Salary sacrifice, Child Tax Credit & Working Tax Credit explained
If your employer wants to provide you with childcare vouchers you can pay for them as part of your wages. You sacrifice part of your wages in return for a similar value in vouchers.
Benefits of salary sacrifice
Before you can start benefiting from childcare vouchers, your employment contract will need to be updated with the inclusion of a signed agreement, which confirms your acceptance of the salary sacrifice.
Your employer pays no NI on the amount agreed giving them savings of up to £402 for each employee. And you pay no NI or tax meaning you can save about £1,000 per year.
Child Tax Credits & Working Tax Credit
The Working Tax Credit (WTC) and Child Tax Credit (CTC) started in April 2003. The amount of WTC award depends on a number of factors including the number of hours you work, how many children you may have and whether you pay any eligible childcare costs. Choosing childcare vouchers may have an impact on your eligibility for CTC.
Will you be better off accepting Childcare Vouchers in return for a salary sacrifice or claiming tax credit help towards your childcare costs?
Families will always benefit from taking a tax and NIC free voucher if it is offered to them on top of their salary.
Generally families will benefit from taking childcare vouchers when the amount of their qualifying childcare costs are greater than the current childcare limits (£175 a week for one child, £300 for two or more children.)
Generally, families who are receiving tax credits at the family element or less when they are claiming for the childcare element in Working Tax Credit (£545 or less) will gain from claiming the tax and NICs exemption.
Generally, families who are receiving tax credits at a level greater than the family element will not gain from claiming the tax and NICs exemptions unless the person offered the Childcare Vouchers is a higher rate tax payer.
Families receiving Childcare Vouchers from their employers cannot then claim the childcare element of Working Tax Credit on the same costs.
See how childcare vouchers will affect your tax credits using our Tax Credit Estimator
Find out more
To find out more about the potential benefits of your employer setting up a salary sacrifice scheme contact us.
Are you eligible for childcare vouchers?
Where can I use Edenred Childcare Vouchers?