Work out your take-home pay
Income tax, National Insurance and net pay for any UK salary, 2026-27.
Childcare vouchers allow an employee to take up to £55 a week of salary free of income tax and National Insurance, but only if they joined an employer's scheme on or before 4 October 2018 [1]. Since that date the schemes have been closed to new entrants, while Tax-Free Childcare has grown to 602,000 families using it for 745,000 children in June 2026 [2].
For employers, that makes childcare vouchers a legacy benefit with live payroll obligations. Every employee still in a scheme needs a basic earnings assessment at the start of each tax year, a salary sacrifice arrangement that respects the National Minimum Wage, and correct treatment of any amount above the exempt limit [3]. Getting any of these wrong turns a tax-free benefit into a reportable one.
This guide sets out who can still receive childcare vouchers, how the exempt limits work, how the basic earnings assessment is calculated, what happens in the payroll, and how vouchers compare with Tax-Free Childcare when an employee is deciding whether to switch.
Key takeaways
- Childcare voucher schemes closed to new joiners on 4 October 2018; only employees who had joined and had their pay adjusted by then can continue.
- The weekly exempt limit is £55 for basic rate taxpayers, £28 for higher rate and £25 for additional rate, for anyone who joined on or after 6 April 2011.
- Employees who joined before 6 April 2011 keep the £55 limit regardless of their earnings, provided they have had no break of more than 52 weeks.
- The employer must estimate each member's relevant earnings at the start of every tax year using the basic earnings assessment, and keep records.
- An employee who successfully applies for Tax-Free Childcare must tell the employer within 90 days, after which no new vouchers can be provided and the employee cannot rejoin.
- Vouchers above the exempt limit lose their exemption and must be reported to HMRC.
What childcare vouchers are and how they work
Childcare vouchers are a form of employer-supported childcare. The employer provides vouchers, usually through a specialist voucher provider, which the employee uses to pay a registered or approved childcare provider [3]. HMRC describes employer-supported childcare schemes as voluntary arrangements: it is up to the employer whether to offer them at all [4].
Salary sacrifice as the usual delivery route
In practice, most vouchers are funded through salary sacrifice. A salary sacrifice arrangement is an agreement to reduce the employee's entitlement to cash pay, usually in return for a non-cash benefit, and it requires a change to the employment contract [5]. Each time an employee opts in or out, the contract must be altered again [5].
Because the employee gives up cash pay, the sacrificed amount is not subject to income tax or employee National Insurance, and the employer does not pay employer National Insurance on it either. The Moonworkers guide to salary sacrifice covers the general mechanics that apply to all sacrifice schemes.
Childcare vouchers and the optional remuneration rules
Since the optional remuneration arrangement rules came in, most benefits taken through salary sacrifice are valued at the higher of the cash given up and the normal benefit-in-kind value. HMRC's guidance states that "exemptions on benefits in kind do not apply to salary sacrifice schemes" [5].
Childcare vouchers are one of the protected exceptions. Benefits that do not need valuing or reporting under a salary sacrifice arrangement include childcare vouchers and directly contracted employer-provided childcare that started on or before 4 October 2018, alongside workplace nurseries, pension contributions and cycle-to-work equipment [5]. The table below summarises how the main employer-supported childcare options are treated.
| Type of support | Open to new joiners? | Tax and NI position within limits | Reporting |
|---|---|---|---|
| Workplace nursery meeting the conditions | Yes | Fully exempt, no cap | None |
| Childcare vouchers | No, closed from 4 October 2018 | Exempt up to £55, £28 or £25 a week | None within the limit |
| Directly contracted childcare | No, closed from 4 October 2018 | Exempt up to the same weekly limits | None within the limit |
| Reimbursing an employee's own childcare costs | Yes | Not exempt | Taxed and NI through payroll |
The workplace nursery and reimbursement rows come from HMRC's expenses and benefits guidance, which confirms that a qualifying nursery requires no reporting or payment, while repaying an employee's childcare costs counts as earnings [3] [6].
