Childcare vouchers

Information for employers

The provision of childcare vouchers as an employee benefit offers an employer and its employee the opportunity to save up to £1,335 a year in tax and National Insurance (NI) contributions. This is because childcare vouchers of up to £2,916 a year may be provided to employees, free of PAYE tax and NI.

Apply Now for the NW Brown Childcare Scheme

Typical tax and NI savings per annum for the employee are:

Basic Rate Tax Payer (20% PAYE & 12% NI) Higher Rate Tax Payer (40% PAYE & 2% NI) Additional Rate Tax Payer (45% PAYE & 2% NI)
Max monthly vouchers £243 £124 £110
Annual tax & NI saving £933 £625 £620

Typical NI savings per annum for the employer are:

Basic Rate Tax Payer (20% PAYE & 12% NI) Higher Rate Tax Payer (40% PAYE & 2% NI) Additional Rate Tax Payer (45% PAYE & 2% NI)
Max monthly vouchers £243 £124 £110
Employer NI saving at £402.41 £205.34 £182.16

Our Service

We offer advice and assistance in implementing childcare vouchers as a benefit for your employees, including:

  • A website giving details about the scheme, including online employee questionnaire about eligibility (including tax-credit implications) and online registration.
  • Online account management for employers, including monthly payment requests and the ability to view and edit individual employee sacrifice details.
  • An online account management facility for employees to view vouchers and payments, and request payments to childcare providers through an online form.
  • Liaison with the employees' childcare providers and direct payment to them.
  • Sundry advice concerning the tax and NI implications of operating a childcare-voucher scheme.

Our fees

Our administration fee is calculated as 5.5% (plus VAT) of the face value of the childcare vouchers provided, charged quarterly in arrears. We also charge a one-off set-up fee of £20 for each employee who participates.

Telling staff

As required by law, childcare vouchers must be made available to all staff. We will supply you with sample letters to send to your employees.

National minimum wage

You cannot reduce an employee’s salary below the national minimum wage, which is currently £7.50 an hour for workers aged 25 and over, £7.05 for those aged 21-24, £5.60 for those aged 18-20 and £4.05 for 16 and 17-year-olds.

Documenting the salary exchange

Whilst it will not be your intention to disadvantage staff, it helps to protect you if the documentation mentions that a salary swap may have an adverse impact on salary-related employee benefits.

You may want to remind staff that they will not be allowed to chop and change from month to month, and you will allow a change to the salary swap only if an employee has a “life-changing event” (such as a child leaving nursery).

As the salary swap is a reduction in salary, it is necessary to amend the contract of employment and to obtain the employee's consent. The document should have a footnote where the employee agrees to the salary reduction. The employee should sign two copies of the letter, one to be held by each party. This is essential to avoid any future issues with HM Revenue & Customs.

Pay slip

If the amount of the childcare vouchers is to be shown on the employee's pay slip, make sure the payroll is configured not to PAYE/NIC the childcare vouchers (up to the monthly tax-free/NIC-free limit).

Salary-related employee benefits

Check the smallprint of any salary-related employee benefits for salary swap implications. For example, what definition of salary is used for the purposes of death-in-service, income-protection insurance or pensions?

Maternity leave

An employee cannot, as a matter of law, sacrifice any amount from statutory maternity or paternity pay. Therefore, unless there is additional maternity/paternity pay, the salary swap agreement automatically ceases.

As an employer, you must provide all contractual non-cash benefits during statutory maternity leave. This applies even if the benefit is normally provided under a salary sacrifice agreement.

Statutory payments must be paid in full and cannot be paid in kind. This is a requirement of employment law under the Equal Treatment Directive and is not a tax-related issue.

Further Information

Additional information about childcare vouchers and the tax and NI treatment of other childcare provision can be found in the HMRC Employer Handbook "How to help your employees with childcare".

For more information about our services or to arrange a meeting with one of our consultants, simply complete our enquiry form, send us an email or call our Cambridge office on 01223 720209 or our Norwich office on 01603 692733.

We take the time to understand your underlying objectives and help you reach your financial goals
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