Childcare vouchers and employer-supported childcare
Some employers offer vouchers towards childcare costs for parents, often known as a “salary sacrifice” scheme. Only those signed up to a voucher scheme prior to October 2018 can continue in this scheme (unless their employer brings it to an end). It is therefore important to note that childcare vouchers are no longer available to new applicants.
If you signed up to a childcare voucher scheme prior to October 2018 and you continue to receive vouchers, this means you are paid less in your wages but are given vouchers instead (some employers may give you the voucher on top of your wages, but this is less usual). You can use the vouchers towards the cost of childcare which is registered or approved or, in some cases, school-based. The childcare vouchers may be worth any amount, but you will not pay Income Tax or National Insurance on a voucher worth up to £55 per week. If you joined a voucher scheme after April 2011, then your tax saving can only be at the basic rate (20%), so if you are a higher rate tax payer you may still pay some tax on the childcare voucher.
Childcare vouchers may not be payable during maternity leave if you are in a salary sacrifice scheme and there is no occupational maternity pay to deduct them from. An Employment Appeal Tribunal (EAT) decided that this was not discrimination.
If you are currently signed up to a childcare voucher scheme it will affect your “average salary” for things like Statutory Maternity Pay. You should also note that childcare vouchers will affect your tax credit award; you will need to deduct the childcare voucher from the costs you tell the Tax Credit Office you are paying for childcare (see Childcare costs and Working Tax Credit). Your tax credits will also be affected by the reduction in your taxable income by taking the vouchers. The GOV.UK website has a calculator you can use to decide whether you will be better off accepting childcare vouchers.
Some employers offer employer-supported childcare such as a workplace nursery which may give you greater tax and national insurance savings.
Since April 2017, the government has been operating Tax-free childcare accounts for parents which cannot be used by anyone who is in a childcare voucher scheme. Parents already in a voucher scheme can choose to continue for as long as their employer provides the vouchers. You will only be able to use Tax-free childcare if you are not claiming tax credits or Universal Credit.
The Family and Childcare Trust has more information about childcare vouchers and other support for working parents.
This advice applies in England, Wales, Scotland and Northern Ireland. If you live in another part of the UK, the law may differ. Please call our helpline for more details.