• Contact
  • Accountants: +44 (0) 1753 551111
  • Solicitors: +44 (0) 20 7067 4300

What is the salary sacrifice childcare voucher scheme?

This is a government supported scheme to make childcare more affordable for working parents. Employees can receive childcare vouchers as a non-cash benefit instead of part of their salary.

Employees can exchange up to £55 per week or £243 per month from their gross earnings.  The value of the vouchers is tax free and exempt from National insurance contributions Employers do not have to pay National insurance contributions on the value of the vouchers so you can save up to £402.27 a year for every employee who signs up to the scheme.

The table below shows the potential monthly savings for employees participating in the childcare voucher scheme per tax rate if the employee joined the scheme after 6th April 2011. Employees must be earning at least National Minimum wage to receive this benefit.

  Max amount that can be  sacrificed  per month Tax saving NI saving at 12% NI saving at 2% Total saving per month
Basic rate (20%) £243 £48.60 £29.16   £77.76
Higher rate (40%) £124 £49.60   £2.48 £52.08
Additional rate (45%) £110 £49.50   £2.20 £51.70

Note: If an employee joined the scheme before 6th April  2011 they can sacrifice a maximum of £243 a month. Their tax rate is not taken into consideration.

If a higher rate tax payer who joined the scheme before 6th April  2011 decides to opt out, they can re-join the scheme within 12 months and still sacrifice a maximum of £243 into childcare vouchers. If they opt out for more than 12 months they will transfer to the new rules.

Employer Benefits

You avoid paying National Insurance on the vouchers, therefore can save up to £402.50 a year per employee on the scheme.

Being part of a scheme enhances your image as a caring employer.

It can help with recruiting staff and with retaining staff returning from maternity and paternity leave

It can help reduce absenteeism amongst working parents.

What the vouchers can be used for:

Employees can use Childcare Vouchers as full or part payment for:

  • Day Nursery
  • Nursery School
  • Childminder
  • Playgroup / Crèche
  • Pre-School
  • Holiday scheme
  • Qualified nanny / Au pair
  • Out of school club
  • Holiday Play Scheme

If an employee has a partner who also works for an organisation that runs a Childcare Voucher scheme, their family could make double savings if they both join the employer's childcare vouchers scheme. This is because tax and National Insurance contribution exemption applies to each employee, not the number of dependent children they have.

Setting up the scheme

There are 2 optionsif you chose to set up the scheme:

Option 1

Voucher providers can operate childcare voucher schemes on behalf of employers. Employers will have to pay a company to administer the scheme. This ranges from about 2.5% to 9% depending on which scheme you chose  but this cost is less than the NI saving. However, you will remain responsible for the correct deduction of tax and payment of NICs even if you use these companies.

Option 2 

You can produce and administrate childcare vouchers yourself as long as you make sure the conditions for tax and NICs exemption are met and you keep records to support your scheme.

The conditions are as follows:

The scheme must be available to everyone or to all of your employees based at the location where the scheme operates.

However this does not mean that all employees have to participate.

You will need to keep a copy of the letter or poster used to advertise your scheme to your staff, or your staff handbook where this includes details of eligibility.

The child must qualify for the vouchers

The child for whom the childcare voucher is provided must be:

  • a child or stepchild of the employee, or
  • a child who lives with the employee for whom he or she has parental responsibility

A child is a qualifying child up to:

  • 1 September following their 15th birthday
  • 1 September following their 16th birthday, if they are disabled

You will need to keep:

  • a record of the child’s date of birth, indicating where appropriate if the child is disabled.
  • a note of the relationship between the child and your employee if the employee is not the child’s parent.

The childcare is registered or approved.

The exemption applies in the tax week in which you provide the childcare vouchers to your employees. You must be satisfied at that point that the vouchers will only be used to pay for registered childcare. Your employees do not need to use the vouchers in the week or month they are provided and can save them, for example, to meet higher childcare costs during school holidays.

You will need to keep:

  • a copy of your scheme rules that includes a requirement for employees to notify you of any change in circumstances in relation to the child or childcare.
  • a record of the childcare provider’s name and, if applicable, registration number or approval number.
  • a note of when, if applicable, the childcare provider’s registration or approval is due to expire.

(You may want to remind your employees to check their carer’s registration or approval status in good time before entitlement to exemption expires.)

Employers are not obliged to notify HMRC when a salary sacrifice childcare voucher scheme has been put in place however you may wish to notify them for them to provide confirmation of correct tax treatment of the scheme.

  • Member of London Partners
  • Member of London of Chamber Commerce and Industry
  • Canada Chamber of Commerce
  • The Association for UK Interactive Entertainment
  • Offical Xero Partner

Copyright © 2013 - Oury Clark.