After the baby, don't lose the bulge in your wallet

In the second of our series on benefits in the workplace, Esther Shaw looks at childcare vouchers and maternity pay
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The Independent Online

Any working parent will tell you that juggling the demands of office and family life is hard. Screaming bosses and screaming children don't make it easy simply to labour all day and go home at night.

Any working parent will tell you that juggling the demands of office and family life is hard. Screaming bosses and screaming children don't make it easy simply to labour all day and go home at night.

In particular, your finances can become as stretched as your time because the cost of child- care continues to rise well above the rate of inflation.

A full-time nursery place for a son or daughter aged under two years old could set you back as much as £141 a week, according to childcare charity the Daycare Trust.

Thankfully, more employers are aware that staff are becoming more attracted to family-friendly businesses. So they offer comprehensive benefits packages that include creches, better maternity and paternity leave, flexible hours and childcare vouchers.

The Government has offered a helping hand with the last of these. Since 6 April, it has cut the cost to parents of the existing childcare voucher system and encouraged companies to introduce such schemes.

Through exemption on national insurance contributions (NICs) and income tax relief, the scheme allows an employer to contribute to its workers' childcare costs, explains Kevin Condon, the director of employee benefits at independent financial adviser (IFA) Towry Law.

"Companies realise they have to accommodate people - and vouchers are widely recognised among parents with young children as their most valuable company benefit. This in turn induces loyalty."

Here's how they work. Your company first deducts the cost of your nursery care from your monthly salary and sends it to a voucher scheme administration company, such as Accor.

You then receive a voucher to use for paying either a registered nursery or a child minder (who in turn is reimbursed by the same administrator).

The new financial twist is that, now, instead of just benefiting from NIC exemptions on the first £50 of childcare cost each week, parents qualify for income tax relief too - and employers benefit by not having to pay NIC on that part of a salary.

This means that parents who are basic-rate taxpayers can save more than £800 a year - and higher-rate taxpayers more than £1,000.

Both mother and father are entitled to claim; so a family could save over £1,600 (basic rate) or £2,000 (higher rate.)

The scheme is known as salary sacrifice since, when signing up, you in effect give up this part of your pay for childcare vouchers to benefit from the tax relief.

However, there are drawbacks. Vouchers can only be used for nurseries and other childcare providers registered with, and approved by, the Government.

And parents who have informal arrangements with friends and family members (who will not qualify under the new scheme) also miss out.

More significantly, the scheme reduces your eligibility for other benefits.

The TUC says parents need to do the sums before signing up - or they could risk short-changing themselves further down the line.

"When parents sacrifice an element of their NIC and tax to pay for childcare, there may be an impact on their current entitlement to tax credits," says the TUC's general secretary, Brendan Barber.

Similarly, he adds, lower NICs could jeopardise future entitlement to work-related benefits such as maternity pay, sick pay and occupational pensions - depending on how much you contribute.

There are also worries that joining a salary-sacrifice scheme could affect your basic state pension and the size of the mortgage you get.

In the case of home loans, the starting point for income-lending multiples is your salary. So if some of this is sacrificed for vouchers, the maximum amount you will be able to borrow will be less.

Before choosing to take the vouchers, make sure your employer provides you with a breakdown of the implications.

Despite these concerns, however, the Government's drive to push childcare up the political agenda has helped raise the vouchers' profile.

Only one in 10 employers were offering the scheme early last year, but that ratio may now be undergoing a dramatic change for the new tax rules appear to have made the vouchers far more appealing to companies. "In the past six months, we have been absolutely manic. We have had a lot of queries from both employers and employees," says Anne Ross of Accor.

Don't forget that childcare vouchers are only part of a wide-ranging package of family-friendly working rights and commitments put in place by the Government in a bid to help families balance earning and caring.

Since April this year, pregnant women and new parents have been entitled to higher maternity and paternity pay rates of £106 a week (up from £102.80) - as long as they are earning more than £82 a week.

The Government's consultation paper "Work and families: choice and flexibility" includes plans to extend maternity pay from six to nine months by April 2007 (working towards the goal of 12 months' paid leave by the end of this parliament.)

Under current rules, new mothers are entitled to 26 weeks off (fathers have just two at the full £106 rate) but employers only have to pay the statutory minimum, 90 per cent of salary, for six weeks to mothers on leave. After that, they are only entitled to the £106 payment for 20 weeks although some companies offer more.

While new mothers have the right to take an additional 26 weeks of leave, few use up the full entitlement because most companies don't pay enough to make it worth while - although some make a contribution.

New plans would also let mothers transfer a proportion of their maternity leave and pay to the father.

While the Government has made a firm commitment to increasing maternity leave, the plans to transfer it to the father are still at the consultation stage.

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