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HMRC internal manual

Employment Income Manual

Vouchers and credit-tokens: childcare vouchers: exemption from 6 April 2011: relevant earnings

Section 270B(1)(a) ITEPA 2003

For the purpose of calculating the aggregate amount of any relevant earnings for the tax year from employment by the employer and the amounts treated as earnings, include the following -

  • basic pay as stated in the employee’s contract of employment (salary, wages and fees);
  • guaranteed contractual bonuses - an amount that will be paid as part of a contractual arrangement as long as the employee remains in employment, without any other conditions having to be met, e.g. a ‘loyalty’ bonus or ‘golden hello’. But do not include performance-related or discretionary bonuses;
  • contractual commission - where the commission represents a contractually agreed proportion of income generated by the employee for the business. You should accept without enquiry an amount based on commission earned with the employer in the previous year, or on an average of two previous years of work with you where commission has been earned, if that produces a more beneficial result. However an employer may use an alternative basis of estimating the likely commission income that is reasonable in the context of that business. This means that where an employee joins a childcare scheme on taking up employment, commission should not be included as relevant earnings in the estimate for that tax year;
  • guaranteed overtime payments - paid whether worked or not (e.g. payments of 4 hours’ guaranteed overtime for working every third Saturday, even if the amount of time worked is less or no work is carried out on that day at all). But do not include overtime payments that are not guaranteed;
  • location or cost of living allowances - e.g. London weighting;
  • shift allowances;
  • skills allowances (e.g. an allowance for holding a qualification in First Aid);
  • retention and recruitment allowances;
  • an ‘allowance’ here is taken to be a guaranteed/unconditional payment, whereas a ‘bonus’ may not be;
  • market rate supplements; and
  • the cash equivalent of any taxable benefits that fall within Part 3 of the Income Tax (Earnings and Pensions) Act 2003, and which are not exempt from income tax under Part 4 of that Act, (e.g. a company car made available for private use; fuel provided by an employer for private use in a company car; cash vouchers; employer-supported childcare in excess of tax relief entitlement; living accommodation, etc.). But do not include exempt benefits such as works buses, work-related training, etc.