Who can still receive childcare vouchers
The closure on 4 October 2018 did not end existing arrangements. It froze membership. Employees who were already in a scheme can continue indefinitely, provided they meet a set of conditions.
The conditions for continuing members
GOV.UK states that an employee can keep receiving vouchers if they joined on or before 4 October 2018 and their wages were adjusted by then, as long as they "stay with the same employer and they continue to run the scheme" [1]. They also must not take an unpaid career break of more than a year [1].
HMRC's Employment Income Manual frames this as three conditions. The employee must have been employed by the employer immediately before 4 October 2018 and continue to be employed afterwards, must have received a qualifying voucher in at least one tax week in a period of 52 tax weeks, and must not have given the employer a "childcare account notice" signalling a move to Tax-Free Childcare [7].
| Condition | What it requires | What breaks it |
|---|---|---|
| A: continuous employment | Employed immediately before 4 October 2018 and still employed by the same employer | Leaving the employer (except a TUPE transfer) |
| B: qualifying week | At least one qualifying voucher week in any 52 tax-week period | A break of a year or more without vouchers |
| C: no childcare account notice | The employee has not notified a switch to Tax-Free Childcare | Giving notice of a Tax-Free Childcare account |
TUPE transfers
A business transfer does not automatically end membership. HMRC accepts that Condition A may be regarded as met where an employee has transferred to a new employer under TUPE [7]. The Chartered Institute of Payroll Professionals noted at the time of closure that the new employer can either let transferring employees join its existing voucher scheme or start one for them [8].
For the receiving employer, this means a scheme that was "closed" can still gain members through an acquisition. Payroll teams handling a TUPE transfer should check the incoming employees' voucher arrangements before the first pay run, because the sacrifice is part of their protected contractual terms.
Leavers and rejoiners
An employee who leaves and later returns to the same employer does not meet Condition A, because they were not continuously employed across 4 October 2018 [7]. In the same way, an employee who leaves for a new employer cannot take their voucher entitlement with them, even if the new employer still runs a scheme for its own legacy members [1].
Exempt limits and the basic earnings assessment
The amount of voucher that can be provided free of tax and National Insurance depends on when the employee joined and, for later joiners, on their expected earnings for the tax year.
The weekly and monthly limits
For employees who applied to join before 6 April 2011, the limit is £55 a week or £243 a month regardless of earnings [3]. For those who joined on or after 6 April 2011, the limit depends on the rate of income tax the basic earnings assessment indicates.
| Joined the scheme | Income tax band from assessment | Weekly limit | Monthly limit |
|---|---|---|---|
| Before 6 April 2011 | Any | £55 | £243 |
| On or after 6 April 2011 | Basic rate | £55 | £243 |
| On or after 6 April 2011 | Higher rate | £28 | £124 |
| On or after 6 April 2011 | Additional rate | £25 | £110 |
The pre-2011 protection only lasts while the employee stays with the same employer and has no break of more than 52 weeks; otherwise the earnings-related limits apply [9].
How the basic earnings assessment is calculated
The employer estimates the employee's "relevant earnings" for the tax year, adds other amounts treated as earnings, and then deducts the excluded amounts [10]. The result is compared with the UK basic rate and higher rate limits to decide whether the £55, £28 or £25 limit applies [9].
Relevant earnings include salary, wages and fees, plus guaranteed contractual bonuses, contractual commission, guaranteed overtime and allowances such as shift, location, skills and recruitment and retention allowances [10]. Performance-related or discretionary bonuses, non-guaranteed overtime and exempt benefits are left out [11].
