Common expenses and benefits: tax, NICs and reporting requirements

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Childcare

Childcare

This guide explains what your tax and National Insurance contributions (NICs) obligations are if you provide or contribute towards childcare for your employees. It sets out which forms you should use to report these benefits to us, and tells you what tax and NICs you’ll have to work out and pay to us.

On this page:

What counts as a childcare benefit?
Tax and NICs exemptions for qualifying childcare
Work out the value to report
Where to report and what tax/NICs to pay

What counts as a childcare benefit?

Any childcare that you provide to your employees, or for which you bear any part of the cost, counts as a benefit.

However, we treat different types of employer-supported childcare in different ways. In many cases there is a partial or total exemption from tax, NICs and reporting requirements for childcare benefits, as explained in the next section.

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Tax and NICs exemptions for qualifying childcare

There are a number of ways of providing childcare benefits to your employees that entitle you to a partial or total exemption from tax, NICs and reporting requirements.

Full tax, NICs and reporting exemption for workplace nurseries

If you provide a workplace nursery, then you don’t need to pay any tax or NICs to us on it, and you don’t need to report it to us as an employee benefit – they are fully exempt.

A workplace nursery can be operated on your business premises, or you can make another premises available for the purpose (excluding premises that are used wholly or mainly as a private dwelling).

Partial exemption for vouchers and off-site provision

There is a tax and NICs exemption on childcare costs up to £55 per week per employee if you either:

contract directly with a childcare provider to provide childcare for your employees (by coming to an arrangement with a local childcare provider, for example)
provide your employees with vouchers they can use to pay for qualifying childcare

Qualifying conditions for the £55 exemption

The £55 a week tax and NICs exemption only applies if all three of the following conditions are met:

the childcare you support or provide is registered or approved - for details, use the link at the end of this section
the childcare support is available to all of your employees
the child being cared for meets the following conditions:
- they must be a child or stepchild of your employee, or else resident with the employee who has parental responsibility for the child
- the exemption applies up to 1 September after the child’s 15th birthday (or 1 September after their 16th birthday for children with a disability)

Childcare that isn’t covered by the exemption

The £55 per week exemption doesn’t apply in any of the following cases:

you make cash payments to an employee to help with their childcare costs
you pay an employee’s childcare bills on their behalf
you pay an employee’s school fees on their behalf

Download a list of schemes and organisations that register and approve childcare providers (PDF 45K)

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Work out the value to report

The value you must report to us depends on whether or not you are entitled to the full or partial exemptions outlined in the previous section:

if you provide a workplace nursery, it’s fully exempt so you don’t need to report anything to us
if the £55 exemption applies, you should report only the amount of any employee’s childcare benefit that exceeds that figure – for example, if you provide childcare vouchers of £75 each week, the excess £20 a week must be reported to us
if neither of the above applies to your childcare support for an employee, you must report the full cost of providing it

The specific reporting requirements for different types of childcare support are outlined in the next section, along with details of any tax and NICs you must pay to us.

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Where to report and what tax/NICs to pay

The forms you’ll need to use and the tax or NICs you may need to pay to us differ depending on the way you provide childcare benefits to your employees, as explained below.

The quickest way to complete the forms mentioned below is to use our free ‘Online Return and Forms’ service, the interactive forms on our Employer CD-Rom, or a commercial payroll software package.

You provide workplace childcare facilities

There’s no tax or NICs to pay to us, and the benefit doesn’t have to be recorded on any forms.

You provide childcare vouchers to your employees

If your vouchers scheme meets the qualifying conditions explained above in the section ‘Tax and NICs exemptions for qualifying childcare’, you must pay us Class 1 NICs on the amount of benefit that exceeds £55 a week for any employee, regardless of earnings.

To do this, add the amount to the employee’s gross pay when recording and calculating Class 1 NICs (but not PAYE (Pay As You Earn) tax) through your payroll using form P11.

You must also record the amount exceeding £55 a week in section C of form P11D for company directors and for employees earning at a rate of £8,500 or more per year, or in section B of form P9D for employees earning at a rate of less than £8,500 a year.

If your voucher scheme doesn’t meet the qualifying conditions, use the full value of the benefit in each of the steps above, rather than just the amount exceeding £55.

The employee arranges childcare and you reimburse their costs

This is treated as extra earnings paid to your employee, so you must operate PAYE and pay over tax and Class 1 NICs on amounts reimbursed, in the same way as for regular payments of earnings to your employee. This applies to all employees, regardless of their earnings

Add the full amount reimbursed to the employee’s gross pay when recording and calculating PAYE tax and Class 1 NICs through your payroll using form P11. No Class 1A NICs are due, and the amounts reimbursed don’t need to be recorded on form P11D.

These rules also apply to any cash payments or salary increases you provide to employees to help them meet their childcare costs.

If you pay an employee’s childcare bills on their behalf, you must deduct Class 1 NICs (but not PAYE tax) through your payroll. You must also report the amount paid on form P11D or P9D as appropriate.

You contract directly with a nursery to provide childcare for employees’ children

If the childcare meets the qualifying conditions explained above in the section ‘Tax and NICs exemptions for qualifying childcare’ you only need to pay Class 1A NICs on the amount of benefit that exceeds £55 a week for directors and for employees who earn at a rate of £8,500 or more per year.

You must also record the amount exceeding £55 in the second line of section M on form P11D for company directors and employees earning at a rate of £8,500 or more, but you don’t have to record it on form P9D for employees earning less than that.

If the childcare doesn’t meet the qualifying conditions, use the full value of the benefit in each of the steps above, rather than just the amount exceeding £55.

You reimburse childcare costs for an employee on business travel

You must deduct PAYE tax from the reimbursed costs, but no Class 1 or Class 1A NICs are due. To do this, add the full amount reimbursed to the employee’s gross pay when recording and calculating PAYE tax (but not Class 1 NICs) through your payroll using form P11.