Childcare vouchers policy

Policy purpose and scope

The Pensions Regulator offers employees who are working parents assistance towards childcare by offering access to a 'salary sacrifice' childcare voucher scheme.

The childcare voucher scheme is operated by Edenred and allows you to help contribute towards the cost of childcare while you are at work. It is a secure internet service with an easy to use electronic account.

This policy outlines the terms and conditions of the scheme and the procedure for application.

The scheme may be subject to review and change following any changes required by HM Revenue and Customs (HMRC).

The policy applies to all eligible employees and is non-contractual.

1. Eligibility

The scheme is open to you if you are both:

employed by us on a permanent or fixed term contract; and
the parent or other legal guardian of the child(ren) in respect of whom the childcare voucher scheme will be used to provide childcare facilities

The child must be under 15 years (until 1 September following their 15th birthday) or if the child is disabled, under 16 years (until 1 September following their 16th birthday).

The childcare provider must be registered or approved.

If both parents are employed by us, then both may qualify for the scheme.

2. The childcare voucher scheme

A salary sacrifice childcare voucher scheme means you agree to reduce your salary by a certain value and receive childcare vouchers to the same value instead, but pay no tax or national insurance (NI) on these vouchers.

The 'salary sacrifice' will mean:

a change to your terms and conditions of employment relating to pay
an effect, or potential effect, on other aspects of remuneration

The table below sets out the maximum monthly and annual amount of childcare vouchers you can receive as exempt from tax and NI (subject to a basic earnings assessment):

	Basic rate tax payer	Higher rate tax payer	Additional rate tax payer
Monthly	£243	£124	£110
Annual	£2,195	£1,484	£1,320

You must ensure that your salary after the value of your childcare vouchers has been deducted is no lower than the National Minimum Wage or the lower earnings limit. You could potentially save up to £1,196 of the cost of your childcare, as the benefit is exempt from tax and class 1 national insurance (NI) contributions. The amount you save will depend on what you earn and how much tax and NI you pay.

3. Impact on your terms and conditions

By taking childcare vouchers you will enter into a legally binding agreement to vary your terms and conditions of employment to receive childcare vouchers.

This means that with effect from the date you elect to receive the vouchers you have agreed to sacrifice part of your salary for a minimum period of 12 months or to the end of the current financial year, whichever is soonest (less for fixed term employees) in return for childcare vouchers to the equal value. Therefore from this date you will cease to be entitled to your original basic salary and will receive an adjusted basic salary and an amount of childcare vouchers per annum.

Childcare vouchers will be credited to your Edenred account in regular monthly instalments on the last working day in the month.

Your reduced salary and the amount of the vouchers will be illustrated on your payslip.

This agreement will be reviewed at the start of each financial year, at which time it can be varied by a change of contractual terms agreed by us.

You can only apply to amend the amount of the vouchers or apply to opt out of the scheme due to a 'lifestyle change' which is a significant change that affects your child caring or employment situation.

The terms of this agreement cannot be altered by you at any other time.

Once you have opted out you cannot rejoin the scheme again in that financial year but may join again in the next financial year.

4. Potential effects on other aspects of remuneration

You should be aware that although childcare vouchers are beneficial to the majority, they aren’t always a financially sensible option and you should consider the following information.

The change to your terms and conditions may also have an effect on other elements of remuneration. In particular:

A number of state benefits are dependent on maintaining a minimum level of National Insurance contributions and you should consider these effects before you decide whether to enter into a salary sacrifice scheme:
- Statutory Maternity Pay
- Statutory Sick Pay
- Statutory Paternity/Partner's Pay
- Statutory Adoption Pay
- Statutory Shared Parental Pay
- Statutory redundancy pay
- Contribution to State Pension
- Tax Credits
- Income related benefits
Unpaid special leave including parental leave, sabbaticals, career breaks
Maternity, adoption or shared parental leave (including any periods of unpaid leave)
Sick pay (statutory and occupational)
Holiday pay
Mortgage

Payments for other elements of remuneration will be calculated based on the total pay before the 'salary sacrifice' is made. In particular the following will not be affected by a reduced salary level:

pension contributions (both employee and employer)
overtime rates
pay awards
performance-related or discretionary bonuses

Tax credits

You should carefully consider the possible effect that entering into a salary sacrifice scheme could have on your working tax credit and child tax credits.

If you decide to proceed with the salary sacrifice scheme you should contact HMRC immediately to inform them of your change of salary. HMRC will then adjust your tax credits accordingly.

Further information on how childcare vouchers can affect your tax credits is available on the HMRC website.

Pension contributions

You pay pension contributions on your original basic salary before the salary sacrifice is made. Employer contributions are also based on your original basic salary before the salary sacrifice is made. You therefore suffer no loss in pensionable pay or associated benefits.

Overtime rates

Your overtime payments will be calculated based on your original basic salary before the salary sacrifice is made.

Pay awards

Any pay award will be calculated based on your original basic salary before the salary sacrifice is made.

Mortgage

HMRC suggests that mortgage lenders will consider both your reduced salary plus the total amount of childcare vouchers in mortgage applications. However, it is advised that you should check any impact of a salary sacrifice scheme with your mortgage company.

