Who can claim vouchers?

Changes from 4 October 2018

The tax and National Insurance (NIC) relief associated with childcare vouchers (and directly-contracted childcare) was withdrawn for brand new applicants from 4 October 2018.

Those who had not already signed up for childcare vouchers previously must have applied for the vouchers and received their first voucher by their last payday before 4 October 2018 in order to continue receiving vouchers.

To continue to be entitled to the tax and NIC relief on vouchers from 4 October 2018 you must be an ‘eligible’ employee which means meeting certain conditions:

1. Condition A: You were employed by your employer before 4 October 2018 and have not ceased to be employed by them on or after that date
2. Condition B: There has been a period of 52 tax weeks ending on or after 4 October 2018 which has not included at least one tax week where a voucher has been provided
3. Condition C: is that you have not given your employer a Childcare Account Notice in order to claim tax-free childcare.

Condition B is quite complicated, but our understanding is that if you did not receive a childcare voucher in any of the 52 tax weeks up to 4 October 2018, then you cannot apply for vouchers after that date. If you did receive a voucher in that period, you can continue to receive vouchers or ask your employer to start them again, as long as there has not been a gap of more than 52 tax weeks since you received your last voucher.

So if, for example, you have to stop receiving vouchers while you are on maternity leave (see below, What happens if I go 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.

Similar rules apply for directly contracted childcare.

Do all employers offer childcare vouchers?

No. Employers do not have to offer their workers childcare vouchers, it is entirely their choice. However, they may save employer National Insurance contributions by doing so.

If they do choose to offer childcare vouchers then the vouchers must be available to all staff (except those who are unable to join because it would reduce their earnings below the national minimum wage or national living wage for those aged 25 and over).

Can all employees claim vouchers if offered by their employer?

Before 4 October 2018, yes. But, as noted above, new joiners to existing schemes from 4 October 2018 cannot get the benefit of tax and NIC relief on childcare vouchers through employer schemes, although employers may leave the schemes running for existing members.

If vouchers are offered through a salary sacrifice arrangement (meaning you give up some of your salary to get the vouchers), the arrangement cannot reduce your cash pay below the relevant national minimum wage or national living wage rates. 

If you are paid slightly more than the minimum wage, it is important to keep an eye out for any changes to the minimum wage rates. This is because a rise in the minimum wage rate could affect your ability to salary sacrifice.

For example: Neena, 38, works for a university as a cleaner. She generally works around 35 hours a week @ £11.00 an hour (except in the holidays when there is no work, but this suits her as she has children to look after).

With the minimum wage rate for her circumstances being £10.42 from April 2023, Neena would only be able to sacrifice around £20.30 of her pay for childcare vouchers, saving her £6.50 (£4.06 in tax and £2.44 in NIC).

Interaction with directly-contracted childcare

You cannot receive directly-contracted childcare and childcare vouchers in the same week.

Childcare vouchers and statutory pay

If you receive statutory pay such as maternity pay or sick pay, this cannot be reduced by a salary sacrifice for vouchers. See below for further information on maternity leave.

What happens if I go on maternity leave?

Childcare vouchers were thought to be an employer-provided non-cash benefit. Such benefits provided under a contract of employment must continue to be provided whilst an employee is absent from work on maternity leave. The generally accepted view therefore used to be that employers should bear the cost of providing the vouchers during maternity leave, where there was not enough pay available to operate the sacrifice arrangement.

However, following a 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.

Our understanding is that there is generally no longer a requirement for employers to fund childcare vouchers for an employee on maternity leave.

To keep receiving childcare vouchers whilst you are on maternity leave, 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 a salary sacrifice), but that depends on your employer being willing to offer them on top of your statutory pay.

Returning to work – re-joining the scheme

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 after maternity leave, or after any other break in receiving them?

You may be able to sacrifice salary of a greater amount in the portion of the tax year when you are back at work to ‘catch up’ for the vouchers not received when you were on maternity leave.

Example

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 National Insurance (£2915) 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.

Other breaks in receiving vouchers

The rules allowing individuals to ‘catch up’ on vouchers is not specific to maternity leave.

It could also apply to employees that take a short break from receiving vouchers for whatever reason, or employees that have a period of unpaid leave (for example, a career break). However the same considerations apply if you are considering this. You should speak to your employer.

What are the other consequences of taking vouchers?

Taking childcare vouchers as part of a salary sacrifice arrangement involves altering your work contract to give up a portion of your earnings. This may affect future calculations of pensions, redundancy pay, statutory maternity pay, paternity pay, shared parental pay, parental or bereavement pay. You should get advice on these employment law aspects before deciding to take vouchers, so that you fully understand how they may affect you in the future.

What other conditions are there?

If you meet the conditions in place from 4 October 2018, you can claim vouchers if you pay for qualifying childcare and the child is:

• your child and you maintain them at your expense (wholly or partly); or
• your stepchild and you maintain them at your expense (wholly or partly); or
• a child who lives with you and you have parental responsibility for them.

This means that both parents can potentially claim vouchers and benefit from the tax and National Insurance savings.

The tax and National Insurance savings are a maximum amount – they apply no matter how many children you have.

Who counts as a child for voucher purposes?

You can claim vouchers for a child until the last day of the week in which falls the 1 September following the child’s 15th birthday. This is extended to the 1 September following their 16th birthday if the child is disabled.

A child is disabled for childcare voucher purposes if:

• disability living allowance, child disability payment (disability assistance in Scotland) or personal independence payment is payable in respect of them (or has ceased only because he/she is a patient in a hospital) or
• the child is certified as severely sight impaired or blind by a consultant ophthalmologist (or has ceased to be certified within the previous 28 weeks).