LOW income families could be in for a "nasty shock" by accepting new childcare vouchers from their employers instead of a pay rise.

Tax experts say vouchers, which are free of tax and National Insurance up to £50 a week, could leave some families more than £1,000 a year worse off by cutting the value of tax credits they receive.

Mike Leyland, president of the Thames Valley Society of Chartered Accountants, said: "There is a serious risk that low and middle income families could be in for a nasty shock unless they do their homework very thoroughly."

He cited the example of a single mother earning £25,000 a year, paying childcare costs of £250 a week, would be £925 a year worse off if she accepted childcare vouchers worth £50 a week instead of a £50 pay rise.

In other cases, losses could exceed £1,000 a year.

Those who stand to benefit most are the very highest earners who are only entitled to the family element of Child Tax Credit. Their tax and National Insurance savings would be the greatest, and they would probably be paying for more expensive childcare.

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