Salary Sacrifice Childcare Explained for Parents
If you have a child in nursery, you already know how quickly the fees add up. The good news is that there is a way to pay some of those costs before tax, which means more of your money goes towards your child's care and less to the taxman. It is called salary sacrifice childcare, and it can make a real difference to your monthly budget.
What is salary sacrifice childcare?
Salary sacrifice is an arrangement where you agree to give up a portion of your gross salary in exchange for a benefit. With childcare, that benefit is the workplace nursery benefit, set out under Section 318 of the Income Tax (Earnings and Pensions) Act 2003.
Here is the simple version. Instead of receiving your full salary and then paying nursery fees from what is left, you pay those fees from your salary before income tax and National Insurance are taken. Because the money is deducted earlier in the process, you do not pay tax or National Insurance on the amount used for nursery costs. The result is that your nursery fees effectively cost you less.
How much could you save?
The exact amount depends on your tax band and how much you spend on nursery care. As a rough guide, basic-rate taxpayers typically save around 28%, and higher-rate taxpayers can save up to 47%. These figures are estimates, so your own saving will depend on your personal circumstances.
The easiest way to get a sense of the numbers is to try them yourself. Pop in your fees and tax band below to see an estimate of what you might keep.
Work out your saving
Seeing the figures laid out often makes the benefit feel real. For many families, the saving adds up to a meaningful sum over a year, money that can go towards other household costs or simply ease the pressure of nursery bills.
Why Kinsail charges parents nothing
Kinsail is the UK's only zero-fee workplace nursery benefit provider. That means we do not charge you anything to use the scheme, so the saving you see is genuinely yours to keep. The benefit is also zero cost to your employer, because it is funded by the employer National Insurance saving that the arrangement creates. In short, it works for everyone involved.
A quick word about Tax-Free Childcare
It is worth knowing that the workplace nursery benefit and Tax-Free Childcare are mutually exclusive. You can use one or the other, but not both at the same time. Which option suits you best depends on your earnings, your nursery costs, and your wider family situation. We would always suggest checking the numbers carefully before you decide, and the calculator above is a good place to start.
Getting started
Setting up salary sacrifice childcare is usually straightforward once your employer offers the benefit. If you are not sure whether your workplace has it in place, it is well worth asking, as there is no cost to them to introduce it. Working out your potential saving first can give you a clear picture before you raise it.
Childcare is one of the biggest costs many families face, so anything that brings it down deserves a closer look. Have a play with the calculator, see what the numbers say for you, and take it from there.
