Your employer may offer you childcare vouchers (including vouchers in return for a reduction in your pay – known as a ‘salary sacrifice’) to help with your childcare costs. Childcare Vouchers are exempt from National Insurance and income tax up to £243 a month and can save parents a tidy amount of money, as much as £1,000 a year.
However, since April 2011 higher rate income tax payers joining a childcare voucher scheme are only able to make the same tax savings as those paying basic rate tax. This is implemented by restricting the level of tax exempt vouchers that higher rate tax payers can receive.
But if a parent joined a scheme before the 5th April no such restrictions apply. So, as highlighted by me on this site, higher rate tax payers were well advised to join an available childcare voucher scheme before the tax year end in order to secure the highest possible value of childcare vouchers.
But, as recently reported in the Sunday Times, for those parents that did secure the higher rate if they now move jobs they will be reclassified as new scheme entrants when they join their future employer’s childcare voucher scheme.
What this means is that a 40% income tax payer could see their childcare voucher limit fall from £55 per week to £28 per week. While 50% tax payers would see the their childcare voucher limit fall to £22 per week.
While it may not break the bank for higher rate tax payers it certainly is worth noting when negotiating the salary on your new contract.