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 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, you have stayed with the same employer 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 that is registered, approved or, in some cases, school-based. The childcare vouchers may be worth any amount, but you will not pay the usual amount of 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 savings will depend on whether you are a basic rate, higher rate or additional tax payer. More information on how much you save is available from the Low Incomes Tax Reform Group.
Some employers offer employer-supported childcare such as a workplace nursery which may give you greater tax and national insurance savings.
Using voucher schemes on maternity leave
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.
Childcare vouchers replaced by Tax-Free Childcare
As a replacement to childcare vouchers, the government offers 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. You should be cautious about signing up for Tax-Free Childcare if on these benefits, as they will stop. It is important to check if you will be better off.
Using childcare vouchers if you claim Tax Credits or Universal Credit
If you use Childcare Vouchers to help pay for childcare, and you also claim Tax Credits, you may still be able to get help with the costs which are not covered by the vouchers.
Take the amount of the vouchers away from your total cost of childcare when you tell the Tax Credit Office how much you pay. This will be taken into account in the childcare element of Working Tax Credit. When you tell the Tax Credit Office about your income, you report your income after any salary sacrifice scheme so that the value of the vouchers is disregarded. This is because you do not pay tax on the value of the voucher.
If you are claiming Universal Credit, that also includes help with childcare for working parents. You could still use childcare vouchers if you took the value of these off the costs you reported to the Department of Work and Pensions (for example, if your childcare costs are more than the eligible amounts in Universal Credit).
There is more information about Tax Credits, Universal Credit and childcare vouchers on the government’s childcare choices website.
This advice applies in England, Wales and Scotland. If you live in another part of the UK, the law may differ. Please call our helpline for more details. If you are in Northern Ireland you can visit the Labour Relations Agency or call their helpline Workplace Information Service on 03300 555 300.
If you have further questions and would like to contact our advice team please use our advice contact form below or call us.
The information on the law contained on this site is provided free of charge and does not, and is not intended to, amount to legal advice to any person on a specific case or matter. If you are not a solicitor, you are advised to obtain specific legal advice about your case or matter and not to rely solely on this information. Law and guidance is changing regularly in this area.
We cannot provide advice on employment rights in Northern Ireland as the law is different. You can visit the Labour Relations Agency or call their helpline Workplace Information Service on 03300 555 300.