The excluded amounts that are then deducted include pension contributions, payroll giving donations, certain expenses payments, removal expenses and an amount equivalent to the Personal Allowance [12]. The Personal Allowance deduction does not apply where relevant earnings are £150,000 or more [12].
| Step | Included or deducted | Examples |
|---|---|---|
| 1. Relevant earnings | Included | Salary, guaranteed bonus, contractual commission, guaranteed overtime, shift allowance |
| 2. Other earnings | Included | Other amounts treated as earnings from the employment |
| 3. Items left out | Ignored | Discretionary bonus, non-guaranteed overtime, exempt benefits |
| 4. Excluded amounts | Deducted | Pension contributions, payroll giving, Personal Allowance equivalent |
| 5. Compare result | Test | Against the UK basic rate and higher rate limits |
Timing, new starters and Scottish taxpayers
The estimate is made when the employee joins and then at the start of each tax year [9]. If the employer acted reasonably, HMRC says the estimate "should not be reviewed later in the tax year"; a mid-year pay rise is reflected in the following year's assessment instead [10].
For an employee who starts part-way through the year, prior earnings are ignored. The employer estimates earnings for the rest of the tax year and multiplies by 365 divided by the number of days remaining [10]. Because new members can no longer join, this mainly matters for TUPE transfers.
HMRC also confirms that the same limits apply to all employees in the UK [9]. A Scottish taxpayer is therefore assessed against the UK basic rate and higher rate limits, not against the separate Scottish income tax bands [13].
How childcare vouchers flow through the payroll
Once the limit is set, the payroll mechanics are straightforward, but each step affects other calculations in the pay run.
Reducing gross pay
The sacrificed amount reduces the employee's contractual gross pay before income tax, employee National Insurance and employer National Insurance are calculated. In the 2026-27 tax year, that means a saving of income tax at 20%, 40% or 45%, employee National Insurance at 8% or 2%, and employer National Insurance at 15% on the sacrificed amount [14] [15].
HMRC-recognised payroll software for SMEs handles this as a pre-tax deduction that also feeds the Full Payment Submission with the reduced taxable pay. Platforms embedding UK payroll can apply the same treatment through the HMRC-recognised payroll API, passing the voucher amount as a sacrifice line rather than a net deduction.
The National Minimum Wage floor
A salary sacrifice arrangement "must not reduce an employee's cash earnings below" the National Minimum Wage rates, and HMRC expects employers to have procedures to cap the sacrifice where necessary [5]. Where a genuine sacrifice exists, the worker no longer has a contractual entitlement to that pay, so the sacrificed amount is not counted towards minimum wage pay [16].
This matters for part-time or lower-paid staff in long-standing schemes, especially after each April uprating of the minimum wage. An employee whose hourly rate sat comfortably above the floor when they joined may now be close to it once the voucher is deducted.
Knock-on effects on statutory pay and pensions
HMRC warns that "salary sacrifice can affect the amount of statutory pay an employee receives" [5]. Statutory Maternity Pay for the first six weeks is 90% of average weekly earnings, and SMP, SPP and the other family payments are paid at £194.32 a week or 90% of average weekly earnings if lower thereafter, so a lower contractual salary can mean lower statutory pay [17]. The reduced salary can also lower auto-enrolment qualifying earnings, which the Moonworkers guide to salary sacrifice for pensions explores in more detail.
Amounts above the exempt limit
If the vouchers provided exceed the employee's weekly limit, the excess is not exempt. HMRC's guidance says that the value to use is "the cost of the childcare above the exempt limit", and that the employer must report it [6]. The most common cause is an employee who moves into the higher rate band at the start of a tax year but whose sacrifice is still set at £243 a month.
Excess amounts are reported through the expenses and benefits process, which the Moonworkers guide to P11D reporting of benefits in kind covers in detail. Re-running the basic earnings assessment each April and adjusting the sacrifice to the new limit avoids the issue entirely.
