How much can I save?

Updated on 7 November 2018

This section 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?’ section for more information.

How do I save money from childcare vouchers?

Childcare vouchers are an employer provided non-cash benefit. Normally benefits provided by your employer are taxable and subject to National Insurance contributions.

However, in order to help parents with childcare costs, the Government allow employers to give 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. 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 then 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 the Scottish rate of income tax, the Scottish Parliament set the Scottish income tax rates and thresholds. However, eligibility criteria for employer provided childcare vouchers are not devolved to the Scottish Parliament and, therefore, the basic and higher 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 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. 

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 employers scheme. 

  Without vouchers With vouchers
Gross Salary

£20,000

£17,084

Tax

£1,800

£1,217
NIC £1,433 £1,083
     
Take home pay £16,767 £14,786
     
Childcare costs £5,000 £2,084
     
Income left £11,767 £12,700

 

Rachel has saved £933 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.

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

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How do I know if I am a basic or higher 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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