Employer provided childcare vouchers can be a valuable benefit enabling the user to choose their own registered childcare provider.
The amount of tax free vouchers that can be given will depend on when the employee joined the employer’s scheme and on their level of pay. If the employee joined the employer’s scheme on or before 5 April 2011 it is possible to get up to £55 each week free of tax and NICs. For employees joining later then if earnings are more than the higher or additional rate thresholds the amount that can be received free of tax and NICs is reduced. The amount for higher rate earners is £28 each week and £22 each week for additional rate earners. From 6 April 2013 the exempt amount for additional rate earners will be £25 each week.
For tax purposes persons are only entitled to receive up to the relevant exempt amount shown above regardless of number of employments held. For NICs the exempt amount can be received from more than one employer. If both parents are provided with childcare vouchers they are each entitled to an exempt amount of childcare vouchers. If the employer provides childcare vouchers above these amounts tax and NICs will have to be paid on the additional amount.
Paper or electronic vouchers may be given by the employer or directly by the childcare voucher provider. The employer will tell the employee whether paper or electronic vouchers will be made available or they can give the choice to the employee
Childcare vouchers do not have to be used in the week or month they are provided but can be saved up and used later. For example, the cost of childcare may be more than usual during school holidays and so they may be used then.
If an employee decides to get childcare vouchers, they need to check that the childcare provider will accept them and whether the carer would prefer paper or electronic vouchers. The employer or the employer’s voucher provider will normally be able to answer any questions that the childcare provider has. It is possible that the childcare provider already accepts voucher payments from the voucher provider chosen by the employer. The childcare provider will need to make an arrangement with the employer or the employer’s voucher provider to receive payment. This is normally a simple process which the employer will tell the employee about. If the voucher doesn’t cover the whole cost of the childcare, agree with the childcare provider how the extra costs will be paid. You will only receive Income Tax and NICs exempt vouchers after you have formally agreed with your employer to join a childcare voucher scheme.