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How does employer-supported childcare work?
This page explains how the most common types of employer-supported childcare (ESC), work. The tax and National Insurance relief for childcare vouchers (and directly-contracted childcare) was closed to new joiners from 4 October 2018. Some people who received support before that date, can continue to qualify. See Who can claim vouchers? for more information.
What are childcare vouchers?
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 can find more information about vouchers and maternity leave on our Who can claim vouchers? page.
What are the benefits of childcare vouchers?
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.
What is directly-contracted childcare?
Directly-contracted childcare is where your employer sets up an arrangement with a 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 (ie the benefit is the childcare). Where the benefit exceeds the limit, income tax and National Insurance are payable on the excess.
The rest of this section covers childcare vouchers, but the rules described also apply to directly-contracted childcare. Carry on reading the next page Who can claim vouchers?.