Some employers offer employer-supported childcare (ESC) to help towards the costs of qualifying childcare. It is up to your employer whether they decide to offer ESC or not. There are three types of ES.
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This is where your employer has a nursery or a creche at your place of work. If certain conditions are met, this is a tax and national insurance free employee benefit.
Directly contracted childcare
This is where your employer sets up an arrangement with a commercial childcare provider on your behalf and pays the costs directly. If your employer offers directly-contracted childcare on top of your normal pay there is no income tax or National Insurance to pay on the benefit if its value is within a set limit and certain other conditions are met. Your employer will save the National Insurance that they would normally pay on provision of a benefit (the childcare). Where the benefit exceeds the limit, income tax and National Insurance are payable on the excess.
The rest of this part of the website covers childcare vouchers, but the rules described also usually apply to directly-contracted childcare.
This is the most common type of ESC. Your employer may give you vouchers that you can use to pay for childcare. Your employer can provide childcare vouchers in two ways:
- You can receive childcare vouchers on top of your normal pay.
- Your employer may ask you to give up part of your pay to buy the childcare vouchers. This is called a salary sacrifice arrangement.
Your employer will normally use a childcare voucher company who will provide you with either paper vouchers or an online account with electronic vouchers. You use these vouchers to pay your childcare provider. Check the website of the childcare voucher company your employer uses, for more information as to their exact arrangements.
You can spend the childcare vouchers as you get them or you can save them up. For example, if you are on maternity leave, you can continue to buy vouchers to use when you return to work.
You do not pay tax and National Insurance on the value of the vouchers up to certain limits. If you receive vouchers worth more than set limits, you will pay tax and National Insurance on the extra amount.
The benefit for your employer is that they will save employer National Insurance contributions.
Changes to vouchers and directly-contracted childcare
The tax and national insurance relief associated with childcare vouchers and directly-contracted childcare was closed to new joiners from 4 October 2018 due to the introduction of tax-free childcare. However, certain people who signed up before 4 October 2018 are able to continue receiving the relief.
Workplace nurseries are not affected by the introduction of tax-free childcare.