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HMRC internal manual

Employment Income Manual

From
HM Revenue & Customs
Updated
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Vouchers and credit-tokens: childcare vouchers: exemption from 6 April 2011: relevant earnings amount

Section 270B ITEPA 2003

For employees who joined an employer provided childcare voucher scheme from 6 April 2011, the employer must make an estimate of the employee’s relevant earnings amount for the tax year that childcare vouchers are provided for (see EIM16053).

The estimate is the employer’s responsibility. The estimate will establish the “exempt amount” for that tax year. In making the estimate the employer should act reasonably, taking due care. The estimate should be based on information available at the time. The employer is not required to speculate on what may or may not take place in the future.

Providing that the employer acted reasonably, the estimate should not be reviewed later in the tax year whether as a result of a change in the employee’s circumstances or because events show that the estimate was misconceived. Any change in the employee’s circumstances should be reflected in the estimate for the next tax year.

Relevant earnings amount

This is calculated for each tax year by first adding

  • the amount of any relevant earnings for the tax year from that employment and
  • any other amounts treated under Chapters 2 to 12 of Part 3 ITEPA 2003 as earnings from that employment

Then deducting

  • the sum of any excluded amounts (see EIM16056).

Meaning of “relevant earnings”

For this purpose, “relevant earnings” means any salary, wages or fees and any of the following:

  1. guaranteed contractual bonuses;
  2. contractual commission;
  3. guaranteed overtime payments;
  4. location or cost of living allowances;
  5. shift allowances;
  6. skills allowances;
  7. retention and recruitment allowances; and
  8. market rate supplements.

Estimate made during a tax year

If an employer is required to make an estimate of the employee’s relevant earnings amount for a tax year because

  • the employee joins the employer provided childcare voucher scheme, and
  • the employee only began that employment during the tax year,

for the purpose of making the estimate, the employer should not take account of any previous earnings.

The employer should estimate the aggregate sum of the amount of any relevant earnings and any other amounts treated as earnings from that employment for the remainder of the tax year. That sum must then be multiplied by a figure calculated using the formula:

  365/RD  
     
     

where RD is the number of days remaining in the tax year from the date that the employment began.

The sum of any excluded amounts is deducted after making this adjustment.