Employer

Offering childcare vouchers through a salary sacrifice scheme

HM Revenue and Customs states that salary sacrifice arrangements are effective when the contractual right to cash pay has been reduced. For that to happen two conditions have to be met:

  • The potential future cash pay must be given up before it is treated as received for tax or NIC purposes; and
  • The true construction of the revised contractual arrangements between employer and employee must be that the employee is entitled to lower cash remuneration and a benefit.

This means that the employer pays directly towards a service which could either be an in-house provision, a subsidy to a childcare provider or a Childcare Voucher. The cash salary paid to the parent is reduced by the amount the employer pays towards childcare. This is the salary sacrifice. The employee must agree to a reduction in salary in exchange for this alternative form of remuneration, and a variation to the contract of employment should be drawn up accordingly.

Information on the implications of taking a salary sacrifice can be found on www.hmrc.gov.uk/specialist/salary_sacrifice.pdf

How to set up a scheme

A summary of the steps involved in setting up a childcare voucher scheme are listed below and more detailed information is given when you apply for our Employer Start-Up Pack.

  1. Advertise in your workplace that you are intending to implement a childcare voucher scheme.
  2. Provide our Employee Information Sheets to those employees interested in joining the scheme.
  3. Prepare a variation to the contracts of participating staff.
  4. Send a letter of intent to your local HMRC office to inform them that you are introducing a childcare voucher/salary sacrifice scheme.
  5. Sign up by logging into the secure area of our website and enter the details of your employees who wish to join the scheme.
  6. On receiving an automated invoice by email, make your payment. Please note that we place great emphasis on paying your employees’ carers promptly on or around the last day of the month and in order to achieve this we require your payment no later than the 20th of each month.
  7. You will receive your voucher statement by email with a detailed breakdown of employees and voucher numbers relating to the payment.
  8. Each month you will receive an e-mail inviting you to log-on to our website to make any necessary adjustments to your order, and continue the process above to receive your vouchers.