Parents who are higher-rate tax payers need to act now to avoid losing the financial benefits of their childcare vouchers.
The Government is introducing changes to the tax exemption relating to childcare vouchers from 6 April. From this date, higher-rate and additional rate tax payers will be subject to a reduced maximum to make their savings more equitable with standard-rate tax payers.
Currently, all parents who are signed up to a childcare voucher scheme are able to claim up to £55 of tax-exempt income for each qualifying week, which can equal a saving of £1,195 over a year, depending on individual circumstances. Where two working parents sign up to the scheme, double savings can be made.
Employees who sign up to the scheme on or after 6 April may well miss out on the amount of tax exemption currently available. Those in the higher and additional tax rate brackets will only be entitled to relief on £28 and £22 exempt income respectively for each qualifying week.
At voucher provider Co-operative Employee Benefits, group operations manager Tracy Wilson says, 'I would strongly advise any employees who fall into the higher or additional tax rate brackets to sign up for the childcare voucher scheme now. Those who sign up before 6 April will not be affected by the changes and so can continue to benefit from the current exemption limits, as long as they remain continuously within the same scheme.'
This advice is corroborated by Computershare Voucher Services (CVS), which says that it handles childcare vouchers for more than 110,000 working parents every month. Managing director Julian Foster says, 'New entrants who sign up after 6 April will see their potential savings drop from £1,195 a year, to just over £600. The result is that some higher rate working families could miss out on as much as £1,144 in tax relief and NI relief in a year.'
Meanwhile, CVS has produced a guide for parents to help them be 'VAT savvy'.
'A rise in VAT and other Government changes may be tipping the scales for many parents, as they are landed with even more pressure on the family bank balance,' says Mr Foster. 'So CVS has been on the hunt for ways in which parents can avoid VAT hikes or steer clear of VAT-able products altogether and save a few more pennies.'
Computershare's guide 'How to be savvy for a day' outlines how food items classed as luxuries will generally be charged at standard VAT rates, while those in a natural or unprocessed state often have a zero rating. For example, chocolate bars and ice cream will incur the standard rate, while fresh fruit and vegetables will not.
It also advises avoiding high petrol costs by making use of the 'walking bus' schemes to take children to school.
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