Two types of financial support are available to parents employing an Ofsted registered nanny: working tax credits and employer-supported childcare vouchers. Many nanny employers will not benefit from the working tax credit as only households with a combined family income of £59,000 or less will qualify. However, it is expected that employer-supported childcare vouchers will become a popular way for parents to make a substantial saving, as this form of tax relief is available to all parents, regardless of income. To be able to use childcare vouchers you must be employed and your employer needs to set up a childcare voucher scheme.

Many Nannytax clients have expressed concern about the potential hassle involved with paying nanny partly 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 your nanny. Her salary will not change when you start using vouchers, nor will the amount of tax and NI you pay on her behalf. However, you will be able to save money on your 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 you need to be employed and your employer needs to set up a childcare voucher scheme. If you are a director of a company you can also take advantage of vouchers, providing you make them available to all your 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. Your employer will use either one or the other, and the mechanics of the two are slightly different, with less paperwork involved with electronic vouchers.

The vouchers are issued directly to you from your 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 paper vouchers are used these will be either handed directly to you, or sent in the post.

If your nanny is not already registered with a childcare voucher company a welcome pack will be sent to you with a registration form for nanny to fill in. Under the new Ofsted register your 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 your nanny with a unique service provider number. If electronic vouchers are used you need to authorize the transfer of the value of the vouchers from their virtual account into one that has been set up for your 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. As her employer you may wish to consider moving nanny's payday to offset any possible delays.