An end to childcare vouchers
Employer-supported childcare (usually in the form of childcare vouchers) is often provided as an employee benefit through salary sacrifice. Provided certain conditions are met, employees save income tax and NICs, whilst employers can make savings via reduced employer NICs.
However, from autumn 2015 the government is introducing a new tax-free childcare voucher scheme whereby working families will be able to buy vouchers online to pay for childcare.
Implications for employers
- The new scheme will not depend on participation by employers, but employers may have some limited involvement if they wish, acting as a source of information or making payments into employees’ childcare accounts either via net pay or as additional payments. Any payments in addition to agreed remuneration will be classed as earnings on which the employee will be liable to income tax and NICs, and the employer will be subject to employer NICs.
- Employers may continue to pay scheme administration fees as part of an employee’s remuneration if they so wish, but these fees may be taxable as a benefit-in-kind.
- The new scheme will not involve any salary sacrifice, so the NICs advantages currently enjoyed by employers and employees will no longer arise BUT for every 80p working families spend, the government will add 20p, i.e. parents can therefore claim 20% of qualifying childcare costs for children under 5 (and children with disabilities under 17).
- Employees registered for employer-supported childcare before the start of the new scheme can choose to remain in their employer’s scheme for as long as they continue to work for their current employer, and the employer continues to offer the scheme. Alternatively, they may switch to the new scheme. A working family will not be able to participate in both an employer-supported scheme and the new scheme.
- Once the new scheme starts, employer-supported schemes will be closed to new entrants (including those moving between employers who run schemes).
- Workplace nurseries provided by employers will not be affected and families will be able to benefit from both.
- Once employer-supported childcare is closed to new entrants, employers can still choose to change voucher providers without affecting their employees’ entitlement.
Should employers close their current scheme once the new scheme takes effect?
- Some employees may be better off under the current scheme (e.g. if only one parent is working) and so may be keen for their employer to keep it open. The existing scheme may actually therefore become an employee retention tool. If employees were to change employer, they would need to move to the new government scheme.
- Would offering the new scheme amount to a variation of an employee’s contract? If so, consider the risks involved and how to minimise those risks.
- Think about the implications for the employer NIC savings (which are currently possible under salary sacrifice).