childcare vouchers/ child tax credit - so confused, can someone shed some light?

[Picklepoff]

I am returning work later this month after 12 months of Mat Leave. I am part freelance (hopefully will get 2 days work, have 5 hours so far) and part PAYE (7hrs)
I am desperately trying to find ways of reducing our childcare bill.

I have basically worked myself up into a huge whirlwind of confusion. I have been on the Directgov website, HMRC and the childcarevouchers website as DH is eligible for these.

Neither of us can understand what childcare vouchers actually are and how they work. Can anyone explain them to me as if I'm a 5 year old

Also does anyone know if Child Tax Credit is possible if you're on more of a flexible timetable such as freelancing?

I'd appreciate any help. Thank you.

Pickle I would LOVE to know what childcare vouchers actually are too so will wait with you for someone knowledgeable to come and enlighten us silly buggers if you don't mind! Trying to get this all sorted myself at the moment, why do they make it all so complicated?!

Childcare vouchers are a salary sacrifice scheme, in other words it is money you earn but get paid before any tax is taken, it gets paid as a voucher/online payment which is paid directly to an ofsted registered childcare provider. It saves you about £50 worth of tax a month or something like that.
With regard to tax credits, I would over estimate what you plan to earn and give that figure to hmrc, if by the end of the year you haven't earnt as much as you thought then you will get an extra payment, better than being overpaid and having to pay it back.
On the hmrc website there is a tax credit calculator which will give you a rough idea of what you will get.
There are people on here that will explain it better than me and hopefully will come along.

me too! i am pregnant with my first (due in april) and my work offer childcare vouchers which i thought i would switch too now instead of gym membership so i can save them up.

as i don't have a childminder/nursery yet and won't need to for at least a year i don't know how to calculate if it's better to have these or not. don't really understand the whole tax thing.

simple explanation would be gratefully appreciated!!!

It really depends on your household income with regards to the vouchers or tax credits assistance with childcare as you cant claim both on the same amount.

If your income is low enough that tax credits will pay childcare assistance then its usually the way to go, the sacrifice scheme is more beneficial to those that earn too much to get childcare help from tax credits.

rmay I can answer your one on childcare vouchers. If your DH's work offers childcare vouchers, he can start saving into the scheme, £240 a month, the day your child is born. This is really important if you can afford it. You basically build up a pot in the voucher scheme, and don't use it until you go back to work. You can only start saving in the scheme until after your maternity.

All the voucher scheme has a website, and you can check the balance of how much you have in the pot at any time. When you come to pay, you just log on, select your nursery/childminder and pay them. Your nursery/CM needs to register with your voucher provider. (That's pretty easy to do).

I pay nearly £900 a month for nursery, so you can see the pot I build up over maternity leave doesn't last very long!

And I remember reading somewhere that if you are eligible for tax credits, you will be worse off with childcare vouchers. If you aren't eligible for tax credits, then take the vouchers. It's basically like lesstalkmoreaction describes, a salary sacrifice. A good way to see it is. You get £240 a month in vouchers, in return of not receiving £240 minus tax and NI in salary. Unless you don't pay tax, then you obviously sacrifice less cash to get more vouchers in return. I think it's around £900 you save a year if you are basic rate, £600 if you are 40 or 50%. And this is per parent. So if you and DH are both basic rate, you are looking at saving £1800 a year.

Thanks all, that makes a little more sense. Time to get the calculator out I think.
I might give HMRC a call. Does anyone know if the job centre deals with this sort of tax/benefit related queries. It would be much easier to have a face to face conversation.

CHildcare Vouchers are not 'a salary sacrifice scheme'... they are a tax exempt benefit which are usually offered by way of salary sacrifice. Some (albeit not many) employers actually give the benefit on top of existing salary, particularly to employees returning from maternity leave.

Where it is offfered by salary sacrifice, your employer provides you with a benefit and you reduce your salary by a corresponding amount. For example, you agree to reduce your salary by £200 a month and receive £200 worth of chidcare vouchers. THe savings come from the fact that you are not paying tax on that £200 a month where previously you would have been. If your DH is a basic rate he will be able to get a max of £243 a month free from tax and NI.

Tax credits are affected in 2 ways, firstly, your income is reduced so your tax credit entitlement can actually increase as a result. However, if you get the childcare element of working tax credits, this is likely to be reduced. THis is because the amount that you get in childcare vouchers is seen as employer provided childcare, even if it is provided through salary sacrfice. For example if your childcare costs are £500 a month and you ge 70% paid in tax credits you would getv £350 tax credits. However if you get £200 childcare vouchers, it is viewed that your childcare costs are not £300 a month - so you get 70% of this as tax credits i.e. £210. This means you are losing out by £1,680 a year, which is more than you would gain from the childcare voucher savings.

In reality it is slightly more complicated as tax credits are so variable... HMRC have a calcaultor which will tell you whether you are better or worse off with the childcare vouchers www.hmrc.gov.uk/calcs/ccin.htm

Baby girl is correct that DH can start getting the vouchers as soon as the baby is born (but make sure you will def use them as they can only be used from childcare and in general cannot be converted back to cash pay).

You can also use them up to 15 for afterschool clubs etc so unlikely they will go to waste!

HTH