NIM02473 - Class 1: Vouchers - non-cash vouchers – qualifying childcare vouchers from 6th April 2005 – how to calculate the exempt amount – the simplified method of calculation where there is a regular monthly payment of vouchers

Regulation 11(2)(b) and (4) Social Security (Contributions) Regulations 2001

NIM02471 and NIM02472 explain, respectively, how to calculate the exempt amount:

• generally; and
• in respect of a qualifying childcare voucher provided during the period 6th April 2005 and 5th October 2005.

But an employer may, in certain circumstances, calculate the exempt amount in the following way.

2005/06 tax year

If an employer provides a regular monthly amount of qualifying childcare vouchers, it may reasonably expect to be able to convert the weekly exempt amount of £50 into a monthly amount, rather than undertake a separate calculation each time it makes a payment of qualifying childcare vouchers (see NIM02447 (contents)). In these circumstances, it is acceptable for an employer to convert the weekly exempt amount of £50 to a monthly amount by using the method of calculation set out in the above regulation (which sets out the calculation of the prescribed equivalents of the weekly lower and upper earnings limits, and primary and secondary thresholds).

Using the calculation in the above regulation, the monthly equivalent to £50 a week is:

£50 x 4.333 (ie, four and a third) = £216.65, which rounds up to £217.00.

So if an employer:

• provides qualifying vouchers with a chargeable expense of £217 a month (plus any administration costs); and
• calculates the exempt amount using this simplified method

it may disregard the whole of the chargeable expense (ie, £217) in calculating an employee’s earnings for the purposes of calculating the amount of Class 1 NICs due.

Employer’s Help Book E18(2005) “How you can help your employees with childcare” advises employers that the amount of the exemption for monthly-paid employees is £217 a month.

If an employer provides qualifying vouchers with a chargeable expense of more than £217 a month:

• the exempt amount can be accepted as £217 a month
• any excess amount in the chargeable expense must included in the employee’s earnings for the purposes of calculating the amount of Class 1 NICs due.

If the employer does not provide qualifying vouchers:

• in regular amounts; but
• does so in a lump sum or sums,

it should follow the statutory method for calculating the exempt amount.

2006/07 tax year onwards

From 6th April 2006, the Department accepts that the monthly exempt amount can also be calculated by reference to 53 weeks instead of 52. As this method of calculation will be more beneficial to both employer and employee, the Department has adopted this method for the 2006/07 tax year onwards.

For the 2006/07 tax year, the weekly exempt amount increased to £55. The equivalent monthly figure is £243. This is calculated as follows:

£55 x 53 weeks divided by 12 (months) = £242.92, which rounds up to £243.