How to cut childcare costs by £1,866 a year – Money tip #195

1 min Read Published: 11 Sep 2012


If you work and have to pay for childcare then your employer may be able to help out with the costs via childcare vouchers.

What are childcare vouchers?

If your employer is signed up to the national scheme you could swap some of your gross salary for tax-free vouchers, up to certain limits, to pay for nursery care and pre and post-school club fees for children aged up to 15 (until 1st September following their 15th birthday), or 16 if they are disabled (until 1st September following their 16th birthday). Paying for childcare via childcare vouchers means that the cost is reduced due to the savings made on income tax and national insurance. This could be as much as £933 a year if you join now.

So how much can I save with childcare vouchers?

The exact amount depends on your level of pay with the maximum saving being £933 a year. But the beauty of childcare vouchers is that both parents can use them if their respective employers have signed up to a registered scheme. Meaning a maximum potential saving of £1,866 a year. You can find out how much childcare vouchers could save you here on the Computershare website (one of the companies which administer childcare vouchers). The page even includes a simple calculator to give you a personal savings estimate.

Is there a catch?

Obviously in sacrificing your salary it may impact on areas of your finance which depend on your earnings on which you receive tax relief, such as pension contributions. But importantly, if you receive tax credits you may not necessarily be better off using childcare vouchers. So this official calculator can work out whether you'd be better taking childcare vouchers or not.

Childcare vouchers could also help you to avoid losing your child benefit in January 2013

From January child benefit will be withdrawn gradually once one person in a household earns £50,000. The rate of withdrawal is 1% of child benefit for every £100 earned over £50,000, resulting in total withdrawal once earnings of £60,000 have been achieved. But if you reduce your taxable income below the threshold then you will retain your child benefit without extra Income Tax payments. Childcare vouchers can be used to do this.

Further information on childcare vouchers

More information on childcare vouchers is contained in HMRCs booklet on "Paying for childcare - getting help from your employer".