Expenses and benefits: childcare

Overview

As an employer providing childcare to your employees, you have certain tax, National Insurance and reporting obligations. Most workplace nurseries and childcare voucher schemes are exempt.

There are different rules depending on whether:

  • you provide a workplace childcare facility yourself
  • your employees pay for childcare themselves and you pay them back
  • you contract directly with a childcare provider, such as a commercial nursery or a childminder
  • you give your employees childcare vouchers

Childcare voucher and directly contracted childcare schemes have closed to new applicants.

Employer-supported childcare is normally provided through salary sacrifice. This means an employee gives up part of their salary in return for a non-cash benefit.

Restarting childcare vouchers or directly contracted childcare

An employee can choose to take a break from getting your childcare vouchers or directly contracted childcare. They can start again as long as the following apply:

  • it’s within 52 weeks of the date they stopped
  • you’re still their employer
  • they have not told you that they want to leave your scheme (for example, because they’ve started using Tax-Free Childcare)

If an employee starts using Tax-Free Childcare

You must stop giving your employee childcare vouchers if they tell you they’ve started using the Tax-Free Childcare scheme.

If this means stopping or changing a salary sacrifice arrangement, you must also update your employee’s contract and your payroll software.

Refunding childcare vouchers

You need to deduct PAYE tax and National Insurance contributions before making the refund to employees. This applies to both current and former employees.

If your company no longer exists, the voucher provider may refund the employee directly. This will depend on the contract between your company and the voucher provider.