Reduction in tax benefits with Childcare voucher scheme. If you are a high earning parent and an employee you may well benefit significantly from childcare vouchers. They can be used for a range of childcare expenses – including paying nannies, after-school clubs and even boarding fees for independent schools. The tax benefit comes from the fact that the value of the vouchers is deducted from your pre-tax salary rather than being paid out of after-tax income. This saves income tax and national insurance contributions. Thus higher earners ‘feel’ more benefit.
However, the childcare tax system changed in April 2011. Now higher rate 40% (and additional rate 50%) taxpayers may only receive £28 and £22 worth of vouchers per week respectively. Yet higher rate taxpayers who enrolled into the system before 6 April can still receive up to £55 worth of vouchers per week (£243 per month) as this was the allowance under the old system. Employees whose employment earnings are not greater than the basic rate limit (£35,000 for 2011/12) can continue to receive up to £55 per week.
So what’s the watch out? Beware that if you change employer, the tax office will reclassify you as a new scheme contract who is only entitled at the new childcare voucher rate. This is obviously just one consideration when changing jobs, but one that will have an impact upon your overall net income.