Childcare vouchers

Using childcare vouchers can be a tax efficient way to help pay for your childcare. Companies can offer childcare vouchers as an employee benefit that  is tax and National Insurance exempt, up to specified limits.





Basic rate taxpayers*





Higher rate taxpayers





Additional rate taxpayers




(*and employees who were already receiving childcare vouchers before the 6th April 2011 who have not changed employer)

To establish which rate of tax you are likely to pay and therefore how much exemption you are entitled to, your employer will perform a ‘basic earnings assessment’. This will include:

  • Basic salary
  • Taxable benefits
  • Car allowance
  • Guaranteed bonuses
  • Shift allowances
  • Commission

Discretionary and performance related bonuses are not included in this assessment. Once completed, this assessment will remain valid until the start of the next tax year, regardless of any changes in circumstances throughout the year; therefore your tax and NI exemption will not change throughout the year.

Those who were on the scheme within the same employment before the 6th April 2011 will be entitled to tax and NI exemption on £243 a month regardless of the level of tax they pay until they leave the scheme for longer than 12 months, change employer or no longer qualify.

Childcare Vouchers are usually offered via a salary sacrifice arrangement, although some employers offer them on top of existing salary.

What is salary sacrifice?

Salary sacrifice entails a reduction of your contractual salary and the provision of a benefit to a corresponding value.

For example an employee earning £25,000 a year who wishes to receive the maximum tax and NI exemption would reduce their salary to £22,084 and receive a benefit of £2916 a year childcare vouchers. Tax and NI would only be applied to £22,084 rather than £25,000, which is how you make the savings.

Although the formal arrangement is a reduction of annual salary, the benefit is normally provided in instalments per payroll period (for example monthly).

How much could I save?

The savings you can make are per person (not per child) – so if you have a wife, husband or partner who also works for an employer that operates a scheme, you could double your household savings. 

The savings you make will depend on how much you receive in tax and NI exempt childcare vouchers and your salary.

Where the scheme is provided by way of salary sacrifice, the following savings could be made:


Weekly savings

Monthly savings

Annual savings

Basic rate taxpayer (contracted in) 20% tax and 12% NI




Basic rate taxpayer (contracted out) 20% tax and 10.6% NI




*Higher rate taxpayer 40% tax and 2% NI




*Additional rate taxpayer 45% tax and 2% NI




How do Childcare Vouchers work?

  • Your employer needs to offer the vouchers
  • You complete an agreement with your employer requesting childcare vouchers and they order the value you have requested
  • Electronic Childcare Vouchers are credited to your online account by your employer, usually on the same day you get paid.

It is likely your chosen childcarer(s) has previously been paid with childcare vouchers and is already affiliated to one of the voucher provider's networks. You just need to ask them for their account number so you can transfer electronic vouchers to them online. Your carer will then be paid automatically by the voucher provider each time you make a transfer.

What type of care can Childcare Vouchers be used for

Childcare Vouchers can be used to pay for the care of children up to the age of 15, or 16 if they are disabled, including:

  • home-based care such as childminders, nannies and au pairs
  • pre-school care such as nursery schools, play schools and crèches
  • care for older children such as out of school clubs (breakfast clubs, afterschool clubs including activities, homework clubs and boarding, and holiday clubs)

You can use your Childcare Vouchers to pay more than one carer if you wish. The only condition is that your carer(s) will need to be registered with or approved by the appropriate body.

The current registration and approval bodies include:

  • Ofsted Childcare Register – Compulsory (England)
  • Ofsted Childcare Register – Voluntary (England)
  • Care and Social Services Inspectorate Wales (CSSIW)
  • Childcare at Home Voluntary Approval Scheme (Wales)

Can I use Childcare Vouchers to pay for school fees?

Care provided by the governing body of a school is approved if it takes place

  • outside normal school hours (this means the normal hours of compulsory education adopted by the school as appropriate for the age of the child)
  • on school premises, or
  • on premises that are covered by the inspection of the whole school activity by Ofsted (England), Estyn (Wales) or the equivalent inspection body for certain independent schools.

This mean that in terms of private education this would only apply to children under 5 (end of first term following their 5th birthday).

For older children, Childcare Vouchers can be used to pay for any activities or clubs that take place on school premises outside of school hours.

If the child is between 5 and 15 (or 16 years old if they are disabled), all of the following must apply:

  • the childcare or activity based childcare is provided out of school hours
  • the care is provided under the direction of the school's governing body
  • the care is provided on the school premises, or on other premises covered by the inspection that Ofsted/Estyn carry out of the whole school - an example of this could be if the school uses a village hall for its out of school hours childcare activities

What happens if my employer does not have a scheme?

Employers are not obliged to offer childcare vouchers. However, it's worth asking about them as they may not be aware that they can make National Insurance savings, as well as the savings made by you.