Childcare Vouchers (UK)
A UK salary sacrifice scheme that allowed employees to exchange up to GBP 243 per month of pre-tax salary for childcare vouchers, closed to new entrants since October 2018 but still used by existing participants who haven't switched to Tax-Free Childcare.
- What Are Childcare Vouchers (UK)?
- How Childcare Vouchers Work
- Who Can Still Use Childcare Vouchers?
- Childcare Vouchers vs. Tax-Free Childcare
- What Childcare Can Vouchers Pay For?
- Employer Administration of Childcare Vouchers
- Childcare Vouchers During Maternity and Paternity Leave
- The Future of Childcare Vouchers
- Frequently Asked Questions About Childcare Vouchers (UK)
What Are Childcare Vouchers (UK)?
Key Takeaways
- ✓Childcare Vouchers were a UK salary sacrifice scheme letting employees exchange pre-tax salary for childcare payments.
- ✓The scheme closed to new entrants in October 2018, replaced by the government's Tax-Free Childcare scheme.
- ✓Existing participants can continue using vouchers as long as they stay with the same employer and don't take a break of more than 52 weeks.
- ✓Basic-rate taxpayers could sacrifice up to GBP 243 per month, saving up to GBP 933 per year in tax and National Insurance.
- ✓Over 500,000 UK parents are estimated to still be using legacy Childcare Voucher schemes (HMRC, 2023).
Childcare Vouchers were a UK government-backed scheme that allowed employees to exchange a portion of their gross salary for vouchers used to pay for registered childcare. The vouchers were exempt from income tax and National Insurance contributions up to specified weekly limits. The scheme launched in 2005 and quickly became one of the most popular employee benefits in the UK. At its peak, over 780,000 parents were using Childcare Vouchers through their employers. It was simple: the employee sacrificed part of their salary before tax, the employer purchased vouchers from a provider (Sodexo, Edenred, Computershare, Busy Bees, or others), and the parent used those vouchers to pay their childcare provider. The government closed the scheme to new entrants on 4 October 2018 as part of the rollout of Tax-Free Childcare. However, employees who were already registered with their employer's voucher scheme before that date can continue using it indefinitely, provided they don't leave the employer or take a continuous break of more than 52 weeks.
How Childcare Vouchers Work
The mechanics of the Childcare Voucher scheme are based on salary sacrifice, a concept where the employee gives up part of their gross salary in exchange for a non-cash benefit.
Salary sacrifice mechanics
The employee agrees to reduce their gross (pre-tax) salary by a specified amount each month. The employer then uses that amount to purchase childcare vouchers. Because the sacrifice happens before income tax and National Insurance are calculated, neither the employee nor the employer pays tax or NI on that portion. The employee receives vouchers (paper or electronic) that can only be used to pay registered or approved childcare providers.
Monthly limits by tax bracket
The maximum monthly sacrifice depends on the employee's tax bracket. Basic-rate taxpayers (20%): up to GBP 243 per month (GBP 55 per week). Higher-rate taxpayers (40%): up to GBP 124 per month (GBP 28 per week). Additional-rate taxpayers (45%): up to GBP 110 per month (GBP 25 per week). The lower limits for higher earners reflect the fact that they already receive greater tax relief per pound sacrificed. The scheme was designed to provide roughly equal benefit regardless of tax bracket.
Annual savings calculation
A basic-rate taxpayer sacrificing the full GBP 243 per month saves: GBP 243 x 12 months x (20% income tax + 12% NI) = GBP 933 per year in combined tax and NI savings. The employer also saves on employer NI contributions (13.8% of the sacrificed amount), totaling approximately GBP 402 per year per participating employee. For a higher-rate taxpayer sacrificing GBP 124 per month: GBP 124 x 12 x (40% + 2%) = GBP 625 per year. The savings are meaningful but not dramatic, which is one reason many parents are evaluating the switch to Tax-Free Childcare.
Who Can Still Use Childcare Vouchers?
Since the scheme is closed to new entrants, eligibility is now about continuation rather than enrollment.
Continuing participants
You can keep using Childcare Vouchers if you were registered with your employer's scheme before 4 October 2018 and you haven't left that employer since. Changing roles or getting promoted within the same employer doesn't affect your eligibility. Going on maternity, paternity, or shared parental leave doesn't break your participation, as long as you return within 52 weeks.
When you lose access
You permanently lose access to Childcare Vouchers if you leave your employer (even if you return later), take a continuous break of more than 52 weeks, or join Tax-Free Childcare (you can't use both simultaneously). If your employer is acquired by another company under a TUPE transfer, your voucher entitlement should transfer with you. However, some parents have reported practical difficulties maintaining voucher access after TUPE transfers.
Employer obligations
Employers are not required to keep running their Childcare Voucher scheme. They can close it with reasonable notice. However, most employers continue offering it to existing participants because it saves the company money on employer NI contributions. Closing the scheme would also create employee relations issues, as affected parents would lose a tax-efficient benefit they've been relying on.
Childcare Vouchers vs. Tax-Free Childcare
The key question for parents still on Childcare Vouchers is whether to stay or switch to Tax-Free Childcare. The answer depends on individual circumstances.
When to stay on Childcare Vouchers
Stay if you're a higher-rate taxpayer with one child and your childcare costs are under GBP 6,000 per year. The NI savings on the voucher scheme can outweigh the Tax-Free Childcare top-up in this scenario. Also stay if your childcare provider isn't registered for Tax-Free Childcare (some smaller providers haven't signed up). And stay if both parents are on the scheme with the same employer, since the combined savings may exceed what Tax-Free Childcare provides.
