Tag Archives: Childcare vouchers

Nursery costs – getting the most out of your money

We have recently been looking at putting Holly into nursery, she is currently looked after by her Grandma’s when Vicky is at work (3 days a week), we are lucky to have this option and we are very grateful for this. We only plan to put her in nursery for a day a week initially, hoping to get her used to socialising with other children and learning what that entails (sharing etc) before she starts school.

As has been publicised in the press recently, childcare costs can be significant and essential for some to be able to (return to) work. In my view, the childcare voucher scheme is a must. Granted not every employer will offer it, they are not legally obliged to, but it actually saves them money so if yours doesn’t push them to do it!

The childcare voucher scheme works (normally) on a salary sacrifice basis; this is where you ‘sacrifice’ part of your gross salary (before you are taxed) and your employer gives you a voucher instead – thus you save on income tax and national insurance (your employer does not pay employers NIC on the sacrificed amount either). Currently, this will save you 12% national insurance and 20% or 40% income tax (I presume none of you currently pay the 50% rate!) – a total of 32% or 52%!

You can ‘sacrifice’ up to £243 per month – and this can be done by BOTH parents, so combined you can ‘sacrifice’ up to £486 per month.  As shown in the example below, if both parents use the maximum allowance and are basic rate tax payers (i.e. 20% rate) you would save over £1,840 per year. That’s quite a lot by anybody! Hope this is helpful. If you’re not claiming childcare vouchers and you could be, more information is available here.

Normal Voucher scheme Saving
Gross salary per month 2,500.00 2,500.00
Childcare voucher 0.00 240.00
Gross after sacrifice 2,500.00 2,260.00
Tax (at 20%) 375.42 327.42 48.00
National insurance (at 12%) 227.75 198.95 28.80
Net pay 1,896.83 1,733.63
Childcare (paid from net) 240.00 0.00
Monthly ‘Take home’ pay 1,656.83 1,733.63 76.80
Per year 921.60
Double for your spouse 1,843.20