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Childcare Vouchers and Tax Credits - Will employees’ tax credit claims be affected?
Providing childcare vouchers when given instead of normal salary can help your employees, this help is limited to the tax and NICs savings the employee makes. This may benefit your employee when:
• Your employee receives Child Tax Credit only or no tax credits
• Your employee’s childcare costs exceed the limit for Working Tax CreditIt is important to remember that if you offer your employees childcare vouchers instead of pay, entitlement to tax credits can be affected in two ways. 1. Their income for tax credits purposes will be reduced by the amount of pay they have given up in return for the benefit
2. Their eligible childcare costs for tax credit purposes will reduce as it must only include costs the parent(s) pay themselves – the amount you pay through childcare vouchers is not included
It is the responsibility of individual employees to consider this before deciding whether or not to opt into the scheme. Employers For Childcare will provide full information on this in the ‘Salary Sacrifice Childcare Voucher Scheme – Employees Guide’.
Getting Started and Administration - Do you have any hidden charges for administrative changes?
No, as a charity, our administration charges are flat set rates. We do not have any hidden charges for administrative changes or additional queries
- What administrative documentation do I have to put in place for a salary sacrifice childcare voucher scheme?
Employers For Childcare Vouchers are easy to set up and implement. Once you register as a member we will provide you a Members Resource Pack and CD Rom and your E-Vouchers log-in details. This will contain all the necessary administrative documentation, as outlined below
Agreement to Vary Terms & Conditions of Employment (Opting In) form:
Parents Registration Form:
Childcare Provider Agreement Form:
Childcare Voucher Order Form for EmployersEmployers For Childcare Vouchers will administer the scheme on your behalf so there is minimal administration and paperwork
How childcare vouchers work - What does the term ‘salary sacrifice’ mean?
A ‘salary sacrifice’ happens when an employee gives up the right to receive part of their cash element of pay due under his or her contract of employment. Under the Childcare Voucher Scheme employees may ‘sacrifice’ part of their pay in exchange for childcare vouchers, with the potential to save money on Tax and National Insurance Contributions. For further information see Salary Sacrifice Questions and Answers on the HMRC web site www.hmrc.gov.uk
- Are there any restrictions for salary sacrifice childcare vouchers?
For any of your employees to qualify for the exemption, childcare vouchers should be provided in a scheme that is open to either all of your employees or all of your employees based at the location where the scheme operates. Being open to all employees does not mean that all employees may be able to participate for example; employees who cannot participate may be those:
• Without children in qualifying childcare
• Not earning sufficient salary to participate
• Who already benefit from Working Tax Credit
• Who choose not to participat
- Is there a limit to the amount of childcare vouchers that can be purchased?
Childcare vouchers up to *£55 per week per employee are exempt from Tax & National Insurance Contributions (NIC) provided that:
• The childcare vouchers are only used to pay for registered or approved childcare
• The childcare vouchers are used for a **qualifying child, and
• The childcare vouchers are offered in a scheme that is available to all employees*If childcare vouchers are provided monthly, the equivalent monthly exemption is £243. £243 has been calculated on the basis of 53 weeks X £55 divided by 12 months and rounded to the nearest whole pound. If childcare vouchers are provided in excess of £55 per week, only the excess is chargeable for tax and NIC. Contact Employers for Childcare on 028 92 61 0661 for advice and guidance on this and year end reporting requirements. **A qualifying child - A child for whom the childcare voucher is provided must be a child of the employee or a child who lives with the employee for whom he or she has parental responsibility. A child qualifies up to 1 September following their 15th birthday or 1 September following their 16th birthday if he or she is disabled
- Can individual employees change the value of childcare vouchers required from month to month?
This is a matter to be agreed between you and your employees. If employees are allowed to change the value of childcare vouchers required from month to month it is important that they complete a new Vary Terms & Conditions of Employment form.Note: Only the first £55 per week/£243 per month is Tax & NIC exempt, any vouchers provided in excess of this is chargeable for both tax and NIC
Maternity Pay - Are there any implications for Statutory Maternity Pay (SMP)?
Possibly, however any potential negative impact can be avoided regarding SMP.If an employee:
• is, or becomes, pregnant
• and they are taking childcare vouchers through salary sacrifice
• and they are only entitled to Statutory Maternity Pay (SMP)
it is advisable that they opt out of the scheme 23 weeks (i.e. week 17 of the pregnancy) before the baby is due, and opt in again 15 weeks (i.e. week 26 of the pregnancy) before the baby is due.
This 8 week period is known as the ‘qualifying or set’ period and earnings during this period will be used to determine SMP. SMP is currently 90% of average weekly earnings for the first 6 weeks of statutory maternity leave and then £117.18 for the remaining 33 weeks or 90% of the woman’s average weekly earnings, whichever is lesser.
They can opt back in to receive childcare vouchers again after the 15th week before the week of confinement.
Vouchers are not recognized as income during the ‘qualifying or set’ period so the lower earnings would be used to calculate entitlement to SMP for the first 6 weeks.
