⚠️ We are working hard to ensure this guidance is up to date. However, you should bear in mind that things may change as the government respond to the ongoing situation.
Coronavirus: Accessing money in childcare schemes
This page looks at Tax-Free Childcare and childcare vouchers from your employer and if, when you have put money into them, what the implications are of taking money out – for example, if you are struggling financially as a result of the coronavirus pandemic.
If you get help towards your childcare costs through tax-free childcare (TFC) and have a tax-free childcare account, you will pay money into your account which (subject to certain conditions) usually attracts a government top-up and then make payments to your childcare provider from the account.
However, you are free to withdraw any money you have put into account – but you should be aware of the potential consequences of doing that.
The amount you withdraw from your TFC account will be deducted from the total sum in the account that attracts the government top-up payment. So, the more money you take out that is not for childcare, the less contribution you will get from the government.
If the amount you withdraw has already had the TFC top-up, then you will have to repay to HMRC the value of the top-up that corresponds to the amount of your withdrawal. For example, for every £8 you withdraw (i.e. that you don’t use to pay your childcare provider), HMRC will take back (or you need to pay back to HMRC) the government’s £2 contribution.
We suggest you contact the HMRC Childcare Service helpline for advice if you are considering this.
Childcare vouchers (Employer-supported childcare)
If you are part of your employer-supported childcare scheme, you may be part of a salary-sacrifice arrangement whereby you have agreed to take less salary (up to a limit) in exchange for employer childcare vouchers (or directly contracted childcare) and consequently benefit from relief from tax and national insurance (NI) contributions on the value of your employer-supported childcare vouchers.
Our understanding is that it is usually not possible to get a refund on any excess childcare vouchers unless your employer allows it and adjustments would need to be made for the tax and NI savings given. You should speak to your childcare voucher company and employer.
If your circumstances change, meaning you stop paying for childcare, you may want to reduce or stop your childcare vouchers salary sacrifice so that you don’t build up too much of an excess and/or have a higher amount of money in your pocket.
HMRC’s guidance says: “HMRC agrees that COVID-19 counts as a life event that could warrant changes to salary sacrifice arrangements, if the relevant employment contract is updated accordingly.”
You can ask to stop receiving childcare vouchers or directly contract childcare through your employer scheme temporarily without having to leave your scheme, providing you re-start taking your vouchers (or workplace nursery option) within 52 weeks.
The important thing to remember here is that your temporary break from your employer’s scheme must not last more than 52 weeks, otherwise you won’t be able to rejoin and may need to look for other types of support towards your childcare costs.
You could, however, remain within the scheme and reduce the vouchers you are claiming to a minimal amount to avoid this issue. A reduced salary sacrifice and childcare vouchers might also be appropriate if, for example, you are having to pay a retention fee to avoid losing your childcare place when childcare settings reopen.
Furloughed employees (up to end of October 2020)
For those who were furloughed under the Job Retention Scheme, it is understood from HMRC guidance that if an employee (a full-time or part-time regular salaried employee) switched out of a salary sacrifice scheme on or before 19 March 2020, then the reinstated higher salary will form the basis of the calculation of the amount that employers can claim under that scheme.
It is our understanding that if an employee reduced their childcare vouchers (and consequent salary sacrifice) after 19 March 2020, this would not affect their salary calculation under the Job Retention Scheme as the calculation is done on the basis of the worker’s last pay period prior to 19 March and the provision of benefits in kind doesn't count as pay.
So, for example, say Jenny usually earned £1,500 a month basic pay, after a salary sacrifice of £243 into childcare vouchers. She stopped the salary sacrifice arrangement at the end of March when she was furloughed on 80% pay through to the end of June 2020. Jenny's 'furlough' pay for that period would have been 80% of £1,500 (£1,200), not 80% of £1,743 (£1,394.40).
⚠️ Note that unless Jenny stopped the salary sacrifice arrangement with her employer anyway, her employer may have had to fund the £243 childcare vouchers from their own pocket during the period of furlough (because the obligation to provide the vouchers will still probably have existed on the employer under the agreement made with her, unless it was changed).
At the same time HMRC stated that all of the grant received to cover an employee’s furloughed pay must be paid to them in the form of money. No part of the grant could be netted off to pay for the provision of benefits or a salary sacrifice scheme. So when Jenny’s employer received the £1,200 grant for Jenny, he should have paid the entire amount to her, and not have used £243 of it to pay for childcare vouchers.
If Jenny was getting her pay topped up to 100% by her employer from £1,200 to £1,500 then the 20% extra (£300) could still have formed the basis of a salary sacrifice, meaning that Jenny could have received £1,257 in cash pay and £243 in childcare vouchers. Her employer would have received reimbursement of £1,200 under the Job Retention Scheme.
The Job Retention Scheme comes to an end on 30 October 2020. A new Job Support Scheme will be introduced from 1 November. We expect the calculation of usual pay to operate on a similar basis to the JRS, although more details are expected shortly.