The Low Incomes Tax Reform Group has published an article entitled ‘Childcare vouchers - still a trap for many’. This makes very interesting reading, particularly in light of the government’s announcement to reduce tax credit eligibility for families with household income above £40,000 and the impact this could possibly have on employees when considering Salary Sacrifice.
The broad principles are:
1. You cannot take vouchers from your employer and claim tax credits on the childcare costs covered by those vouchers. If you do, the tax credits will be overpaid and you will have to pay them back.
2. When you sacrifice salary for vouchers you may lose:
- Entitlements to a range of state benefits
- Benefits from your employer which could be based on your salary level
- Your net salary on the amount sacrificed
- Tax credits of up to 80% of the childcare costs you currently pay
3. By sacrificing salary for vouchers you may gain:
- A reduction in your tax liability
- A reduction in your national insurance payments
- An increase in your tax credits entitlement because your income has gone down by the amount of salary you have sacrificed
- Your employer’s subsidy of your childcare costs
|