This is also known as a salary sacrifice scheme whereby an employee can opt to receive a reduced cash salary in return for childcare vouchers. These vouchers can be used to pay for childcare with registered providers â this includes nurseries, child minders, before and after school clubs, au pairs and holiday clubs. Up to Â£55 per week can be claimed in vouchers and both parents can claim if their employers run such a scheme. NHS workers, teachers and police officers are all currently able to take advantage of a salary sacrifice scheme.
The MoD has its own scheme in the pipeline which will be open to all servicemen and women. According to the latest news, the scheme will be launched once JPA is up and running successfully. This is envisaged to be late 2007.
The main benefits are the tax and NIC savings made on reduced salary, although whether this is worth your while depends on individual family circumstances. To give an example, someone with an annual salary of Â£10k - Â£33k could save almost Â£500 per year based on monthly childcare costs of Â£100.
Basically it starts on 10th Dec, Email your details to AFCVS@sodehopass.co.uk and they will send you an application pack when available.
Point to note:
It's employee based not child based so if you have more than 1 rug-rat your entitlement doesn't go up. However(!) if you are both serving, or your spouse is employed in a job that supports this scheme (i.e. civil service) you can both use the scheme and get double the vouchers.
Are there any drawbacks?
There are a number of potential drawbacks that you need to consider. Salary sacrifice means you have lower gross pay so you must review what impact this will have on any other benefits (such as tax credits or earnings-related benefits) or gross pay calculations (such as maximum mortgage loans). Since individual circumstances vary a great deal it is not possible to offer completely specific advice and you will have to carefully consider your own situation and seek additional information or ultimately independent financial advice. In particular you should note:
Tax Credits. Some people on lower salaries will be better off not using childcare vouchers. Generally if you receive more than £545 per year (or £1090 per year if you have a baby under the age of one) in childcare costs through tax credits then a childcare voucher scheme may not be the best option. If you are not claiming tax credits for childcare costs you should consider doing so now, particularly if you are on a relatively low salary.
Pension. The new Armed Forces Pension Scheme (AFPS05) is based on a gross pay calculation. However, the MOD has agreed that AFPS05 pension calculations will discount any salary sacrifice (i.e. the pension will assume you were still receiving all the salary in cash). Members of AFPS75 with a salary sacrifice agreement will also not be affected because the scheme uses representative final salaries.
Contribution and earnings-related benefits. The amount you may be eligible for in contribution-based benefits such as Jobseekers Allowance and Incapacity Benefit could be affected by a salary sacrifice agreement. These benefits are calculated according to the level of NIC you pay. Earnings-related benefits such as the State Second Pension (if you are contacted out of the Armed Forces Pension Scheme) are based on your income and do not count the amount received in childcare vouchers as income, therefore reducing the rate of these benefits.
Statutory Maternity Pay (SMP). SMP is based on earnings and is assessed on the basis of actual cash salary being paid between the 23rd and 15th weeks before the expected week of birth. If a pregnant Servicewoman is a scheme member during that period, her SMP will be calculated on the lower level of pay. This is normal practice for salary sacrifice schemes. Therefore, pregnant Servicewomen must withdraw from the scheme by the 23rd week before the expected week of birth in order to be assessed for, and eventually receive, the full rate of maternity pay. Withdrawal of membership of the scheme cannot be backdated so it is essential that this action is taken by any pregnant Servicewoman who is a member of the scheme.