When to switch to Tax-Free Childcare
Switch if you have two or more children in childcare (the per-child benefit multiplies). Switch if you're a basic-rate taxpayer, since the GBP 2,000 annual top-up per child exceeds the GBP 933 voucher savings for any family with even moderate childcare costs. Switch if you're self-employed, since vouchers were never available to you. Use the government's childcare calculator at gov.uk/childcare-calculator to compare the two schemes for your specific situation.
| Factor | Childcare Vouchers | Tax-Free Childcare |
|---|---|---|
| Open to new entrants | No (closed Oct 2018) | Yes |
| Max benefit (basic-rate taxpayer) | GBP 933/year tax saving | GBP 2,000/year government top-up per child |
| Max benefit (higher-rate taxpayer) | GBP 625/year tax saving | GBP 2,000/year per child (same for all) |
| Eligibility | Must have joined before Oct 2018 | Working parents earning < GBP 100,000/year each |
| Self-employed eligible? | No (employees only) | Yes |
| Number of children | Same limit regardless of children | GBP 2,000 per child (multiplies) |
| Employer involvement | Required (salary sacrifice) | None (parent applies directly to HMRC) |
| Can use both? | No | No |
What Childcare Can Vouchers Pay For?
Childcare Vouchers can be used with any Ofsted-registered or approved childcare provider in England (equivalent regulators in Scotland, Wales, and Northern Ireland).
- Nurseries and pre-schools registered with Ofsted.
- Childminders registered with Ofsted or a childminder agency.
- After-school clubs and holiday schemes run by registered providers.
- Nannies or au pairs registered with Ofsted on the voluntary register.
- Some school-run breakfast and after-school clubs (if the school is the registered provider).
- Playgroups registered with the appropriate authority.
What vouchers can't pay for
Vouchers can't be used for unregistered babysitters, family members providing informal care (even if paid), school tuition fees (education rather than childcare), food or activity costs not included in the childcare fee, or childcare for children over 15 (or 16 for disabled children).
Employer Administration of Childcare Vouchers
For employers still running Childcare Voucher schemes, there are ongoing administrative responsibilities.
Payroll adjustments
The salary sacrifice must be processed correctly in payroll. The employee's gross pay is reduced by the voucher amount before tax and NI are calculated. This affects statutory pay calculations (maternity, paternity, sick pay) if the sacrifice reduces earnings below the relevant thresholds. Employers must check that salary sacrifice doesn't take an employee's pay below the National Minimum Wage.
Provider management
Employers contract with a voucher provider (Sodexo, Edenred, Computershare, Busy Bees Benefits, Fideliti, or others) who handles voucher issuance, provider payments, and account management. The provider charges the employer a monthly fee per participant, typically GBP 3 to GBP 8 per employee. Since the employer saves approximately GBP 33 per month in NI on a basic-rate taxpayer's full sacrifice, the scheme is cost-neutral or cost-positive for the employer.
Joining and leaving management
While no new employees can join, existing participants may adjust their sacrifice amounts, pause during unpaid leave, or leave the scheme. HR teams need a process for handling these changes, including documentation of any breaks to track the 52-week continuous break rule.
Childcare Vouchers During Maternity and Paternity Leave
How Childcare Vouchers interact with parental leave is a common source of confusion.
Maternity leave
Employees on maternity leave continue to receive Childcare Vouchers as a non-cash benefit even when on Statutory Maternity Pay (SMP) or no pay. The employer must continue providing vouchers for the full 52-week maternity leave period. However, salary sacrifice can't reduce SMP below the statutory minimum. In practice, this means the employee may need to stop the salary sacrifice portion during the lower-paid weeks of maternity leave, but the employer still provides the voucher benefit. It's confusing, and HMRC guidance has been criticized for lacking clarity.
Paternity and shared parental leave
Similar rules apply: the employer continues the voucher benefit during statutory leave. For shared parental leave, both parents can receive vouchers simultaneously if they're both registered with their respective employers' schemes. The 52-week continuous break clock doesn't start ticking during statutory parental leave.
The Future of Childcare Vouchers
Childcare Vouchers are a legacy benefit in managed decline. Understanding the trajectory helps both employers and employees plan ahead.
Gradual attrition
The number of active participants is declining naturally as employees change jobs (losing eligibility), switch to Tax-Free Childcare, or their children age out of eligible childcare. The scheme will eventually reach zero participants through attrition. There's no announced end date. The government has confirmed that existing participants can continue using vouchers as long as they remain eligible.
Employer considerations
Some employers are considering closing their schemes proactively to simplify benefits administration. Before doing so, they should communicate clearly with affected employees, provide at least 3 months' notice, help employees run comparison calculations between vouchers and Tax-Free Childcare, and consider offering an alternative childcare benefit to soften the transition. Abrupt closure without support damages employee trust.
Frequently Asked Questions
Can I still join a Childcare Voucher scheme?
Can I use Childcare Vouchers and Tax-Free Childcare at the same time?
What happens to unused vouchers if I leave my employer?
Does salary sacrifice for Childcare Vouchers affect my pension?
Can both parents in the same household use Childcare Vouchers?
My employer wants to close the Childcare Voucher scheme. Can they do that?
Written by Adithyan RK