How employers view what is ‘pay’ within the qualifying week is up to them, this can either be the new reduced figure (salary minus vouchers) or the original figure. We can not stipulate what an employer does but we would recommend using the original figure so as not to detriment female employees taking childcare vouchers. Employers may however provide occupational maternity pay over and above the statutory entitlement
- Does this affect claiming back on SMP?
If you as an employer can claim back SMP, you should only claim back the appropriate amount based on any adjusted salary under a salary sacrifice scheme (this is where an individual has not opted out), you can only claim back 92% of the 90% your employee is entitled to. Or more if you are a small employer please check with your accountant on this
Minimum Wage - Are there any implications in relation to the national minimum wage?
Yes. Under a salary sacrifice scheme an employee is not allowed to take an amount of vouchers that will reduce the cash part of their salary below the national minimum wage
Online Childcare Search Facility - Is your setting on the on-line database?
One of the main services of Employers For childcare is our Advice & Information Helpline (0800 028 3008) which provides a free, confidential, personal Childcare information Service to parents on childcare and work related issues. Twice yearly we get information from Social Services on all registered settings in NI, which we have put onto a database online, parents can then either phone us or search online to find out what settings are available in their area. We have populated the fields using the information you provided on a questionnaire we send to you. Please check these details and if you wish to edit or update please feel free to call us on 0800 028 3008.
Opting Out - Can individual employees opt out of the scheme at any time?
Yes, providing they sign a new Agreement to Vary Terms & Conditions of Employment (opting out) form and give the required notice*. A template of this form is provided.*the required notice as set out in the Agreement to Vary Terms & Conditions of Employment template can be reduced by mutual consent. See also: ‘Can employees obtain a refund for any unused childcare vouchers?’
Pensions - Are there any implications for pension schemes?
Yes. First state pension is not affected as it is the length of time and not amount you pay in which dictates the value. Second state pension, as long as one has not opted out, can be affected but only for the period of salary sacrifice. For an occupational pension the employee should check with the pension provider
Promoting Childcare Vouchers - How can I promote the availability of childcare vouchers to employees?
Employers For Childcare Vouchers provides full and ongoing promotional support to help you publicize the childcare voucher scheme to employees. All promotional tools can be customised and will be available in the Members Resource CD and can also be downloaded from the EFC Vouchers member’s website
- We are a large and diverse workforce. How can we succesfully launch and promote the scheme to employees?
Employers For Childcare Vouchers can provide customised promotional support to all our client whatever sector or size.
Once you register for Employers For Childcare Vouchers we will provide you with a Members Resource Pack and E-Vouchers log-on details which will allow you to access sample promotional tools. Your account manager will also work with you directly to launch the scheme and offer on-going promotional support
Refunds - Can employees obtain a refund for any unused childcare vouchers?
HMRC will accept that the purpose of the childcare voucher scheme won’t change if employers only exchange unused vouchers for cash in exceptional circumstances event (for example, death of the child, redundancy of one parent etc).
To receive a refund, employees should complete a Reimbursement Request form and return it your HR or Payroll department who will forward to Employers for Childcare Vouchers, and a refund will be issued. The refund will be made payable to you the employer who can then make payment to the employee through the payroll and will be subject to the employee’s current rate of tax and NIC.The childcare voucher account will remain valid for up to 12 months from the date of the last deposit transaction
Savings - What are the potential savings?
Employers could save up to 12.8% (on vouchers up to the value of £55 per week or £243 per month).
Examples of potential Employee Savings -A parent decides to sacrifice the following amount in exchange for childcare vouchers 33% 31.4% 41%
£55 per week £17.05 per week £16.17 per week £22.55 per week
£243 per month (£55 pw equivalent) £75.33 per month £71.44 per month £99.63 per month The £55 per week (£243 per month) tax & NIC exemption is per employee not per child of the employee, therefore both parents can purchase childcare vouchers and avail of the savings. Examples of potential Employer Savings
Individual employee receiving £243 per month in childcare vouchers
• Employee could save up to £99.63 per month (£1195.56 per annum)
• Employer could save up to £31.10 per month (£373.20 per annum) 10 employees each receiving £243 per month in childcare vouchers
• Employer could save up to £311 per month (£3732.00 per annum
Sick Pay - Are there any implications for Statutory Sick Pay (SSP)?
Possibly but any negative impact can be avoided.
If an employee was in the scheme and went onto statutory sick pay, receiving vouchers may reduce their salary below the National Insurance Lower Earnings Limit. Therefore if they go onto minimum statutory sick pay it is advisable that they opt out of the scheme, there would also be no financial savings to be made. This should not normally be an issue for short term sick leave but is something you should be aware of for longer term sick leave
What are childcare vouchers? - What are childcare vouchers?
Childcare vouchers are a legitimate method of paying for registered childcare. Vouchers, up to a value of £55 per week, are exempt from Tax and National Insurance Contributions (NIC) and therefore offer potential savings for working parents who use them to pay for registered childcare
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