Information for Employers
The provision of Childcare Vouchers as an employee benefit offers an employer and employee the opportunity to save up to £1,335 a year in PAYE tax and National Insurance contributions. This is because Childcare Vouchers of up to £2,916 per annum may be provided to employees, free of PAYE tax and NIC.
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By having an employee swap part of his or her normal salary (which is subject to PAYE tax and NIC) for Childcare Vouchers, both the employer and employee will benefit financially.
Typical tax and NI savings per annum for the employee are:
| Basic Rate Tax Payer (20% PAYE & 12% NI) | Higher Rate Tax Payer (40% PAYE & 2% NI) | Additional Rate Tax Payer (50% PAYE & 2% NI) | |
|---|---|---|---|
| Max monthly vouchers | £243 | £124 | £97 |
| Annual tax & NI saving | £933 | £623 | £606 |
Typical NI savings per annum for the employer are:
| Basic Rate Tax Payer (20% PAYE & 12% NI) | Higher Rate Tax Payer (40% PAYE & 2% NI) | Additional Rate Tax Payer (50% PAYE & 2% NI) | |
|---|---|---|---|
| Max monthly vouchers | £243 | £124 | £97 |
| Employer NI saving at 13.8% | £402.40 | £204.79 | £160.90 |
Our Service
NW Brown offer advice and assistance in implementing Childcare Vouchers as a benefit for your employees, including;
- Website giving details about the scheme, including online employee questionnaire about eligibility (including Tax Credits implications) and online registration;
- Online account management for employers, including monthly payment request and ability to view/edit individual employee sacrifice details
- Online account management facility for employees to view vouchers and payments, and request payments to childcare providers through an online form
- Liaison with the relevant employees' childcare providers and direct by BACS payments;
- Sundry advice concerning the employment taxation, National Insurance Contributions and implications of operating a Childcare Voucher scheme
Our Fees
Our administration fee is calculated as 5% (plus VAT) of the face value of the Childcare Vouchers provided. This is charged quarterly in arrears. We also charge a one-off set up fee of £20 for each employee who participates.
Telling Staff
As required by tax law, Childcare Vouchers must be made available to all staff. We will supply you with sample letters/emails to send to your employees.
National Minimum Wage
Remember that you cannot reduce an employee's salary below the National Minimum Wage. The National Minimum Wage is, from October 2010, £5.93 per hour for workers aged 21 and over, £4.92 for 18-20 year olds and £3.64 for 16-17 year olds.
Documenting the Salary Swap - an amendment to the individual's contract of employment
Whilst it is not your intention to disadvantage staff, it helps to protect you if the documentation mentions that a salary swap may have an adverse impact on salary-related employee benefits. You may want to remind staff that they will not be allowed to chop and change from month to month; you will allow a change to the salary swap only upon the happening of a 'Life Change Event' (e.g. child leaving nursery).
As the salary swap is a reduction in salary, it is necessary to amend the contract of employment and to obtain the employee's consent. The document should have a footnote where the employee agrees to the salary reduction. The employee should be given two copies of the letter, both of which he/she should sign before returning one copy to you. We can provide you with a suggested letter. This is essential to avoid any future issues with HM Revenue & Customs.
Pay Slip
If the amount of the Childcare Vouchers is to be shown on the employee's pay slip, ensure that the payroll is configured not to PAYE/NIC the Childcare Vouchers (up to the monthly tax-free/NIC-free limit).
Salary-Related Employee Benefits
Check the small print of any salary-related employee benefits for salary swap implications. For example, what definition of salary is used for the purposes of Death-In-Service, Income Protection Insurance or Pensions?
Maternity Leave
An employee cannot, as a matter of law, sacrifice any amount from Statutory Maternity Pay or Paternity Pay. Therefore, unless there is additional maternity/paternity pay, the salary swap agreement automatically ceases. As an employer you must provide all contractual non-cash benefits during statutory maternity leave. This applies even if the benefit is normally provided under a salary sacrifice agreement. Statutory payments must be paid in full and cannot be paid in kind. This is a requirement of employement law under the Equal Treatment Directive and is not a tax related issue.
Further Information
Additional information about childcare vouchers and the tax and NI treatment of other childcare provision can be found in the HMRC Employer Handbook "How to help your employees with childcare".
To find out more about our corporate benefits or any of the other services provided by the NW Brown Group, please contact us
