frequently asked questions
head buzzing with questions? read on...
frequently asked questions
offering childcare vouchers as part of your employee benefits package is an excellent way of attracting new staff as well as retaining and motivating existing employees. It can mean some changes to the way you pay your employees and so we have put together a series of typical questions which often arise when considering the adoption of childcare vouchers.
What is the maximum amount employees can claim in childcare vouchers each month?
It all depends on the amount of tax they pay.- £243 for 20% tax payers, £124 per month for 40% tax payers and £97 if they pay tax at 50%. Any voucher amount provided above these figures will be subject to tax and NI.
What qualifies as registered and approved childcare?
To claim vouchers employees must have children under 16, or under 17 if disabled, in registered or approved childcare which includes:
- Childminders, nurseries and play schemes
- Out-of-hours school and holiday clubs
- Nannies and au-pairs
What is a basic earnings assessment?
At the beginning of each tax year, employers must make a basic earnings assessment for all employees who joined their childcare voucher scheme after April 5th 2011. The assessment confirms their basic contractual wage/salary, including taxable benefits in kind and any known or guaranteed overtime or bonuses. If your scheme is run on a salary sacrifice basis then it is the post salary sacrifice amount that earnings are assessed on and ultimately the maximum amount of vouchers that can be claimed by an employee each month.
What happens if an employee’s basic earnings change throughout the year?
The basic earnings assessment is made at the beginning of the tax year and sets the maximum amount of exempt income an employee can receive for the whole of that year. Even if they move up or down a tax bracket, the maximum amount they can claim in vouchers will not be re-assessed until the beginning of the following tax year.
What if an employee only uses childcare in the school holidays?
They simply need to calculate their annual spend on childcare and divide by 12. This will be the amount they need to claim in vouchers each month.
Can employees use vouchers for more than one provider?
Yes, but remember to ask them how they would like to split their entitlement.
Can both parents claim vouchers for the same child?
Yes, as long as they are both employed and paying tax and national insurance
Will an employee’s claim for childcare vouchers have any impact on their Tax Credit?
Yes it may do, the best thing is for them to visit the online calculator http://www.hmrc.gov.uk/calcs/ccin.htm on the HMRC website. It calculates whether an employee is better off claiming childcare vouchers or just using tax credits.
Must vouchers be used in the same month as they are received?
No, they are valid for up to 12 months.
When do employees receive their vouchers?
Vouchers should be distributed at the same time they receive their weekly or monthly salary.
Will employees have to take a salary sacrifice to benefit from childcare vouchers?
It depends how you introduce the scheme, if you are not offering the vouchers in addition to their existing salary, then you will either have to amend their contract of employment or put a salary sacrifice in place.
This happens when an employee gives up the right to receive part of the cash pay due under their contract of employment. It usually takes place when that amount of cash is replaced with a benefit in kind—in this case childcare vouchers. See our resources page for more information.
How do vouchers impact on the minimum wage?
You must ensure that the portion of salary remaining after childcare vouchers have been claimed is above the minimum wage. This can be calculated by dividing the salary by hours worked.
How will a salary sacrifice affect company contributions to an employee pension?
It may reduce the amount of an employer’s contribution to an employee’s pension, however this will be outweighed by savings the employee makes through non payment of tax and national insurance of the value of the voucher.
Can employees take a break from the scheme?
Yes lifestyle changes are allowed, such as maternity leave, long-term sick leave, career breaks or simply that childcare is no longer required. Providing the overall break period does not exceed twelve months they can remain as an existing member of your childcare voucher scheme. However should they take a break of more than a year, they must be treated as a new joiner when they return. This means they will be subject to an annual earnings assessment as well as being limited to the revised maximum voucher amounts that can be claimed.
Can a person benefit from childcare vouchers to contribute towards childcare for a child who is not their own (e.g. if they are a grandparent of the child)?
Yes, child carevouchers are available to parents and those living with the child who have legal parental responsibility for that child.
Can an employee return unused childcare vouchers to the employer? If so, are they put through the payroll as income to collect Tax & NICs?
On the whole vouchers cannot be returned. However HMRC accept that unforeseen circumstances can arise which mean that a voucher cannot be used for the purpose for which it was intended - for example, death of the child, redundancy of one parent etc. In this case vouchers returned for cash would be liable for tax and Class 1 NICs in the normal way.
What information will I need to provide to HMRC?
If requested, you will need to provide full details of the voucher plan including employees and childcare providers involved and new employee contractual arrangements - we will provide the necessary documentation. Essentially HMRC must be satisfied that the employee’s cash pay has been reduced and an approved benefit has been implemented - ie that you are not using the voucher plan to meet any other of the employee’s own financial commitments.
How much will it cost?
You will pay a maximum of 7.5% of the voucher value per participating employee. This cost is more than outweighed by the savings in Ers NIC you will make. However, the real benefit in implementing the scheme is the amount you allow your employees to save in tax and NI —between £605 and £933 a year.