How is the salary sacrifice scheme being used to pay for childcare?

Since April 2005, an employer can support childcare by paying directly towards a childcare service such as a workplace nursery, a subsidy to a registered provider outside of the workplace or by selling a childcare voucher to the employee.

The employer usually operates the scheme through a childcare voucher company contracted to administer the scheme. The employer deducts the amount paid out in vouchers from the employee's taxable salary. This amount is exempt of tax and National Insurance contributions (NICs) for both the employer and the employee.

Each employee is entitled to receive up to a maximum of £55 a week (or £243 a month) in childcare vouchers under a salary sacrifice scheme. This means that while there is no limit to the amount of childcare vouchers an employer can supply, only the first £55 a week qualifies for NIC exemption for the employer and NIC and tax exemption for the employee.

For tax purposes, you can only have one exempt amount of £55 a week (or £243 a month) even if you have more than one job. However, NIC exemptions are a little different in that you can receive an exempt amount from more than one employer. Both partners in a couple are entitled to the exempt amount each for both tax and NICs.

Note: This content is provided as general background information and should not be taken as legal advice or financial advice for your particular situation. Make sure to get individual advice on your case from your union, a source on our free help page or an independent financial advisor before taking any action.