As an employer, you can provide assistance to your employees in relation to child care costs without incurring any expense to your business. In fact, it will result in your salary costs being reduced and increased morale in your workplace. Further, it will encourage employees to attend work and giving your business a lower absenteeism rate.
An employer can provide child care vouchers with a tax free limit of up to £55 per employee, per week. The scheme is normally offered via salary sacrifice arrangements. This is where an employee agrees to forego some of their salary in exchange for the child care vouchers.
The cost of the vouchers is deducted at source and the salary paid to the employee will be reduced in accordance with the value of the child care vouchers. Therefore there is a significant tax benefit to the employee, as well as a reduction in their national insurance contributions.
There will be some changes to the tax treatment of the child care voucher scheme in April 2011 which will only affect employees paying higher and additional rates of tax who join the salary sacrifice scheme after 6 April 2011. The tax changes will not affect basic rate employees, or employees who join the scheme prior to 6 April 2011.
Employers will need to bear in mind that from April 2011 it will be a requirement to assess employees’ basic employment earnings to ensure they are receiving the statutory minimum wage before any commission or bonuses are awarded. If the child care voucher scheme is offered on a salary sacrifice basis, the assessment will need to be carried out after the deductions have been made from the employee’s salary to ensure they are being paid the minimum wage.