What are childcare vouchers?
Childcare vouchers are simply a different way of paying for childcare. The Government allows working parents to benefit from Income Tax and National Insurance (NI) exemptions on up to £243 per month when used to pay for qualifying childcare. Childcare vouchers are an employer-supported benefit, so can only be accessed via an employer.
£243 is the maximum available. Limits apply at various income thresholds.
How easy is the scheme to administer?
Co-operative Flexible Benefits childcare vouchers are electronic, so administration is minimal. Our childcare voucher scheme allows you to have complete control of your own scheme, whereby you make all the decisions, and Co-operative Flexible Benefits does all the work.
There are a couple of compulsory checks that you need to do to ensure that registered employees are eligible, but these take a matter of minutes every month, even for larger employers. All other administration of the scheme is fully managed by Co-operative Flexible Benefits on your behalf.
What records do we need to keep?
Her Majesty’s Revenue and Customs (HMRC) is only concerned that you make the correct tax and NI deductions from your employees, records of which you must retain.
Appropriate documentation must also be held to demonstrate an effective salary sacrifice where the scheme operates under a salary sacrifice arrangement.
This includes:
- Amendment to Contract documents
- Childcare Voucher Policy
- Internal childcare voucher scheme rules [publicity material, FAQs etc demonstrating that the scheme is available and promoted to all]
- Procedure for ensuring no employee’s salary falls below National Minimum Wage
- Example payslips
What is salary sacrifice?
Most employers operate their scheme as a salary sacrifice arrangement, whereby employees agree (through a change to their contractual terms) to a reduction in salary in return for the equivalent value of childcare vouchers. In order for a salary sacrifice to be deemed ‘effective’ you must be able to demonstrate that the contractual right to cash pay has been reduced, so it is vitally important that you hold copies of any Amendment to Contract (ATC) documents associated with the scheme. For the duration of the time that the employee’s income is being sacrificed under the scheme, a completed ATC must be in place.
Salary sacrifice schemes are a popular way of running such schemes as the employee saves tax and NI on the value of vouchers, and you save on employer’s NI contributions for the value of the vouchers.
Do we have to offer childcare vouchers through salary sacrifice?
Not at all. Some employers do offer childcare vouchers as a benefit in addition to salary.
What are the financial benefits?
By offering a childcare voucher scheme via salary sacrifice, your organisation will typically save 13.8% in NI contributions. An employee taking the maximum £243 per month represents a saving to you of £402 per employee per year.
How much will it cost us to participate in the scheme?
The administration fee or ‘service charge’ will always be significantly less than the NI savings you are making, so there is a net saving to the organisation. Co-operative Flexible Benefits charges a fee for administering the scheme, which is a percentage of the value of vouchers ordered. There is no initial set up fee and there is no charge if there are no employees on a scheme. Fees are negotiated on a case by case basis, so please contact our Helpdesk on freephone 0800 458 7929 or info@flexiblebenefits.coop to find out more.
What support is available if we have a query?
Our freephone Helpdesk is available on 0800 458 7929 or via email at info@flexiblebenefits.coop where our Helpdesk team answers queries 8.30am to 5.30pm Monday to Friday. Outside of these hours, messages can be left on our answerphone – we will respond to messages by 10am the next working day.
What are the intangible benefits?
Recruitment and retention - statistics show that having a childcare voucher scheme in place can increase return to work after maternity by up to 80%. Recruitment costs can be as much as £7,500 per employee, so retention of existing skilled and experienced staff represents a huge saving. Employees are looking for much more than a salary when they seek out a new job – it’s the total package. Having a strong benefits package with emphasis on work/life balance and family-friendly working will enhance any business’ profile as an employer of choice.
Do employees receive paper vouchers?
We can provide paper vouchers, however as a co-operative business we consider our impact on the environment throughout our business activities, so prefer to operate an electronic solution. Reducing our carbon footprint and using less paper is a very simple way of making a difference.
What happens when employees go on Maternity/Adoption Leave?
All employed women are legally entitled to a total of 52 weeks Maternity/Adoption Leave. Where employees are eligible for Statutory Maternity/Adoption Pay (SMP/SAP), it is paid for up to 39 weeks. SMP/SAP is 90% of Average Weekly Earnings for the first 6 weeks, then £128.73 per week (rate from 3 April 2011) for the next 33 weeks. The remaining 13 weeks of Maternity/Adoption Leave are unpaid.
Following the Peninsula v Donaldson case where the final outcome from the Employment Appeal Tribunal found in favour of the Employer, we are unable to advise on whether an employer should or should not pay for Childcare Vouchers whilst employees receive SMP/SAP, instead we advise all employers to seek Legal Advice on how to interpret the decision and apply within their workplace.
Will we need to amend employees’ conditions of contract?
If you operate a salary sacrifice childcare voucher scheme, you must ensure an Amendment to Contract (ATC) is completed BEFORE any reduction to salary is made. Employees are agreeing to a contractual reduction to their salary in return for an equivalent value of childcare vouchers. Any subsequent change to this amount, or request to withdraw from the scheme must be recorded as a further ATC for the salary sacrifice to be deemed effective.