Worked examples of the saving
The examples below show the monthly and annual saving for one employee at each limit in the 2026-27 tax year. They assume the sacrificed salary would otherwise have been taxed at the employee's marginal rate and that employee National Insurance applies at the main rate of 8% below the Upper Earnings Limit of £50,270 and 2% above it [14].
| Employee profile | Monthly voucher | Employee tax and NI saving per month | Employee saving per year | Employer NI saving per year (15%) |
|---|---|---|---|---|
| Basic rate, any join date | £243 | £68.04 (20% + 8%) | £816.48 | £437.40 |
| Higher rate, joined on or after 6 April 2011 | £124 | £52.08 (40% + 2%) | £624.96 | £223.20 |
| Additional rate, joined on or after 6 April 2011 | £110 | £51.70 (45% + 2%) | £620.40 | £198.00 |
| Higher rate, joined before 6 April 2011 | £243 | £102.06 (40% + 2%) | £1,224.72 | £437.40 |
The table shows why the 6 April 2011 date still matters. A higher rate employee with pre-2011 protection saves almost twice as much as one who joined later, because the £55 limit applies regardless of earnings [9]. For the employer, the saving is a straight 15% of the sacrificed amount, so a firm with 20 basic rate members at the full limit saves £8,748 a year in employer National Insurance.
Because the limits apply per employee, two parents who each hold a voucher membership with their own employer can each use the full exempt amount. The voucher limit is not tied to the number of children, which is one of the key differences from Tax-Free Childcare.
Childcare vouchers compared with Tax-Free Childcare
Tax-Free Childcare is the government scheme that replaced vouchers for new applicants. For every £8 a parent pays into an online account, the government adds £2, up to £500 every 3 months (£2,000 a year) for each child, or £1,000 every 3 months (£4,000 a year) for a disabled child [18]. The child must be 11 or younger, or 16 or younger if disabled [18].
| Feature | Childcare vouchers | Tax-Free Childcare |
|---|---|---|
| Open to new applicants | No (closed 4 October 2018) | Yes |
| Run by | Employer, usually via a voucher provider | HMRC, via an online account |
| How the saving arises | Income tax and NI not paid on sacrificed salary | Government top-up of 20% |
| Maximum benefit | Linked to the employee: up to £55 a week of salary | Linked to the child: up to £2,000 a year top-up |
| Employer saving | 15% employer NI on the sacrificed amount | None |
| Employer involvement | Contract change, payroll, annual assessment | None |
An employee cannot use both for the same period. Vouchers stop if the employee successfully applies for Tax-Free Childcare, and the employee "must tell [the] employer within 90 days" [1]. Existing vouchers can still be spent with no deadline, but once the employer has been told, the employee cannot rejoin the voucher scheme [1] [8].
The decision to switch rests with the employee and depends on household circumstances: the number of children, both parents' tax bands and whether both parents hold voucher memberships. Employers cannot advise on which scheme is better, but they can provide the figures employees need, such as the voucher limit that applies after the basic earnings assessment.
Processing a switch in the payroll
When a childcare account notice arrives, the employer must stop providing new vouchers. If this changes a salary sacrifice arrangement, the contract and the payroll configuration must both be updated [8]. The employee's gross pay rises by the former sacrifice from the next pay period, which increases tax, employee and employer National Insurance, and potentially pension contributions.
Accountants running payroll for several clients with legacy schemes benefit from a multi-client payroll dashboard that flags each client's voucher members ahead of April, when the annual assessment falls due, and records any switch to Tax-Free Childcare as a dated contract change.
Check the take-home effect of a voucher sacrifice
The effect of a voucher sacrifice on net pay can be tested with the Moonworkers UK salary calculator, which applies the 2026-27 PAYE and National Insurance rules to any gross salary before and after the sacrificed amount.
£ per month
e.g. 1257L, S1257L, BR, D0
S = Scotland · C = Wales · W1/M1 = non-cumulative
Enter a salary or hourly rate above
About this calculator
This calculator gives you a close estimate of your UK payroll deductions for 2026-27, using HMRC's exact percentage method with periodised thresholds. It handles the three tax territories, K codes with the 50% regulatory limit and its carry-forward, weeks 53, 54 and 56, the cumulative and W1/M1/X bases, student and postgraduate loans, and pension contributions on qualifying earnings. It still won't match your payslip to the penny in every case: it does not cover in-year tax code changes, payrolled benefits in kind, NI deferral across more than one employment, directors on the annual earnings period, or employer-level annual adjustments such as the Employment Allowance and the apprenticeship levy. Powered by the same engine as the Moonworkers Payroll API.
