Compensation & Benefits: Childcare vouchers to lose tax and National Insurance Contribution exemptions

Posted on 11th January, 2009

Estimated reading time 2 minutes

Employers should take advantage of the scheme now to secure the tax and NIC advantages to 2015

Controversial proposals from the government will mean that employees joining childcare voucher schemes from April 2011 will not be entitled to the existing tax relief, whereas existing users of childcare vouchers will lose their entitlement to the exemptions from April 2015.  Specific details on the changes are likely to be announced in the pre-budget report due to be made by the Chancellor of the Exchequer on a date yet to be announced this November.

The exemptions are worth up to approximately £900 for a basic rate taxpayer and £1,200 for a higher rate taxpayer.  HMRC research suggests that 35,000 UK employers offer childcare vouchers.  Employers can save approximately £370 per annum for every employee who joins a childcare voucher scheme.  The government intends to use funds raised from withdrawing the exemptions to offer free childcare for 250,000 two-year olds by 2015/2016.

Proposals to remove the exemptions have been heavily criticised by childcare voucher providers.  In a joint statement leading voucher providers Accor Services UK, Computershare Vouchers Services, Grass Roots Group and Sodexo Pass opposed the withdrawal, saying that childcare vouchers are an essential support for both UK businesses and working parents.   Sixteen voucher providers have now launched a campaign to reverse the intended scrapping of the scheme and a petition to the Prime Minister has received over 44,000 signatures.


Employers may significantly reduce their tax and NIC payments where they allow employees to exchange some of their pre-tax salary for benefits such as childcare vouchers schemes.  Employers considering establishing such schemes have a small window of opportunity to put their schemes in place to benefit from the exemptions.

For further information or to discuss the issues raised, please contact Guy Abbiss (, Colina Greenway (, or Libs Davies (] on +44 (0) 203 051 5711.


Content is for general information purposes only.  The information provided is not intended to be comprehensive and it does not constitute or contain legal or other advice.  If you require assistance in relation to any issue, please seek specific advice relevant to your particular circumstances.