Childcare vouchers and maternity leave
There have been some changes in the world of childcare, which mean that what happens with childcare vouchers when you go on maternity leave is not at all clear. Here we try and explain the various different changes, to help give you a better idea of what to expect and what your options are.
Many people receive childcare vouchers in conjunction with a salary sacrifice arrangement. This means you give up some of your pay and receive childcare vouchers instead. If you go on maternity leave, you should be aware that you cannot reduce any statutory maternity pay by a salary sacrifice for vouchers. But all is not lost – read on to understand your options!
Should my vouchers continue even though I can’t sacrifice my salary?
The generally accepted view used to be that childcare vouchers were a contractual non-cash benefit, the right to which continues even whilst an employee is absent from work. Historically therefore, employers should have been bearing the cost of providing the vouchers during maternity leave, even where there was not enough pay available to operate the sacrifice arrangement.
However, following a recent decision of the Employment Appeals Tribunal (EAT), the position is no longer so clear cut. In this EAT case, it was found that childcare vouchers had potentially been incorrectly assumed to be a non-cash benefit, and argued that as a ‘salary sacrifice’ benefit, childcare vouchers are in fact remuneration, which the law does not require employers to continue to pay during a period of maternity leave.
HMRC have since removed the section of their employer handbook which said “employer provided benefits provided under a contract of employment must continue to be provided whilst an employee is absent from work on maternity leave. This applies even if the employee is getting no pay or only getting SMP”.
Our understanding is that there is generally no longer a requirement for employers to fund childcare vouchers for an employee on maternity leave.
In what circumstances could I continue to receive childcare vouchers?
You may be able to keep receiving childcare vouchers whilst you are on maternity leave, if a deduction can be made by way of salary sacrifice from any enhanced maternity pay you receive, over and above the statutory amount or from any payment you receive for ‘Keeping in touch’ days.
You can also receive childcare vouchers as a salary addition whilst on maternity leave (rather than as a salary sacrifice), although this is likely to be a rare occurrence.
If I have to stop receiving vouchers, will I be able to re-join the scheme?
You may have to stop receiving vouchers while you are on maternity leave and may be worried about getting back in to the scheme again due to the fact that the tax and National Insurance (NIC) relief associated with childcare vouchers was withdrawn for brand new applicants from 4 October 2018.
However, if you stop receiving vouchers while on maternity leave, you will be able to resume vouchers on your return to work so long as you are returning to the same employer and have not gone 52 consecutive tax weeks without receiving a voucher.
Can I ‘catch up’ on vouchers when I return to work?
You may be able to salary sacrifice greater amounts in the portion of the tax year when you are back at work so as to ‘catch up’ for the vouchers not received when you were on maternity leave.
So, for example, say Ruth takes May to December as maternity leave for her second child and stops receiving vouchers during that period. When she returns to work, she can sacrifice £1,944 of her salary (£243 multiplied by 8 months) for childcare vouchers over the remainder of the tax year when she gets back to work - assuming she is a basic rate taxpayer and she can afford to do this. This is in addition to the £972 she could sacrifice anyway over this period. In effect Ruth is taking the maximum childcare vouchers allowed in a tax year free of tax and NI (£2,916) over 4 months instead of 12.
There are a couple of things for Ruth to note:
- She will need to check with her employer that they can arrange this – it could be complex for them to administer as the sacrificed amount has to contractually reduce her salary – it is not just a case of taking the extra money off her wage. Her contract will need to be amended to reflect the new arrangement. There may be other consequences of doing this that need careful thought, for example to do with earnings-related payments or benefits.
- Any ‘unused’ amount of vouchers at the end of any tax year is lost and cannot be carried forward into the following tax year.
- The salary sacrifice cannot take her effective hourly wage below the National Living or Minimum Wage rate applicable.
Does this ability to ‘catch up’ on vouchers only apply to those on maternity leave?
No, it is not specific to mothers taking maternity leave, although they are the ones that it is most likely to be relevant for.
It could also apply to employees that take a short holiday from receiving vouchers for whatever reason, or employees that have a period of unpaid leave (e.g. for a career break), for example.
Remember – because of the changes that apply from 4 October 2018, you must not be out of your voucher scheme for more than 52 weeks, if you want to still be eligible for them on your return to work and you must work for the same employer.
For more information on the other conditions that apply in order to remain eligible for childcare vouchers after 4 October 2018; as well as on the different childcare schemes available, see our website guidance.