Tax credits and OFSTED

 

If your nanny is registered with OFSTED you may be eligible for childcare vouchers or tax credits.

OFSTED charges a yearly fee of £100 for registration to the scheme.

Childcare vouchers

Employees in receipt of childcare vouchers from their employer can use them to 'pay' their nanny. The nanny will then redeem the value of the voucher from the childcare voucher company, usually by direct payment into their bank account.

From April 2005, the first £50 per week in Childcare Vouchers supplied by the employer will be exempt from both tax and NIC's for employees (vouchers supplied in excess of £50 a week will be taxable and liable for NICs for the excess).

Your employer will normally sign up to a childcare voucher company and will pay that company an administration fee for their service. The voucher company will either supply you directly with your childcare vouchers or they will provide your employer with them, which they will distribute to staff accordingly.

Childcare vouchers can be offered to you in addition to your cash salary but are more commonly offered as a "salary sacrifice". This means that you sacrifice a specific amount of your salary and instead receive that amount in childcare vouchers. Childcare vouchers are exempt from National Insurance Contributions (NIC), so you will only pay NIC on the reduced level of your salary, saving up to 11% on NIC. This saves money on childcare costs.

Visit www.inlandrevenue.gov.uk/childcare for more information.

Child Tax Credit and Working Tax Credit

The Child Tax Credit (CTC) offers parents support with general family costs. Working Tax Credit (WTC) supports those on lower incomes and working parents may be eligible for additional help towards registered childcare costs. The amount of help parents receive will depend on a number of factors including their income, the size of their family and the amount the pay in childcare.

The receipt of childcare vouchers through a salary sacrifice scheme can affect parents' entitlements to these tax credits in a couple of ways. As your average earnings will effectively be reduced, you could receive a higher payment through the WTC. However, the value you receive in childcare vouchers from your employer cannot be declared as childcare costs when calculations are made for your entitlement to the childcare element of WTC. The childcare element of WTC may therefore be reduced.

Parents are advised to find out what level of support they could be entitled to through the CTC and WTC before they sign up to a childcare voucher salary sacrifice scheme. In some instances parents may be financially better off opting to receive help through the WTC rather than through their employers childcare voucher scheme. For more information on Tax Credits visit www.taxcredits.inlandrevenue.gov.uk or call 0845 300 3900.

 
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