5. How to apply for childcare vouchers

5.1. Complete a childcare voucher application form and submit to HR.

Childcare vouchers are based on the total childcare costs for the year or can be used towards part of your childcare costs. The monthly amount required should be stated on your application. You should give HR 30 days notice in which to process your application. If you are unable to give 30 days’ notice contact HR to find out the cut off date to ensure that HR can consider your application and, if agreed, have enough time to place your order.

5.2. HR will ask payroll to undertake a basic earnings assessment. You will be informed of the outcome of the basic earnings assessment and the amount of childcare vouchers you can purchase in that tax year which are exempt from tax and NI deductions.

5.3. HR will send you a letter for you to sign confirming the agreement to vary your terms and conditions of employment.

5.4. HR will process your order with Edenred.

5.5. Once your application has been processed Edenred will send you a 'Parent Pack' including log in details for your childcare voucher account.

5.6. Your vouchers will be credited to your Edenred account on the last working day of the month ready for you to make payment to your childcare provider.

6. Basic earnings assessment

A basic earnings assessment will be carried out by payroll at the point at which you apply to join the childcare voucher scheme and then annually at the start of each subsequent tax year that you remain in the scheme. This will reflect your expected earnings for the year based on information available at the start of the tax year or on initially joining the scheme. This will verify the amount of childcare vouchers you will be entitled to during that year that will be exempt from tax and NI deductions.

Each assessment will remain valid for the whole of the tax year irrespective of any pay changes that take place during the course of that year. No further assessment is permitted until the start of the next tax year.

You will be informed of the outcome of each basic earnings assessment. If you disagree with the outcome of the assessment you should discuss this with payroll who will explain the basis of the calculation.

It is our responsibility to undertake the basic earnings assessment as childcare vouchers are an employer benefit.

What is included in a basic earnings assessment?

income tax personal allowance (as shown on your tax code)
contractual basic pay (the post salary sacrifice pay)
contractual or guaranteed bonuses
contractual allowances
taxable benefits

The following are excluded from the basic earnings assessment:

performance-related or discretionary bonuses
overtime payments
earnings and benefits that are exempt from tax

7. Employees who joined the scheme on or before 5 April 2011

If you joined our childcare voucher scheme on or before 5 April 2011 and have not subsequently withdrawn from the scheme you will retain the level of tax and NI savings you were entitled to prior to 5 April 2011 until you leave the scheme or are no longer eligible to receive childcare vouchers (eg if your child no longer receives qualifying childcare).
An annual basic earnings assessment will not be necessary.

You can ask to stop receiving childcare vouchers temporarily whilst remaining within the childcare voucher scheme as long as you remain eligible, for example, if you only need childcare vouchers during school holidays. In such cases you will not be treated as a new joiner to the scheme provided the cessation does not exceed a period of 12 months. This also applies to employees who are on maternity leave, long term sick leave, and those on a career break providing the total length of absence does not exceed a period of twelve months. In these cases you will retain the level of tax and NI savings you were entitled to prior to the temporary cessation.

8. Purchase of childcare vouchers during absence from work

Unpaid special leave: including parental leave, sabbatical, career breaks

You can purchase childcare vouchers whilst you are taking paid leave. However, you cannot purchase the vouchers during any salary period when you are not in receipt of pay, because the cost is deducted directly from your salary. Childcare vouchers can only be purchased during periods of reduced pay if you have sufficient salary to purchase the vouchers.

Maternity, paternity, adoption and shared parental leave

You can purchase childcare vouchers whilst you are taking paid maternity, paternity, adoption or shared parental leave. However statutory maternity, adoption and shared parental pay for the first six weeks are based on the average cash earnings for the employee over the 13 weeks before the leave starts. Reducing cash earnings by having vouchers during the 15 weeks reduces the statutory amount paid during the first six weeks of leave. Anyone planning to go on maternity, adoption or shared parental leave should consider whether they would be better off applying to come out of the childcare voucher scheme at least 15 weeks prior to going on leave.

You cannot purchase childcare vouchers during any salary period when you are not in receipt of pay because the cost is deducted directly from salary. Childcare vouchers can only be purchased during periods of reduced pay if you have sufficient salary to purchase the vouchers. We will continue to give childcare vouchers without requiring you to purchase them during any period of unpaid maternity, adoption or shared parental leave or periods when you are receiving just statutory pay.

Sick pay

You can purchase childcare vouchers whilst you are on paid sickness absence, however, you cannot purchase the benefit during any salary period when you are not in receipt of pay because the cost is deducted directly from your salary. Childcare vouchers can only be purchased during periods of reduced pay if you have sufficient salary to purchase the vouchers.

9. Amending your vouchers or opting out of the scheme

You can only apply to change the amount of childcare vouchers you receive or opt out of the scheme during the tax year due to a lifestyle change. This is a significant change that affects your child caring or employment situation such as:

changing child carers
redundancy
sickness
change in childcare costs
pregnancy
changing jobs
the child goes above child caring age
if you leave our employment

This list is not exhaustive. However if you have a significant job or lifestyle change which affects your requirements which is not listed above, then it may be possible to agree with HR to revise the arrangements 'in year'.

To do this you will need to complete an amendment / cancellation form and send this to HR. You should give 30 days’ notice.