Changes to the Tax and NI Exemptions for Childcare Vouchers

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From 6 April 2011, the current tax and NI savings for childcare vouchers will be restricted for higher rate taxpayers. Under the current rules employees can receive up to £243 per month of their salary as childcare vouchers free of tax and National Insurance, with the employer also not having to pay NIC on this amount. These vouchers can be used to pay for registered childcare and represent a welcome saving for those having to pay for childcare costs. However, from 6 April 2011, any higher rate taxpayer that joins the scheme will only be able to receive £124 a month in childcare vouchers, free of tax and National Insurance. The idea of the change is to stop higher rate taxpayers being able to save more tax/NIC on childcare vouchers than basic rate taxpayers. In addition, from 6 April 2011, any 50% taxpayer that joins the scheme will only be able to receive £97 per month in childcare vouchers, free of tax and National Insurance. The forthcoming changes set out above only apply to those joining the childcare voucher scheme on or after 6 April 2011. For anyone already using the scheme, or signing up before 6 April 2011, the current rules will continue to apply which means £243 of childcare vouchers per month free of tax and National Insurance, regardless of your earnings and tax rate. Keith Witchell of KRW Accountants said: "childcare vouchers represent a useful tax-free benefit for owner managers of limited companies that are paying out for registered childcare. I would therefore urge any higher rate taxpayers that are not signed up to consider doing so as soon as possible to take advantage of the current rules before they disappear."

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