Simpson Burgess Nash is a small firm, with 14 employees at present. Not many of us have small children; 3 in fact. We offer these employees (of whom I am one) £55 per week of childcare vouchers to contribute toward their childcare costs (e.g. nursery, breakfast club, after-school club, registered child minder), on the basis that they give up an equivalent amount of salary. The savings achieved are significant, and worth thinking about very seriously if you are an employer of employees with children aged up to 16.
The huge advantage of childcare vouchers up to a value of £55 per week is that they are free of tax and national insurance. It is this factor that makes the salary sacrifice worthwhile for the employee. The savings can be illustrated as follows:
Employee's position
Maximum sacrifice £55 per week * 52 £2,860
Tax saving for employee £2,860 * 22% £629
NIC saving for employee £2,860 * 11% £315
Total saving for employee £944
Employer's position
NIC saving for employer £2,860 * 12.8% £366
Less: administrative cost of voucher scheme 6.50% £186
Increased corporation tax £180 * 20% £36
Total saving for employer £144
For a higher rate taxpayer the savings are even more dramatic, an extra £229 for the employee, making a total saving of £1,173.
The following points need to be borne in mind:
1. The salary sacrifice arrangement must be formally documented and must be unconditional. Provided your employees are satisfied that you are not in the business of ripping them off, this should not be a problem.
2. The employee needs to consider carefully his or her tax credits position in connection with the arrangement, to ensure that they are genuinely better off overall.
3. Whilst an employer can administer the scheme by paying childcare providers directly, our experience has been that it is simpler to engage a specialist voucher provider to run the scheme. We use Childcare Options in Hazel Grove, Stockport, who are extremely efficient and very reasonably priced.
4. The scheme must be offered to all employees, although clearly only those with children of relevant ages and childcare costs to bear will actually take it up!
This scheme is to me a shining example of the Government putting its money where its mouth is by encouraging parents of young children back into the workplace by providing a worthwhile and straightforward financial incentive. Any employer with parents of young children on the payroll should look at childcare vouchers very seriously.
Mark Simpson
3 July 2007
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