New deadline for childcare voucher and other employer schemes

In a previous post we told you about the 5 April 2018 deadline for employer-funded childcare schemes. Employees already in a scheme and receiving childcare vouchers or subsidies by the deadline could continue to benefit from the tax break until their membership of the scheme ended or they opted out in favour of the government’s Tax-Free Childcare. However, in late March – and out of the blue – HMRC announced a temporary reprieve for those wanting to take advantage of childcare voucher and similar schemes. The new deadline is October 2018.

Why the delay?

The reason for HMRC’s decision is, unfortunately, not generosity. It’s hand was forced following a debate in the Commons regarding the long list of delays that has beset the introduction of Tax-Free Childcare. It’s now been further criticised for poorly communicating the deferred deadline and its consequences.

What about salary sacrifice?

Most employer childcare schemes operate in tandem with a salary sacrifice. However, HMRC hasn’t mentioned what’s happening to the salary sacrifice element. Typically, an employee gives up some of their pay to receive childcare vouchers or subsidies instead. Because these are tax and NI free (subject to a cap), both employer and employee save money. Some experts say it’s unclear whether this applies until the extended deadline. It’s our view that the salary sacrifice tax break must be available for employees who join a scheme between now and the new deadline. If this wasn’t the case we feel sure HMRC would have made it clear. If it didn’t apply, the tax treatment for members joining in the period of extension would conflict with that for existing members. It would also go against general policy, which permits the use of salary sacrifice with childcare schemes.