Salary sacrifice questions!

[skiwear]

Grateful for any help from wise mnetters.
If your employer does this am I right in thinking you save tax and NI and your employer saves NI?
Can it only be used for on-site nurseries, if not does any one know what is needed for independent nurseries?
Is it a load of hassle for an employer to set up or relatively easy?
TIA

Hi there, you're right that you save tax (at your highest tax band) and NI on a maximum of £243 per month and the employer saves NI. The vouchers can be used for anyone registered appropriately - I use them for my nanny - so I would check with the nursery in question. The easiest thing for an employer would be to use an agency to administrate the scheme - the company I work for uses Sodexho, but there are a number of others out there. Agencies charge a fee of around 5% but there is still a saving to the employer as the NI saving is up to 12.8%. Hope that helps.

We operate a salary sacrifice scheme for one of our employees, but the cost equates to the NIC cost, so there is no saving to us.

However, it's about £1,800 (?) to her per year, so it's well worth doing.

be aware that they may affect your benefits and future pension entitlement our employer recommends seeking independent financial advice before signing up.

Thanks azure and fairyjay was trying to find out more about the salary sacrifice scheme rather than vouchers. Perhaps the other users are all at work!!

Alwasy worth getting together with other parents (both parents can get the vouchers so dads claim too) and then approach employer. Then it saves the employer cash and is seen as a good thing for employees too.

Sorry that is what the salary sacrifice is!. Instead of getting paid £20,000 per year, you get paid £18,000 and get £2,000 in nursery vouchers. You have to pay tax on the nursery vouchers (via PAYE) but not NI.

Yes, the employee saves on tax and NI and in some cases pays a lower pension contribution.

The employer saves on NI.

It doesn't only apply to on-site nurseries but I think they have to be classified as workplace nurseries - my employer is enormous and spread over multiple sites. It has nurseries which it owns outright, and also owns places in several local independent and chain nurseries.

It sounds like a pretty big thing to set up and the tax looks a bit fiddly, but once it's running (eg you've bought 5 places in a local nursery) it's a huge benefit to employees and hence a very attractive offer for potential recruits.

As it happens, Oxford Univeristy have a really good comprehensive page here about their salary sacrifice scheme which might help you a bit

Salary Sacrifice is NOT the same as vouchers.

Vouchers are limited to £243 a month, salary sacrifice has no such limits.

There are two different ways of saving the NI/tax.

1. Voucher schemes which are available against the cost of any OFSTED approved childcare. These are available to both parents (claiming separately against their own tax) and are up to $56 per week each(this was a year ago so has probably gone up).
   The way it works is that your employer instead of paying you the $56, pays the voucher agency before they calculate tax or NI. The agency then pay you the full 56, so you save the tax and NI on that amount.

2. For on-site nurseries managed by the employer, you can gain a full tax and NI deduction by organising a salary sacrifice scheme. The rules are that you have to 'permanently' (ie not just as a one off every month, but anticipated for a year or so) reduce your salary. How this works is that say you earn 20k, but the childcare costs 8k. Your new salary is 12k, but you are only taxed on this 12k, rather than the full 20k. It works out as very tax efficient.

ah, Cloudhopper clears it up

The scheme I was describing is the second type.

Thanks all Cloudhopper and Mre Badger it was the second one I was aking about we have been told by our employer it was starting in 2003 and we're still waiting. Want to try and get them to get on with it! Just off to check out that link now.