Frequently asked questions
Why might the result differ from my payslip?
This calculator uses your current gross pay and tax code to produce an estimate. K-code carry-forwards and weeks 53, 54 and 56 are handled, and the Year-to-date section reproduces a specific period exactly. What your employer may apply that this does not: a mid-year tax code change, benefits in kind processed through payroll, or NI deferral across more than one employment. For most employees on a standard tax code the difference is negligible.
What tax code should I enter?
Use the tax code shown on your most recent payslip or the PAYE Coding Notice (P2) from HMRC. If you're not sure, 1257L is the standard code for most employees resident in England, Wales, or Northern Ireland. Use S1257L for Scotland or C1257L for Wales if you pay Scottish or Welsh income tax.
Which NI category applies to me?
Most employees use Category A. Use M if you are under 21, H if you are an apprentice under 25, or C if you are over State Pension age. Your employer is responsible for assigning the correct category — if in doubt, check your payslip.
Which student loan plan am I on?
Your plan depends on when and where you studied. Plan 1 covers students who started before September 2012. Plan 2 is for English and Welsh students who started from September 2012 to July 2023. Plan 5 applies to English students who started from August 2023. Plan 4 covers Scottish students. You can check your plan at gov.uk or on your payslip.
What is the YTD cumulative PAYE mode?
HMRC's standard method calculates income tax on your total earnings to date each period, then subtracts tax already paid. If you're mid-year and want to see exactly what tax should be deducted in a specific period, expand the Year-to-date section and enter your running totals from previous periods only.
Conclusion
Childcare vouchers are a closed scheme, but not a dormant one. Every continuing member still requires an annual basic earnings assessment, a salary sacrifice that respects the National Minimum Wage, and a limit that tracks the employee's tax band. The scheme's value lies in the details: the pre-2011 protection, the per-employee rather than per-child limit, and the 15% employer National Insurance saving that sits alongside the employee's own.
As the membership shrinks through leavers, career breaks and switches to Tax-Free Childcare, the remaining arrangements tend to sit in older contracts that no one has reviewed for years. Employers that treat each April as the point to re-run the assessment and confirm the sacrifice amount keep the exemption intact until the last voucher member leaves the scheme.
Frequently asked questions
Can a new employee join an existing childcare voucher scheme?
No. Childcare voucher schemes closed to new applicants on 4 October 2018. Only employees who had joined a scheme and had their pay adjusted by that date can continue, provided they stay with the same employer, the employer keeps running the scheme and they do not take a break of more than a year. Employees transferring under TUPE are the main exception, because their existing terms are protected.
What happens to childcare vouchers on maternity leave?
The voucher arrangement is part of the employee's contractual terms and does not end automatically during maternity leave. The employee must not let a full 52-week period pass without receiving a qualifying voucher, or membership can lapse. Employers should also bear in mind that salary sacrifice can reduce average weekly earnings, which in turn affects the amount of Statutory Maternity Pay.
Can both parents claim childcare vouchers for the same child?
Yes, if each parent joined a voucher scheme with their own employer by 4 October 2018. The exempt limit applies to each employee, not to each child, so each parent can receive up to their own weekly limit. A parent who switches to Tax-Free Childcare must tell their employer within 90 days and cannot then rejoin the voucher scheme.
Do childcare vouchers go on a P11D?
Vouchers within the employee's exempt limit do not need to be reported. Only the amount above the £55, £28 or £25 weekly limit is taxable, and the employer must report that excess to HMRC. Running the basic earnings assessment at the start of each tax year and adjusting the sacrifice accordingly prevents an excess from arising.
