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My Company is setting up a Child Care Voucher Scheme, how do I process these vouchers through the payroll?

My Company is setting up a Child Care Voucher Scheme, how do I process these vouchers through the payroll?

Child Care Vouchers are free of tax and national insurance up to the amount of £55 a week (£243 a month). Child care voucher schemes can be operated in-house or through an external company. The scheme can be administered in 2 ways, either as an addition to the employee salary (Salary plus) or as a reduction in the employee salary (Salary sacrifice). If you operate the scheme as an addition to the employee salary you must make this scheme available to all employees within the company. Information on both options can be found on the HMRC web site by selecting Employers, under the heading 'Tell me about..' select More topics/ Child Care and Child Support/ Child Care. We strongly recommend you read this documentation before implementing any Child Care Voucher Schemes. If, for example you are operating the scheme as Salary sacrifice, before setting this up within the payroll you need to consider the following:

  1. Are any overtime or other rates based on this salary? If so, do you want any future payments of overtime etc to be based on the new salary (the amount reduced by the child care voucher) or the old Salary?.
  2. Do you want to show the child care voucher amount on the payslips?
  3. Is your Pensionable Gross to be reduced by the amount given in child care vouchers? (this should be considered and checked with your pension scheme administrators to ensure your decision is still within the pension scheme rules)

For the following example the Scheme is to be operated as Salary sacrifice, Overtime payments are to be based on the old gross salary, The deduction for child care vouchers is to be shown on the payslips, The Pensionable Gross is not to be reduced by the child care voucher amount (i.e. the Pension deductions will be taken from the old gross pay). You will need to set this up within the payroll: Under Maintenance / Pay Elements / Deductions - create a new code for Child Care Vouchers i.e. CCV Complete the boxes under the column headings:

Std Period Deduction 55.00 (enter 243 for monthly payrolls)
Always use control file rate tick this box
Tax Element tick this box
NI Element tick this box
Pension Element no tick in this box

Select Apply and close this screen Select Employees / Employee Maintenance Choose the relevant Employee and select Pay Elements / Deductions tab Under Code select the drop down arrow and choose the new code i.e. CCV and select apply; the deduction amount will be completed automatically for you. Close this screen The payroll period can now be run as normal. The child care voucher amount will be deducted from the gross pay, then tax and Ni will be calculated on the remaining amount. The amount of pay tax and NI has been calculated on can be viewed in the taxable gross and niable gross boxes within Period Input. Important Notes: The voucher rates stated above are the current rates for 2006. Salary Sacrifice schemes must not reduce cash pay to below the National Minimum Wage. Salary Sacrifice cannot be backdated. The salary must be sacrificed before it is given to the employee. Employees should be informed that any reduction in their salary can effect their entitlement to Statutory Benefits i.e. Statutory Sick pay, Statutory Maternity pay, Tax Credits etc.. We strongly advise assistance should be sought in the following areas when setting up a Child Care Voucher Scheme:

Legal Assistance Salary Sacrifice is a matter of employment law, therefore legal advice should be sought.
Inland Revenue The treatment of tax and NI should be confirmed with the Inland Revenue once the scheme has been set up, please contact your local tax office.
Pension Provider Pension scheme providers should be contacted to ensure the treatment of pension deductions is still correct.

If your scheme operates differently to the example given above and you need assistance with the set up within the payroll please contact the csmascent support desk who will be happy to help.