If you have a little one that is starting in childcare, you’ll know how expensive it can be. In fact, one in four parents had to quit their job or leave education because of these skyrocketing costs. This is where the childcare salary sacrifice comes into play. Here’s everything you need to know about this scheme.
What Is the Scheme?
The childcare salary sacrifice scheme is a government-back scheme and is a ‘life hack’ for increasing your take-home pay at the end of each month.
Employer-supported childcare is normally given through salary sacrifice. This means an employee will give up part of their usual salary, pre-tax, in exchange for a non-cash benefit (in this case, childcare). This usually means a higher take-home pay as a result of paying less National Insurance, and Income Tax.
It’s a great, more tax-efficient way of paying for childcare and will relieve some financial stress from parent’s already busy lives.
Usually, you will need to enter an agreement with your specific employer, and this contract will determine how much you sacrifice, how long you're eligible and what benefits you will receive. Not all employers will offer this scheme, so it’s best to talk to your manager or HR to find out more.
Can I Use This Scheme With the Tax-Free Childcare Scheme?
Unfortunately not. If you tell your employer that you’re using the tax-free childcare scheme, they will stop giving you childcare vouchers.
If you want to learn more about tax-free childcare and which scheme is best for you, click here to read our guide.
If your workplace has a workplace nursery, this may be exempt from salary sacrifice. This nursery does not have to be on-site, but it must be available to all employees.
How Much Do I Need To Earn?
From the start of the tax year this year (6th April), if you earn over £60,000 you will be affected. The threshold was previously set at £50,000. People will now lose all of their child benefits if they earn over £80,000, so for high earners, this scheme will help people keep more benefits. To use this scheme, there is no minimum earning threshold, and you will decide with your employer how much to sacrifice and what your overall earnings per month will be. It is important to note that you cannot sacrifice so much of your earnings that you fall below minimum wage in the UK.
What if I Go on Maternity Leave During When I’m Using the Scheme?
If you are on Statutory Maternity Pay, or other unpaid leave (sick leave or other reasons), you will most likely have to stop participating in the scheme. Once you return to work, you will need to complete a new form to rejoin the salary sacrifice scheme and restart your deductions. However, it is best to check with your employer before you go on leave, as not all workplaces will follow the same protocols.
Looking for more ways to cut childcare costs? Check out our guide now!
