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Tax-free childcare vouchers deadline approaches

Higher-earners will be restricted after April 2011

From April 2011, new members of salary sacrifice schemes will receive less in tax-free childcare vouchers if they are higher-rate taxpayers. The standard £55 a week will be cut to £28. For 50% taxpayers it falls to £22. Current scheme members will not be affected.

Salary sacrifice

Giving up pay can make you better off, if your employer runs a salary sacrifice scheme. Your salary is reduced by an agreed amount but you are compensated for this by benefits such as additional pension contributions, a new bike or childcare vouchers. The incentive for employers is that they cut their National Insurance bill.

Childcare voucher changes  

At the moment, employees can receive up to £55 a week in childcare vouchers tax-free. This will continue to be the case for basic taxpayers, but from 6 April 2011 the amount that higher-rate taxpayers can receive will fall. For 40% taxpayers it will drop to £28 and for 50% additional taxpayers it will be £22. 

The childcare voucher rule changes only apply to new members of salary sacrifice schemes however. Existing arrangements will not be affected, so higher-rate taxpayers who already receive childcare vouchers can go on receiving up to £55 a week tax-free. If you move to another employer’s scheme after April 2011 the new limits will apply. Temporary cessation of vouchers is permitted for up to 12 months, without being treated as a new joiner.

Which? personal finance writer, Ian Robinson said: ‘Tax payers who might lose out as a result of these changes have until April to join an employer’s scheme. After that, the amount they can claim could be significantly reduced.’

Tax credit check

Receiving childcare support from your employer can reduce the amount of tax credit you are entitled to. A new HMRC online calculator allows you to check whether it’s worth joining a scheme and taking vouchers. 

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