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Childcare Vouchers and Maternity Leave

Did you know that The Employment Appeal Tribunal (EAT) has really messed things up from employees who receive childcare vouchers while on maternity leave?


Well, EAT has decided that childcare vouchers provided to employees through a salary sacrifice agreement should be classed as remuneration.

This means that employers do not have to continue to provide them for employees on maternity leave.

For employers who wish to rely on the above to change their current policies, we should warn you to proceed with caution.

As you are well aware, employees on maternity leave are entitled to retain all the usual terms of their contract of employment.

This then means that all benefits which are not remuneration must be continued during the employee’s maternity leave.

Up until now these childcare voucher, which are provided through a salary sacrifice, have been treated as a non-cash benefit to employees.

Even through a tax perspective, these childcare vouchers are seen as benefits rather than actual earnings.

Therefore HMRC is advising that employers should continue to provide the said vouchers to employees who are on maternity leave as a benefit,

Where childcare vouchers are provided as part of such said schemes, it provides tax and national insurance contributions savings as compared to employees simply paying for childcare from their normal salary.

The savings in employers’ NICs made through employers operating these schemes are efficient enough to fund the childcare vouchers of an employee who is in receipt of SMP only.

These changes have caused confusion when it comes to childcare vouches and maternity leave.

Within one recent case (where an employee stopped these vouchers while an employee was on maternity leave) the judge ruled that the HMRC guidance was not determinative, the EAT ruled that childcare vouchers should be classed as remuneration.

What did this mean?

This meant that in fact the employer was well within their right not to continue to provide the benefit of the vouchers to the employee on maternity leave.


EATs reason for this was that the salary sacrifice arrangement was simply a diversion of an employee’s   salary to purchase childcare vouchers in a tax efficient way.

Please note, acknowledgements have been made that EAT might not have considered all of the relevant law, when reaching their conclusions, and should be treated with caution.

The judgement ignore the fact that salary sacrifice involves a contractual reduction to employee’s salary in return for the benefit.

It is important to remember that these vouchers are a non-cash benefit that cannot be regarded as a remuneration, and therefore should continue to be provided during maternity leave.

Where an employee has sacrificed salary in return for childcare vouchers, the SMP and contractual maternity pay will be calculated on the reduced salary, and the judgement simply does not consider this.

This means that such employees will still have maternity pay calculated on the basis of their reduced salary but will no longer be entitled to the childcare vouchers during maternity leave, the very reason they reduced their salary in the first place.

Therefore it would be risky for employers to rely on this authority as the basis to stop providing these childcare vouchers for employees on maternity leave.

Finally, it is worth noting that the government plans to implement tax-free childcare system from 2017, which may well change things yet again.


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Femi Ogunshakin Managing Director
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