National Insurance cut and Childcare Vouchers

A cut in the main rate of Class 1 National Insurance from 10% to 8% has taken effect on 6 April. This comes after the previous cut in January 2024 which reduced the rate from 12% to 10%. This means that someone on the average salary in Northern Ireland of around £33,000 will see an annual gain in their net income of £817 compared to last April.

This small saving is welcomed by families as budgets continue to be stretched with the ongoing increase in the cost of living due to the effect of high inflation over the past 18 months.,.

However, while this small saving 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 savings available through that scheme.

How does the cut in National Insurance affect Childcare Vouchers?

The Childcare Voucher scheme is an Income Tax and National Insurance (NIC) exemption scheme which, although closed to new entrants since 2018, is still operated by many employers for those parents who continue to use it.

Childcare Vouchers allow eligible parents to sacrifice up to £243 per month of their salary, tax and NIC exempt, to pay for registered childcare costs for children under 16 (17 for children with disabilities).

Since the reduction in the National Insurance rate in January 2024, Basic Rate tax payers have been saving a total of 30% of their Childcare Voucher amount, made up of 20% Income tax and 10% National Insurance, giving a maximum possible saving of £72.90 per month (almost £875 per year). Following the latest further reduction in the National Insurance rate in April the savings become 28% made up of 20% income tax and 8% national Insurance giving a new maximum possible saving of £68 per month or £816 per year. Higher or additional rate tax payers are not affected by this change.

For affected families, when compared to this time last year, this is a possible reduction in savings of £116 per year, per parent, or £232 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 childcare 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 seek 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 leave the Childcare Voucher scheme and will be unable to rejoin it in the future, even if it was to leave you better off.

What to do next

Contact Employers For Childcare’s Family Benefits Advice Service for free, impartial and confidential advice on what the right form of support is for your family. Call us on 028 9267 8200 or email hello@employersforchildcare.org. We provide advice and guidance on a wide range of support towards registered childcare costs including Tax-Free Childcare, Universal Credit, Tax Credits and other disability or social security benefits.