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My daughter started nursery this week. It was a little sooner than planned but we are confident that some extra help with childcare will be a positive step. After some nail biting and tears (hers, not mine…yet), she got through her first day.

My mind then turned to paying for the childcare. Grandparents are a lot cheaper! When I had my first child, childcare vouchers didn’t exist. They are a tax efficient way of paying for registered childcare. You sacrifice some of your salary for an amount of childcare vouchers. You save the income tax and the National Insurance on this amount, which effectively means that the part of your salary you exchange for childcare vouchers is tax free. The cost of these vouchers is then paid directly to the childcare provider.

A basic rate taxpayer can exchange up to £243 each month; which is £124 for a high rate taxpayer and £97 for an additional rate taxpayer.

There are of course rules with the payments, such as it has to be a registered nursery or child-minder, so although Grandparents are definitely less expensive, you cannot use the scheme to pay family members or friends to look after the children.

Although it is a very tax efficient system, you would also have to consider any benefits that you may lose or may be affected because you are in affect ‘losing’ some of your income. For example, you might lose some entitlement to tax credits or National Insurance accrual, depending on your circumstances.

All in all I found it very straightforward to set up (partly because our company is very focussed on helping working parents) and I am glad I did it.

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