Which employees are eligible for Childcare Vouchers?
Only parents already in the scheme as of 4th October 2018 may continue to use this benefit. If new staff join a company who provides CCV, unfortunately, they may not join – even if they used vouchers with their previous employer.
How much can employees apply for?
The maximum value of childcare vouchers an employee can receive (and consequently save) will vary according to their tax band. Basic rate tax payers can claim up to £243 per month, whereas higher and additional rate tax payers can only claim up to £124 and £110 respectively. Any legacy members who joined a client's CCV scheme before April 2011 is able to apply for the full £243 per month.
The current thresholds for tax brackets are subject to change and can be checked here.
Are all employees who are parents able to contribute to Childcare Vouchers?
Any parent or legal guardian, who wholly or partly maintains a child or stepchild, and whose salary does not fall below the National Minimum Wage (i.e. after the amount of Childcare Vouchers have been taken from the gross pay) is able to salary sacrifice may take part.
For the purposes of Childcare Vouchers, a person is considered a child until the 1st September following their 15th birthday, or 16th birthday if the child is disabled.
Can basic, higher and additional rate taxpayers claim childcare vouchers?
Yes, although the maximum value of Childcare Vouchers an employee can receive will vary according to their tax band. Basic rate tax payers can claim up to £243 per month, whereas higher and additional rate tax payers can only claim up to £124 and £110 respectively.
How will overtime payments be calculated?
This is at the employer's discretion. Employees can apply for a higher amount of Childcare Vouchers (up to £243 for basic rate tax payers) if their pay increases as long as it is within their Earnings cap for the year (determined by the Basic Earnings Assessment they passed in April).
However, please bear in mind that this will require attention from the employee, or those responsible for making the approvals, to ensure the amount applied for is adjusted back to normal the following month, to prevent them from falling below National Minimum Wage.
Can employees claim for more than one child?
Savings made using the programme are based on salary per parent, not the number of children. Each parent can request a maximum of £243 (for a basic rate tax payer) worth of Childcare Vouchers each month, tax- and NI-free. This figure remains the same regardless of how many children an employee has.
Will Statutory Maternity Pay be affected by childcare vouchers?
Statutory Maternity Pay is calculated on ‘average earnings’ during weeks 17-25 of the pregnancy. Childcare Vouchers under a salary sacrifice arrangement cannot be included when making this calculation. Although SMP may be reduced, current legislation means that the employee is entitled to receive all non-cash benefits (including Childcare Vouchers) throughout the full period of Statutory Maternity Leave. A sacrifice cannot take someone below SMP, therefore this ongoing benefit to the employee may be at an additional cost to the employer.
An employee needs to weigh up the options to decide what best suits their circumstances. For example, leaving the Childcare Voucher programme by week 17 of the pregnancy to avoid the reduction of SMP, compared to staying in the programme and benefitting from ongoing Childcare Vouchers at no cost to them.
Are state benefits affected by joining the scheme?
As long as an employee's salary does not drop below the Lower Earnings Limit, these benefits should not be affected – but employees should check this for themselves.
For further guidelines on this topic, visit www.hmrc.gov.uk
Could Childcare Vouchers affect an employee's entitlement to tax credits?
Yes. These entitlements are based on a number of factors including hours worked, number of children and eligible childcare costs. Childcare costs paid via childcare vouchers cannot be taken into account for tax credit (Working Tax Credit or Child Tax Credit) purposes.
Reducing an employee's cash pay may also affect their entitlement. If an employee is unsure about how childcare vouchers will affect their tax credits, they should contact the tax credit helpline on 0845 3003900 or go to www.hmrc.gov.uk for the HMRC’s guidance.
Will Salary Sacrifice have any impact on Child Maintenance and Enforcement Commission payments / Child Support Agency payments?
Child maintenance payments to the Child Maintenance and Enforcement Commission are broadly calculated by reference to net income (i.e. pay after the deduction of tax and national insurance contributions). The value of any Childcare Vouchers provided under salary sacrifice is not included in this calculation.
Further details on this topic can be obtained from the government's Child Maintenance website
How will the programme work if an employee’s childcare costs vary from month to month?
Subject to statutory entitlement, employees should determine their annual childcare costs and divide this into a monthly amount. Vouchers do not have to be used each month, so an employee can spread the cost over the year.
Will Salary Sacrifice have any impact on an Attachment of Earnings Order (AEO)?
An AEO (issued by a court or local authority) provides that the employer deducts part of an employee’s net income (i.e. their pay after deduction of tax and national insurance) until the debt covered by the order is paid. Where an employee participates in a salary sacrifice programme, the value of Childcare Vouchers is ignored for the administration of AEOs.
How will an employee’s pension contributions be affected?
This would need to be clarified with the company pension provider to verify if the employee’s salary and voucher value are both considered as pensionable earnings. Pension programme rules can normally be amended to ensure pension benefits/contributions are not reduced.
Are there any restrictions on the amount my employees can save through Childcare Vouchers?
This depends on several things which need to be worked out with each employee. Employees at or near the National Minimum Wage will be unlikely to benefit at all, and those entitled to Working Families Tax Credit need specific advice from HMRC.
Do parents have to log on every month to send a payment?
This is up to the parent. They can choose to do single payments which they will need to log on to confirm each month. Alternatively, they can choose to set up a Standing Order which will send out monthly payments as long as funds are available.
What happened when the new government Tax-Free Childcare scheme came into place in 2018?
Any parents who had already signed up to CCV may continue to make use of the scheme now that the Tax-Free Childcare (TFC) has launched, provided they don’t change their company and don't pause their contribution for more than 12 months. Whether an employee will be better off under the CCV or the TFC scheme will depend on their specific situation.
What's the invoicing process?
Clients will be invoiced per payroll period for the value of Childcare Vouchers taken, plus the management fee. The amount will correlate exactly to the value of Childcare Vouchers already approved by the client for that payroll period.
Do employee payslips need to be amended?
The payslip should be amended to reflect the fact that gross pay has been reduced. However, Childcare Vouchers do not need to appear on the payslip at all. If Childcare Vouchers are itemised, the original (pre-voucher) figure can be referred to with the Childcare Voucher amount shown as a ‘negative allowance’ or as a reduction to gross pay.
What evidence should employers keep on file for tax accounting purposes?
The records clients should keep include:
- Evidence that Childcare Vouchers is offered to all employees e.g. promotional material for the scheme, or staff handbook.
- Evidence that all participating employees in the Childcare Voucher scheme have been informed that they must consult their HR department if there are any changes in the registration or approval status of their chosen carers.
- Records showing the qualifying conditions have been met. We can keep these records for our clients, but they will be ultimately responsible for producing them to the HMRC if required.
- HMRC clearance, if obtained.
- Signed Variation of Contracts (VOCs).