Under the childcare vouchers scheme can give your employees up to £55 per week tax free from your company.
- £55 per week is for basic rate employees only (higher rate £28 and additional rate £25).
- The childcare provider must be registered under the Childcare Act 2006 on the Ofsted Childcare Register.
- The childcare provider must state in the Ofsted registration the place where they will be providing the childcare.
- The company can make your own voucher, you don’t have to use a voucher scheme website.
- You must not reimburse the employee for the childcare as this would be taxable on the employee.
One of the simplest ways to handle this is for the company to be invoiced and to pay for childcare directly to the provider. Subject to amounts and conditions, there is no tax or NI on the benefit of the childcare being provided in this way.
If direct invoicing of the company is not possible, you can issue vouchers. Basically the voucher is given to the employee, who gives it to the childcare provider, who in turn gives it back to the company. At that point the company can pay the childcare provider. Again, this can potentially be tax and NI free.
You could set up your childcare vouchers with a “scheme provider”. These are third parties who the company pay an amount into, and the scheme provider then issue a voucher. The employee gives the voucher to the childcare provider as part payment. The childcare provider then gets the money from the scheme provider by quoting the voucher reference number.
Some of the scheme providers who are currently being used by employers include Kids Unlimited; Sodexo; and Fair Care. You could set up with one of those providers. This should be a very quick and easy process and start to pay. They will then be able to give you the vouchers, which you will pass on to the childcare provider.
So three options:
- Get the provider to invoice your company directly and pay them directly.
- Your company run a voucher scheme. Your company issue a voucher, employee give voucher to childcare provider, childcare provider gets money from your company (i.e. the childcare provider would send the voucher back to your company and at that point your company would reimburse them).
- Pay a scheme provider such as Kids Unlimited; Sodexo; and Fair Care to do the work. Your company pay scheme provider who issue voucher to you, you give voucher to school who get money from provider
IMPORTANT: What you cannot do is have the employee pay for the childcare and then reimburse the employee. This would be taxable on the employee.
You might want to have a look at HMRC employer handbook for further details.
Generally the idea is that childcare vouchers up to a limited value can be given to employees without any additional tax or national insurance being incurred. This can either be on top of salary, or instead of (salary sacrifice). In the latter case the contractual salary must be actually reduced.
Just to be clear, if you simply reduce the employees pay in payroll but don’t amend their contract then PAYE and NI would still be due on their contract salary if that is higher.
In terms of payroll and our involvement, it is very simple.
- There is no PAYE or NI on the vouchers or direct payment to the childcare provider as long as it is within the limits (£55 per week for basic rate employee) and not reimbursed to the employee. So that does not have to be reported back to us for inclusion in payroll
- When you tell us each month the payroll figures to process you tell us the lower salary if a salary reduction (salary sacrifice) is being implemented.
The Childcare Voucher Scheme is only available to join until 3 October 2018. After this date you could still be eligible for Tax-Free Childcare instead.