax and National Insurance.

Example

Rachel is a single parent who earns £20,000 a year. She pays £5,000 for childcare each year. Rachel gives up £55 a week of her salary (£2,916 over the year) to buy childcare vouchers through her employer’s scheme. In 2019/20, her saving by taking vouchers via salary sacrifice is as follows:

  Without vouchers With vouchers
Gross Salary

£20,000

£17,084

Tax

£1,500

£916
NIC £1,364 £1,041
     
Take home pay £17,136 £15,154
     
Childcare costs paid out of take home pay £5,000 £2,084
     
Income left £12,136 £13,070

 

Rachel has saved £934 by using childcare vouchers. This is because if she did not take the vouchers, she would have to pay more tax and National Insurance as her taxable salary would be higher.

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How do I know if I am a basic, higher or additional rate taxpayer?

At the start of each tax year, which runs from 6 April to 5 April, your employer will carry out a basic earnings assessment. This will identify you as a ‘basic rate’, ‘higher rate’ or ‘additional rate’ taxpayer. The assessment remains valid for the whole of the relevant tax year and is an assessment made on the basis of information available at the start of the tax year. The value of your childcare vouchers will be based on this assessment.

You can find more detailed information about the basic earnings assessment in the HMRC guide for employers.

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