NIM02478 - Class 1: Vouchers - non-cash vouchers – qualifying childcare vouchers from 6th April 2005 – how to calculate the exempt amount – example 1 – employee with regular monthly payment of vouchers in 2005/06 tax year - calculation based on the legislation – payment in tax month 1 - earnings paid 29th April 2005

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.

The following example illustrates those calculations.

Employee Z has been employed by employer A since 2003. They are paid on the last working day – Monday to Friday – of each month. As part of their normal monthly earnings, employer A provides employee Z with a qualifying childcare voucher with a face value of £217. The cost to A of providing the voucher is £217.

Employer A calculates the exempt amount using the formula E x QW where:

  • E is the total of:
  • £50; plus
  • the administration costs for the voucher
  • QW is the number of qualifying weeks:

(a) for which the employee has been employed by the secondary contributor during the tax year in which in which the qualifying childcare voucher is provided; and

(b) for which no other qualifying childcare voucher has been provided by the secondary contributor.

But as the qualifying childcare voucher is provided during the period 6th April 2005 to 5th October 2005, then the figure in (a) of QW above is taken as 26 (see NIM02472).

Step 1 – calculating the chargeable expense

The chargeable expense is an amount equal to the cost of provision - £217 (see NIM02461).

Step 2 – calculating the exempt amount

The exempt amount is calculated thus:

E = £50. For the purposes of this example, the administrative costs have been ignored.

QW = 26. The figure in (b) of QW is zero. As this is the first payment of childcare vouchers in the tax year, there are no other qualifying weeks for which such vouchers have been provided.

So the exempt amount is £50 x 26 = £1,300. As the chargeable expense - £217 - is less than the exempt amount, the chargeable expense is the amount that is disregarded is calculating the amount of employee Z’s earnings for April.

For details of how to calculate the exempt amount:

  • for month 2, see NIM02479
  • using the simplified method of calculation, see NIM02491.