Childcare vouchers

Vouchers are only used to pay for childcare for the following:

The child must be the employee’s child or stepchild
The expense of caring for the child is the employees responsibility
The child must be resident with the employee
The employee must have parental responsibility for the child
The child qualifies up to 1 September after their 15th birthday.This extends up to their 16th birthday if the child has a disability
The scheme must be generally available to all your employees

Weekly and monthly limit

A weekly/monthly limit applies to the childcare costs amount an employee can receive free of tax and NI. You may provide childcare vouchers above the limit, but the extra amount is subject to tax and NI.

Employees who joined the scheme before 6 April 2011:

Could receive up to a cap of £55 per week/£243 per month in childcare costs
This is free of tax and NI, regardless of their earnings
Can continue to receive this amount regardless of earnings

Employees who join a childcare scheme on or after 6 April 2011:

The tax-exempt and NI-exempt amount they can receive links to their earnings
This amount depends on whether they pay basic rate, higher rate or additional rate tax

To determine the employee’s tax rate, you must carry out a basic earnings assessment. For more information, please read the HMRC article. Employer supported childcare (opens in new tab).

Period	Basic rate	Higher rate	Additional rate
Weekly	£55	£28	£22
Monthly	£243	£124	£97
Annual	£2915	£1484	£1166

Salary sacrifice

An employee can choose to reduce their salary in return for a non-cash benefit. For example, Childcare vouchers.

HMRC advises that the way to deal with salary sacrifice is to use a negative pre-tax and pre-NI payment. This ensures that the employee’s total gross pay reduces as required.

For example, if the value of the childcare voucher is £243, you should record a salary sacrifice payment of -£243.00.

TIP: Be aware of the national minimum wage (NMW). The employee must not sacrifice an amount that reduces their gross pay below the NMW.

To set up the salary sacrifice payment:

Go to the Settings tab. Select Payments & Deductions. Select Create New Payment.
Enter the following information:

Payment Category	Choose Salary. This ensures that you can enter a negative value when you process a pay run.
Payment Type	Choose Other Salary Payment.
Name	Type in a name. For example, Childcare vouchers. This appears on the payslip.
Description	Enter a brief description of what this payment is for.
Include in Calculation of	The following options are available: Pension Earnings. To include the payment when calculating pensionable earnings, select this check box Qualifying Earnings. To include the payment when calculating qualifying earnings, select this check box If you’re unsure about whether to select these check boxes or not, please contact HMRC.

Select Save.

The next time you process a pay run, you can use the new payment as follows:

Select the Summary tab and Process Pay Run
Process the pay run as normal until the Edit Pay stage.
Select Add Payment and choose Childcare vouchers.
Enter the value of the voucher as a negative value.
Proces pay as normal.

Employee gets childcare vouchers in addition to pay

You can provide childcare vouchers to an employee on top of their pay.

Vouchers up to the value of the weekly or monthly limit are exempt from tax and NI. This is as they meet the qualifying conditions.

If the vouchers don’t exceed the weekly or monthly limit, you don’t need to record them
If the vouchers exceed the limit, to account for tax and NI you must record the excess

To record the value, you need to use both a payment and a deduction:

Set up a payment to record any childcare voucher amount above the weekly or monthly limit. You should set this up as a pre-tax, pre-NI payment.
Set up a deduction to balance the amount and ensure the employee doesn’t actually receive the money. You should set this up as a net deduction.
When you pay the employee, process the pay run until the Edit Pay stage.
Select Add Payment and choose the new payment you created.
Enter the value of the excess only.
Select Add Deduction and choose the new deduction you created.
Enter the value of the excess only.
Process the pay as normal.

Recording the amount as both a payment and a deduction ensures that:

The employee doesn’t actually receive the extra money. They’ve already received the amount through the childcare voucher
The employee pays tax and NI on the excess amount

Employer pays childcare fees

An employer can pay childcare fees for the employee through a third party. These are exempt from tax and NI up to the weekly or monthly limit.

If the childcare fees don’t exceed the weekly or monthly limit, you don’t need to record them
If the vouchers exceed the limit you must record the excess. This is for tax and NI purposes

Set up a payment to record any childcare voucher amount over the weekly or monthly limit. You should set this up as a pre-tax, pre-NI payment.
Set up a deduction to balance the amount and ensure the employee doesn’t receive the money. You should set this up as a net deduction.
When you pay the employee, process the pay run as normal until the Edit Pay stage.
Select Add Payment and choose the new payment you created.
Enter the value of the excess only.
Select Add Deduction and choose the new deduction you created.
Enter the value of the excess only.
Process pay as normal.

Recording the amount as both a payment and a deduction in the pay run ensures that:

The employee doesn’t actually receive the excess amount. The amount was paid to the third party on their behalf
The employee pays tax and NI on the excess amount

Employer provides a childcare facility

If you:

Provide childcare facilities for your employees
Provide childcare facilities for the employees of another employer on the same premises
Have some responsibility for the childcare

Then the cost of the childcare is not subject to tax or NI.

You don’t need to record the value of the childcare either in the P11D, or when you process pay.

NOTE: If you provide childcare places for which you don’t have responsibility, this is a benefit in kind. You should record the cost on the P11D.

Additional income

You can provide extra income to an employee in the form of payments or cash vouchers. This extra income is subject to tax and NI.

If you give the extra income in the form of cash, set up a payment as normal to record it. Set this up as a pre-tax, pre-NI payment.

If you give the extra income in the form of cash vouchers, enter both a payment and deduction to record it.

Set up a payment to record any childcare voucher amount over the weekly or monthly limit. You should set this up as a pre-tax, pre-NI payment.
Set up a deduction to balance the amount and ensure the employee doesn’t actually receive the money. You should set this up as a net deduction.
When you pay the employee, process the pay run as normal until the Edit Pay stage.
Select Add Payment and choose the new payment you created.
Enter the value of the excess only.
Select Add Deduction and choose the new deduction you created.
Enter the value of the excess only.
Process pay as normal.

This ensures that tax and NI apply to the cash voucher amount. It also deducts the same cash voucher amount. The employee pays the tax and NI amounts that apply to the cash vouchers. They don't receive the same amount again through payroll.

﻿Qualifying Conditions