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HMRC internal manual

National Insurance Manual

Class 1: non cash vouchers: definition of “eligible” employee

Regulation 25 and paragraphs 7 and 7A of Part 5 of Schedule 3 Social Security (Contributions)

Regulations 2001

The Social Security (Contributions)(Amendment) Regulations 2018 (SI 2018 No 120)

Sections 270A and 270AA ITEPA 2003

NIM02440 sets out the conditions that need to be met for a non-cash voucher provided for the cost of childcare to be disregarded for class 1 NICs purposes.

Paragraphs 7 and 7A of Part 5 to schedule 3 of the Social Security (Contributions) Regulations 2001 have been amended by regulation 7 of the Social Security (Contributions) (Amendment) Regulations 2018 so that vouchers are disregarded only when provided to an “eligible employee”. Condition C was also altered in a corresponding manner so that the vouchers need only be provided in a scheme open to the employer’s “eligible employees” generally or generally at a particular location, as opposed to all of the employer’s employees generally or generally at a particular location. The definition of an “eligible employee” is provided in section 270AA ITEPA 2003 and takes effect from 4 October 2018.

An employee is an “eligible” employee if the employee meets conditions A to C in section 270AA ITEPA 2003.

Condition A

The employee:

  • was employed by the employer immediately before 4 October 2018 and
  • continues to be employed by the employer on or after that date

Condition B

There’s been at least one qualifying tax week in any period of 52 tax weeks ending on or after 4 October 2018.

The definitions of ‘qualifying week’ and ‘tax week’ are at NIM02453.

Condition C

The employee has not given the employer a childcare account notice.

A childcare account notice is a written notice informing the employer that the employee wishes to leave the scheme in order to be able to open a childcare account under section 17 of the Childcare Payments Act 2014 or enable the employee’s partner to do so.

If any of these conditions is not satisfied then the employee is not eligible for qualifying childcare vouchers.

This means that from 4 October 2018 childcare voucher schemes will no longer be available to new applicants. Employees already in receipt of childcare vouchers by 4 October 2018 can continue using the scheme as long as the employer continues to offer the scheme or as long as they continue to be eligible employees.

Condition A may be regarded as met where an employee has transferred to an employer on or after 4 October 2018 under The Transfer of Undertakings (Protection of Employment) Regulations 2006 (TUPE) as this is deemed as being the same employment for the purposes of condition A.

If an employee joins Tax-Free Childcare they commit to giving their employer a childcare account notice within 3 months. If that employee follows through on that commitment this means that condition C is not met, and regardless of whether conditions A and B are met they are not eligible for childcare vouchers. If they fail to follow through there are consequences under Tax-Free Childcare.

Employees who meet the conditions of an eligible employee and conditions in NIM02440 can continue to be provided with qualifying childcare vouchers.