Saving Money with Childcare Vouchers

It has often been said that being a parent is the world’s toughest job, and it can be especially difficult in a faltering economy. Even though the economy is improving, many families are still struggling to keep their heads above water: they’ve downsized, downscaled, scrimped and saved, and some have even taken out bank loans to stay afloat.

If you are an employed parent of young children and are desperately looking for ways to keep costs down, don’t overlook childcare vouchers, which can save you thousands of pounds a year in tax.

ChildcareHow the program works
Childcare vouchers enable you to pay for childcare for kids (up to age 15) out of your pre-tax and National Insurance income.

Some employers are generous and will give employees the vouchers on top of the normal salary but for most it works by “salary sacrifice”.

If you are on a basic-rate tax, this means you give up £1,000 of salary. (Of course, once you no longer need childcare, make sure you get your full salary reinstated.)

To qualify for childcare tax credit you must either be a single parent working 16 or more hours a week, or be part of a couple where both parties work 16 or more hours a week. Your total household income must be under £41,000.

What you get
If you are a basic-rate tax payer you can currently pay for up to £243 for childcare with vouchers each month, or £55/week. Note that this is per parent, so two working parents could use £486 of vouchers per month.

These amounts also apply to higher or top-rate payers who joined before 5 April 2011 provided they do not take a break from the childcare voucher programme of more than 12 months.

Currently (as of April 2014) the limits are:

  • Basic (20%) taxpayer: £55/week voucher, maximum annual tax saving £930.
  • Higher (40%) taxpayer: £28/week voucher, maximum annual tax saving £630.
  • Top rate (45%) taxpayer: £25/week voucher, maximum annual tax saving £590.

The number of children you have does not affect these limits.

Buy in advance, but don’t overbuy

Unlike many store or manufacturer coupons, childcare vouchers are generally valid for a long period of time. Therefore if you know you’re going to have higher childcare costs at a certain time, such as during the holidays, it’s a good idea to collect vouchers in advance. One caveat, though: vouchers are usually non-refundable, so don’t go overboard and collect more vouchers than you can use.

In addition, many providers will allow you to backdate vouchers up to six months, but your child must have been born for you to be able to sign up. Every provider has their own procedures, so be sure to check the procedures carefully before buying.

Take advantage of resources
For more information about childcare vouchers see Also know that there are several other ways to get help with childcare costs, including childcare tax credits, free school schemes, and more; see

Being a parent is a challenge under the best of circumstances, but it doesn’t have to break the bank. You could be one of the many thousands of parents who are missing out on benefits for which they are entitled. A little bit of research could yield some pleasant surprises.