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Existing Childcare Vouchers

Two types of financial support are available under the Ofsted regsiter which came into force in April 2007: working tax credits and employer-supported childcare vouchers.

Many nanny employers will not benefit from the working tax credit as only households with a relatively low combined family income will qualify*. However, employer-supported childcare vouchers are a form of tax relief is available to all employed parents.

Many Nannytax clients have expressed concern about the potential hassle involved with paying nanny partly employers save as much as £2,000 per year in childcare vouchers, so we have put together this step-by-step guide to help clarify the issue. Childcare vouchers are just a different way of paying their nanny. Nanny's salary will not change when a parent starts using vouchers, nor will the amount of tax and NI paid on her behalf. However, the parent will be able to save money on their own tax and NI payments, in some cases as much as £2,000 per family per year. Childcare vouchers can only be used to pay for childcare.

To be able to use childcare vouchers a parent needs to be employed and their employer needs to set up a childcare voucher scheme. If the parent is a company director they can also take advantage of vouchers, providing vouchers are made available to all of their staff as well. Self employed persons are not able to benefit from childcare vouchers. There are two types of childcare vouchers available: paper vouchers and electronic vouchers and the mechanics of the two are slightly different, with less paperwork involved with electronic vouchers.

The vouchers are issued directly to the nanny from the parent. In the case of paper vouchers, these will be received either in the post or issued by their employer. If electronic vouchers are used the value of these will be deposited into a 'virtual' account which is held with the voucher provider.

If the nanny is not already registered nanny must be registered with Ofsted with a childcare voucher company a welcome pack will be sent to the parent with a registration form for their nanny to fill in. Under the voluntary Ofsted register, their nanny is required to provide the voucher company with a copy of her registration number when she registers. If paper vouchers have already been issued these need to be included when nanny sends in the registration form.

Once the voucher company has received the registration form they will issue the nanny with a unique service provider number. If electronic vouchers are used the parent needs to authorize the transfer of the value of the vouchers from their virtual account into one that has been set up for nanny. Once the childcare voucher provider has received confirmation of transfer they will issue payment to the value of the vouchers.

Nanny has the option of being paid either by BACS or by cheque. It will take approximately three days for the BACS payment to clear into her bank account. One of the main concerns raised by nannies is whether childcare vouchers will mean that her salary will be late. Initially there will be a slight delay, but once the account is up and running, it should operate smoothly, and not cause any further delays. The parent may wish to consider moving nanny's payday to offset any possible delays.

See our FAQs for further information

* Before April 2012, parents could usually qualify for tax credits if their total, combined family income did not exceed £41,300 per year. Since 6th April 2012, the income limit is lower for most families and now depends on their individual circumstances, such as how many children they have, whether they pay for registered/ approved childcare or if a parent or child has a disability.  As a rough guide, HMRC have quoted that a family will most likely qualify for tax credits if their total, combined annual income does not exceed £26,000 if they have 1 child and £32,200 for 2 children. As mentioned this is a rough guide. For more information about tax credits, please contact HMRC's Tax Credit Helpline, tel: 0345 300 3900.