Your employer allocates you up to £55 week (£243 month) in childcare vouchers, and in exchange you give up the same amount of your pay before you pay tax and National Insurance.  This is called ‘salary sacrifice.’

Your agreement to a reduction in your salary will need to be reflected in your contract of employment or as part of a signed agreement.  The agreement must make clear the reduction in salary you have agreed to, the length of the agreement and the amount you will receive in vouchers.

The vouchers are not actual paper vouchers but ‘virtual’ vouchers; your employer pays cash equal to the value of the vouchers in to your personal account at the Childcare Account.  The Childcare Account uses the money in your account to pay your childcare provider; you simply authorise the Childcare Account to make payments to them.

Only the first £55 week (£243 month)is tax and NI exempt, so any childcare costs you pay above £55 week (£243 month) are still liable for tax and NI deductions before being transferred to your Childcare Account if you salary sacrifice in excess of the £55 week (£243 month).