Who can claim vouchers?
This section of the site explains who can claim childcare 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The tax and National Insurance (NIC) relief associated with childcare vouchers (and directly-contracted childcare) was withdrawn for brand new applicants from 4 October 2018.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 in order to continue receiving vouchers.
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:
- 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
- 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
- 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, so long as there has not been a gap of more than 52 tax weeks since you received your last 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?
Yes, however 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 @ £9.50 an hour (except in the holidays when there is no work, but this suits her as she has children to look after). At the moment she can give up £55 of her £332.50 weekly pay packet and get childcare vouchers instead (bringing her cash pay down to £277.50 (but still above the minimum wage rate of £7.83 per hour) and saving her tax of £11 and NIC of £6.60, a total of £17.60 each week.
When the minimum wage rate for her circumstances goes up to £8.21 in April 2019, Neena would only be able to sacrifice around £45 of her pay for childcare vouchers, saving her £14.40 (£9 in tax and £5.40 in NIC).
If you receive statutory pay such as maternity pay or sick pay, this cannot be reduced by a salary sacrifice for vouchers.
Childcare vouchers are 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, was 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 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.
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”. We expect HMRC to issue updated guidance shortly, to help employers understand the exactly what the current position is.
In order 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. We look at what some of your other options are in our news piece Childcare vouchers and maternity leave.
You cannot receive directly-contracted childcare and childcare vouchers in the same week.
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. You should get advice on these employment law aspects before deciding to take vouchers so 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 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)