Childcare vouchers up to £243 a month are free from both tax and NICs if the qualifying conditions are met.
Update 04 April 2018 : From October 2018, childcare voucher schemes will close to new applicants. You may be able to get Tax-Free Childcare instead.
You can keep getting vouchers if you’ve joined a scheme and got your first voucher before the scheme closed in October 2018, as long as:
- you stay with the same employer and they continue to run the scheme
- you don’t take an unpaid career break of longer than a year
Qualifying Conditions for Childcare Vouchers:
The qualifying conditions are that:
- Your employees can only use the childcare vouchers to pay for childcare that has been registered or approved;
- The child: is a child or stepchild of the employee at whose expense, either in full or in part, the child is maintained; or
is resident with the employee and for whom the employee has parental responsibility; qualifies up to 1 September after their 15th birthday (or 1st September after their 16th birthday if they are disabled); - Your childcare voucher scheme is generally available to all of your employees where the scheme operates;
The £55 a week (or £243 per month, or £2,915 per year) exemption applies to each individual employee, not per household or number of children. It applies to both tax and NICs. If you provide qualifying childcare support that exceeds the allowable threshold, the excess will be liable for both tax and NICs.
Child care vouchers – exempt amounts
For employees who join on or after 6 April 2011, these are the amounts that you can provide to your employee as exempt income in the form of childcare vouchers or directly contracted childcare from 6th April 2011. These amounts apply only to those employees who join on or after that date and have been subject to a basic earnings assessment.
For employees in an existing scheme on or before 5th April 2011 can receive the following amounts. There is no need to carry out a basic earning assessment for these employees.
Weekly £55; Monthly £243; Annual £2915
What counts as registered or approved childcare?
Registered and approved childcare includes:
- Registered childminders, nurseries and play schemes;
- Out-of-hours clubs on school premises run by a school or local authority
- Childcare schemes run by approved providers, for example, an out-of-school hours scheme or a provider approved under a Ministry of Defence accreditation scheme
- Childcare given in the child’s home that has been approved under a Government scheme (except where the care is provided by a relative of the child);
- Accredited childcare for 8’s and over by an approved organization;
What records does your limited company need to keep?
You will need to keep records that the qualifying conditions have been met (you can arrange for a voucher company to keep these records for you but you will be responsible for producing them to HMRC, if required). These records should include:
- Evidence that the scheme is offered to all staff where appropriate (e.g. the material used to promote your scheme or staff handbook);
- Details of the child using the childcare, for example their name and date of birth;
- Details of the child carer(s) used including their registration or approval numbers and, if appropriate, when their approval expires; and
- Evidence that your employees participating in childcare voucher schemes are required to inform you of any changes in the registration or approval status or their child carer;
How to operate your childcare scheme – Option 1 – Direct
This is childcare which your ltd company buys from a third party provider and make available to your employees as a benefit. The contract to purchase the services is between your limited company and the third party. This is very straightforward method of providing help with childcare, and is particularly relevant if you only have a small number of employees who use childcare. The tax exemption WILL NOT apply if you are simply paying or helping to pay your employee’s own childcare bill – there must be a contract between your limited company, and the third party.
Where you enter into such an arrangement with a childcare provider and there is an existing agreement between them and the employee concerned already, HMRC would normally expect there to be a variation in that agreement to take account of the new arrangements in place between your ltd company and the childcare provider. Under these arrangements it will be your limited company, and not the employee, who is contracting for part of the childcare.
An example of an employer’s letter to a childcare provider is shown below:
Henry the Cat Day Nursery
1 Nursery Hill
London
Dear sir,
I agree to purchase childcare from you to the value of £55 per week from 6 September 2011. I intend to give the childcare as a benefit to my employee John Smith for use by his daughter, Jane. This agreement may be amended or cancelled if John leaves my employment.
Yours faithfully,
A Jones
Jones Contracting Services Ltd
How to operate your childcare scheme – Option 2 – Childcare Vouchers
Another type of support you can give is by providing your employees with childcare vouchers. Many employers outsource their childcare voucher schemes to specialised companies in return for an administration fee. The amount of the administration fee is also exempt from tax and NICs and does not eat into the £55 a week exempt limit. It is up to you whether you use a voucher provider company or administer your vouchers yourself (which is a cheaper option, and easy to do). If you choose to run the scheme yourself the following tips will help you to run your scheme effectively.
HMRC does not prescribe what a childcare voucher must look like, only that it is a voucher, stamp or similar document or token intended to enable a person to obtain the provision of care for a child, a childcare voucher can also be an electronic voucher. It is up to you how you design your vouchers but you should make sure that they cannot be used by your employees to pay for anything other than childcare and that they cannot be transferred or sold. It is recommended that best practice would be for the following information to appear on your vouchers:
- Your signature /company logo (to prevent fraud);
- The voucher value;
- A statement that the voucher is non-transferable;
- The employee’s name/ payroll number and a number unique to each voucher (for you to identify vouchers as ones you have issued and in particular so you can replace any lost, stolen or defaced vouchers);
- Instructions for how the child carer can claim payment;
- A space for the child carer’s name and postal address, bank address and account number for making payment;
Here is an example of a voucher with all of these features:
How childcare vouchers work: the employer gives the childcare voucher to their employee. The employee gives the voucher to the childcare provider as payment or part payment for childcare and then the child carer returns the voucher to the employer in return for payment (this may be, for example, a cheque or BACS transfer). NB: your employee will need to check that their childcare provider is happy to be paid in this way before participating in your scheme.
If you give your employees childcare vouchers free of tax and NICs, again you must keep sufficient records to show that the conditions for the exemption are met, as per item (1) in this guide.