Childcare support operating within a salary sacrifice scheme can affect current or future entitlement to a range of benefits.
This is because the entitlement to some benefits is based on the amount of National Insurance Contributions that are paid on an individual’s salary, and entitlement to other benefits is based on actual earnings.
Anyone thinking of taking up childcare support offered within a salary sacrifice scheme by their employer should carefully consider what the sacrifice may mean in practical terms.
For example you should consider whether accessing childcare vouchers will have an effect, or a potential effect, on your future right to the original (higher) taxable salary; what the effect will be on any pension scheme that is being contributed to by the employer; whether other benefits such as state retirement pension or Statutory Maternity and Paternity Pay will be affected.
Accessing childcare vouchers can also affect entitlement to tax credits, so it is important that you consider this before making a decision. The 'Tax credits' section of the HMRC website provides more information on the interaction between childcare vouchers and tax credits, including a “better off calculator” which will help you decide the best option for you.
