How does the cut to National Insurance impact Childcare Vouchers?

From 6 January there has been a cut in the main rate of Class 1 National Insurance from 12% to 10%.

This means that someone on the average salary in Northern Ireland of £32,879 will see an annual gain in their net income of £406.

This is welcomed by families at this time of year when budgets already have been stretched, and employees will see a little extra going into their salary to help with paying the post Christmas bills.

However, while this is positive, the change in the National Insurance rate will also have a negative impact on parents who are using Childcare Vouchers and are basic rate tax payers, by reducing the amount of savings available through that scheme.

How does the change to National Insurance impact Childcare Voucher users?

The Childcare Voucher scheme is an Income Tax and National Insurance exemption scheme which, although closed to new entrants in October 2018, is still operated by many employers for those parents who remain eligible.

Childcare Vouchers allow eligible parents to sacrifice up to £243 per month of their salary, tax and NIC exempt, to pay for their registered childcare costs for children under 16 (17 for children with disabilities). You do not receive a higher amount if you have more than one child.

Basic Rate tax payers currently save a total of 32% of their Childcare Voucher amount, made up of 20% Income Tax and 12% National Insurance, giving a maximum possible saving of £77.76 per month or £933 per year. Due to the reduction in the National Insurance rate effective from 6 January 2024 the savings become 30% made up of 20% Income Tax and 10% National Insurance giving a new maximum possible saving of £72.90 per month or £875 per year. Higher or additional rate tax payers are not affected by this change.

For affected families this is a possible reduction in savings of £58 per year, per parent, or £116 per year if two parents in a household are both in the Childcare Voucher scheme.

If you think this change will affect you this could be a good time to check that you are receiving the best form of support in your current circumstances. In some cases you may now be better off claiming another form of support such as Tax-Free Childcare or Universal Credit. However you should get expert advice before applying for other benefits as there are different eligibility criteria and requirements for each form of support. In some cases Childcare Vouchers can be claimed alongside Universal Credit or other benefits, however if you move to Tax-Free Childcare you, and your partner must stop paying into Childcare Vouchers and will never be able to return to that scheme, even if it proves to be better for you at some point in the future.

What to do next

Employers For Childcare’s Family Benefits Advice Service can advise on how this change to National Insurance will affect you, if you are an existing Childcare Voucher user, and can provide further information and advice on the best form of support available to families to help pay for registered childcare costs. Our expert advisors can do a personalised ‘better off’ calculation for your family, to advise on which of the forms of childcare support (Tax-Free Childcare, Childcare Vouchers, Tax Credits or Universal Credit) is best for you, based on your unique circumstances. Last year, where we did a tailored calculation for a family, they were on average £5,600 better off as a result. So make a call to the team today on Freephone 0800 028 3008 or email hello@employersforchildcare.org.