Childcare costs can be a significant expense for working families. The UK tax system offers ways for employers to support staff with childcare in a tax‑efficient manner, benefiting both employees and businesses. Understanding the available options helps employers design support schemes that attract and retain talent while staying compliant.
Childcare costs can be a significant expense for working families. The UK tax system offers ways for employers to support staff with childcare in a tax‑efficient manner, benefiting both employees and businesses. Understanding the available options helps employers design support schemes that attract and retain talent while staying compliant.
At Applegrow Financial Advisors, we help employers and HR professionals understand childcare support options, tax reliefs, and compliance requirements.
Employer supported childcare refers to arrangements where an employer helps employees with childcare costs through specific schemes that offer tax advantages. These schemes can reduce the overall cost of childcare for employees and can be structured in a way that is beneficial for both employer and employee.
The main objective is to support employees with childcare while reducing the tax burden on both sides.
This government‑backed scheme allows eligible working parents to receive 20% support toward childcare costs up to an annual limit. While this scheme is managed directly between parents and childcare providers via an online account, employers can:
Promote awareness of the scheme to employees
Provide guidance on eligibility and how to apply
This support helps working parents manage childcare costs with additional government contribution.
Historically, many employers offered childcare vouchers as a tax‑free benefit. Under this scheme:
Employees sacrificed part of their salary in exchange for childcare vouchers
Both employer and employee saved on tax and National Insurance contributions
However, this scheme closed to new entrants in October 2018. Employees who joined an employer’s voucher scheme before this date may still benefit, but the scheme is no longer open to new participants.
Employers should be aware of legacy arrangements and ensure continued compliance for existing voucher holders.
Employer supported childcare can provide benefits such as:
Tax relief for employees — reduced taxable income or tax‑free support
National Insurance savings — relief on employer and employee NICs where applicable
Improved workforce satisfaction and retention — childcare support is highly valued by staff
For legacy voucher schemes, the tax and NIC savings were often significant, making this a desirable benefit while it remained open.
When offering supported childcare benefits, employers should:
Each childcare support option has its own eligibility criteria and tax treatment. Employers must ensure benefits are delivered in a compliant manner.
Detailed records of childcare support provided, employee eligibility, and any salary sacrifice arrangements must be kept for tax reporting and compliance.
Employees need clear guidance on how childcare support works, especially where legacy voucher schemes continue to operate within the company.
Tax law and available schemes evolve over time. Employers should periodically review their childcare support policies to ensure ongoing value and compliance.
Although employers are not required to manage tax‑free childcare accounts, it’s useful to understand eligibility:
The parent (or both parents in a couple) must be working
Each parent must earn at least the National Minimum Wage for 16 hours a week
Income must be below a specified limit (currently £100,000 per parent)
Children must be under a certain age (typically under 12, or under 17 for disabled children)
Employees can use tax‑free childcare to pay for approved childcare providers, reducing the cost of care.
Offering childcare support can help:
Attract and retain working parents
Reduce absenteeism
Enhance employee well‑being and productivity
Demonstrate family‑friendly workplace practices
Even where formal schemes are no longer open to new members (like vouchers), employers that provide clear guidance and support on available options add value to their benefits package.
Employers should maintain accurate documentation that includes:
Details of childcare support provided
Salary sacrifice arrangements (if applicable)
Evidence of employee eligibility for benefits
This documentation supports compliance with HMRC rules and protects employers in the event of enquiries or audits.
Employer supported childcare can be complex, especially with changes to schemes over time. Applegrow Financial Advisors can assist with:
Reviewing current childcare support arrangements
Advising on tax‑efficient benefits packages
Ensuring compliance with HMRC requirements
Communicating benefits clearly to employees
Advising on legacy childcare voucher arrangements
With expert guidance, employers can deliver meaningful support to staff while managing tax implications effectively.
Contact Applegrow Financial Advisors today for tailored advice and practical support that meets your business needs.