The Co-operative Flexible Benefits system automatically generates this form when employees register on-line, so all you have to do is keep a record of these in accordance with HMRC guidelines.
What is the minimum number of employees required to operate a scheme?
There is no minimum number, so there is nothing to lose by setting up a scheme and marketing it to your workforce. Once employees find out how much they can save, they will start registering and everyone can start benefiting.
Will we have to sign a contract?
You will be required to sign a contact for mutual protection, for example:
- a proportion of your payroll is being paid across to Co-operative Flexible Benefits to distribute amongst employees in the form of childcare vouchers, so it’s only right that we are contractually bound to release vouchers to those employees on the specified date.
- Co-operative Flexible Benefits is not obliged to release vouchers without receipt of cleared funds from you.
- Employees’ personal details are being made available to us, which we must treat in accordance with the Data Protection Act.
There is no obligation to sign up for an extended period of time, although we are happy to do so. Our standard contract has a one month termination clause.
What is qualifying childcare?
In order to qualify for the Income Tax and National Insurance exemption available through the childcare vouchers scheme, employees MUST use a form of qualifying childcare. Qualifying childcare in England (variations to this definition exist for childcare providers in Scotland, Wales & Northern Ireland) is defined as:
- A childcare provider registered by Ofsted*
- A school (under certain conditions)
- A domiciliary worker or nurse from a registered agenc
Please visit http://www.hmrc.gov.uk/leaflets/ir115.pdf for the full HMRC definition.
*Most common forms of childcare are registered with Ofsted eg. nurseries, childminders, out of school clubs and holiday play schemes. You are advised to check with your childcare provider that they are registered before you join the scheme.
Co-operative Flexible Benefits undertakes the necessary checks to ensure that childcare voucher payments are only made to qualifying childcare providers, in accordance with legislation.
Do I have to make the scheme available to all employees?
You must ensure every employee has access to the scheme at the location where you are operating, even though not all employees will be eligible or suitable. Employees cannot be excluded due to length of service, salary band etc.
Are all employees eligible to join the scheme?
You must ensure every employee at the location has access to the scheme, even though not all employees will be eligible or suitable.
What is in it for the employee?
Employees do not pay tax or NI contributions on the value of childcare vouchers they opt for, up to the maximum of £243 per month. The benefit is per tax payer, so if both parents are members of childcare voucher schemes, they could double their savings!
The value of vouchers employees are entitled to claim will depend on their earnings. You are required to carry out a Basic Earnings Assessment to determine the value of vouchers to which each employee is entitled, however we gather all the data and calculate this for you when employees first join the scheme so you just need to validate this at the time and at the start of each tax year thereafter. That voucher entitlement will then apply for the whole of that tax year.
The following table illustrates the value of childcare vouchers employees can receive as exempt income, following completion of the Basic Earnings Assessment:
| |
Basic Rate
Tax Payer |
Higher Rate
Tax Payer |
Additional Rate
Tax Payer |
| Weekly |
£55 |
£28 |
£25 |
| Monthly |
£243 |
£124 |
£110 |
| Annual |
£2915 |
£1484 |
£1325 |
Employees can opt for less than this amount, but no more than this amount.
How can we promote this scheme to our employees?
The success of any employee benefit depends on how well it is communicated to and understood by the workforce. We can assist in developing a promotional strategy to suit your culture and demographics, which may include presentations to staff, workshops or one to one ‘surgeries’ if appropriate.
We have a suite of promotional literature, posters etc that you may choose to distribute to your staff, display in communal areas or include in induction and maternity packs. We can also provide bespoke web pages for your intranet site.
What if I am already with another voucher provider?
Co-operative Flexible Benefits has much experience in transferring businesses from other voucher providers. We ensure a seamless transition whereby schemes change over with minimal disruption to employees and their chosen childcare providers.
What if we have a workplace nursery?
Employees do not have to pay any tax or NI on fees for a qualifying child at childcare facilities provided by their employer at their place of work, or at more suitable premises elsewhere, subject to certain conditions. Eligible employees can however still claim childcare vouchers to pay another childcare provider.
Will childcare vouchers affect maternity pay, tax credits or other statutory payments?
Statutory payments are calculated on actual salary, so an employee who has opted for any salary sacrifice scheme, will have any statutory payments calculated on the reduced salary figure. These considerations should therefore be taken into account on a case by case basis when deciding whether childcare vouchers are the best option. The Tax Credits Helpline is 0845 300 3900.
Can men and women join the scheme?
The tax and NI exemptions apply per tax-payer, so both men and women are eligible. If both parents work for employers who offer childcare voucher schemes, they can both apply for up to £243* per month and double their savings.
How easy is it to implement a scheme?
Schemes can be set up in a matter of minutes, but we recommend a lead-in of 2 - 3 months to allow plenty of opportunity to promote the benefits of the scheme to your workforce and ‘spread the word’ so that a good uptake is seen right from the first month.
What forms of childcare are NOT eligible to receive payment in childcare vouchers?
Any childcare that is not registered is not considered ‘qualifying childcare’ for the purposes of childcare voucher payments or claiming tax credits eg. care provided in the home by a relative is not qualifying childcare.
For more information contact our helpdesk on 0800 458 7929