Sage One Help

Childcare Vouchers

This article describes the various schemes available for childcare provision, and how to process each in Sage One Payroll.


Qualifying conditions

Vouchers can only be used to pay for childcare which is registered or approved.

The child must be:

  • The employee’s child or stepchild.

  • Cared for at their expense.

  • Resident with the employee.

The employee must have parental responsibility for the child.

The child qualifies up to 1 September after their 15th birthday.

Or if they are disabled, they qualify up to their 16th birthday.

The scheme must be generally available to all your employees.

Weekly and monthly limit

A weekly/monthly limit applies to the childcare costs amount which an employee can receive free of tax and NI.

Prior to 6 April 2011, all employees could receive up to a maximum of £55 per week/£243 per month in childcare costs, free of tax and NI, regardless of their earnings.

For employees who join a childcare scheme after 6 April 2011, the tax-exempt and NI-exempt amount they can receive is linked to their earnings. It depends on whether they pay basic rate, higher rate or additional rate tax.

To determine the employee’s tax rate, you need to carry out a basic earnings assessment. For more information about this, please refer to HMRC’s guidance for employers

The table below shows how much employees joining the scheme after 6 April 2011 can receive.

You provide childcare vouchers above the limit, but the additional amount is subject to tax and NI.

Period Basic rate Higher rate Additional rate
Weekly £55 £28 £22
Monthly £243 £124 £97
Annual £2915 £1484 £1166

Employees who joined the scheme before 6 April 2011 can continue to receive £55 per week/£243 per month regardless of their earnings.


The following childcare provision schemes are available:


Salary sacrifice

Under a salary sacrifice scheme, an employee can choose to reduce their salary in return for some form of non-cash benefit, such as childcare vouchers.

HMRC advises that the most appropriate way to deal with salary sacrifice is to use a negative pre-tax and pre-NI payment, rather than a deduction. This ensures that the employee’s total gross pay is correctly reduced.

For example, suppose that the value of the childcare voucher is £243. You should record a salary sacrifice payment of -£243.00.

For compliance with the national minimum wage (NMW), the employee must not sacrifice an amount that reduces their gross pay below the NMW.

To set up the salary sacrifice payment:

  • 1. Settings icon (in the top right-hand corner) > Payroll Settings
  • 2. Payment & Deduction Settings > Create New Payment
  • 3. Enter the following information:
Payment Category Salary

(Using a salary payment means that you can enter a negative value when you process a pay run.)
Payment Type Other Salary Payment
Name Childcare vouchers

(This is the name that appears on the payslip.)
Description A brief explanation of what this payment is for.
  • 4. Click Save.

The next time you process a pay run, you can use the new payment as follows:

  • 1. Summary window > Process Pay Run button
  • 2. Process pay as normal.
  • 3. In the Edit Pay window, click Add Payment.
  • 4. Choose Childcare vouchers.
  • 5. Enter the value of the voucher as a negative value.
  • 6. Continue processing pay as normal.

Employee gets childcare vouchers in addition to pay

You can provide childcare vouchers to an employee in addition to their pay.

Vouchers up to the value of the weekly or monthly limit (see below for more information about this) are exempt from tax and NI, as long as the qualifying conditions are satisfied.

If the vouchers do not exceed the weekly or monthly limit, you don’t need to record them in Sage One Payroll.

If the voucher exceeds the limit, the excess must be recorded in Sage One Payroll to account for tax and NI.

To deal with this situation in Sage One Payroll, you need to use both a payment and a deduction:

  • 1. Use a pre-tax, pre-NI payment to record any childcare voucher amount in excess of the weekly or monthly limit. Call this “Childcare Voucher Excess” or something similar.
  • 2. Also set up a net deduction called “Childcare Voucher Excess” or something similar
  • 3. In a pay run, record the childcare excess amount using the payment, and record the same amount using the deduction.

Recording the amount as both a payment and a deduction in the pay run ensures that:

  • The employee doesn’t actually receive the extra money. This is because they’ve already received the amount through the childcare voucher.

  • The employee pays tax and NI on the excess amount.

Employer pays childcare fees

An employer can pay childcare fees for the employee directly through a third party. Childcare fees are exempt from tax and NI up to the weekly or monthly limit.

If the childcare fees do not exceed the weekly or monthly limit, you don’t need to record them in Sage One Payroll.

If the fees exceed the limit, the excess must be recorded in Sage One Payroll to account for tax and NI.


  • 1. Use a pre-tax, pre-NI payment to record any childcare fees amount in excess of the weekly or monthly limit called “Childcare Fees Excess” or something similar.
  • 2. Set up a net deduction called “Childcare Fees Excess” or something similar

In a pay run, record the childcare excess amount using the payment, and record the same amount using the deduction.

Recording the amount as both a payment and a deduction in the pay run ensures that:

  • The employee doesn’t actually receive the excess amount. The amount has already been paid to the third party on their behalf.

  • The employee pays tax and NI on the excess amount.

Employer provides a childcare facility

If you provide childcare facilities for your employees, or for the employees of another employer on the same premises, and you have some responsibility for the childcare, the cost of the childcare is not subject to tax or NI.

So in this case you don’t need to record the value of the childcare either in the P11D, or when you are processing pay in Sage One Payroll.

However, if you provide childcare places for which you don’t have responsibility, this is considered to be a benefit in kind to the relevant employees, and the cost should be recorded on the P11D.

Additional income

You can provide additional income to an employee in the form of payments or cash vouchers. This additional income is subject to tax and NI.

If the additional income is provided in the form of cash, set up a normal pre-tax, pre-NI payment to record it.

If the additional income is provided in the form of cash vouchers, you need to set up:

  • A pre-tax, pre-NI payment, which you use to record the voucher amount.

  • A net NI deduction for the same amount.

This ensures that Sage One Payroll applies tax and NI on the cash voucher amount, and also deducts the same amount, so that the employee pays the tax and NI amounts that apply to the cash vouchers, without receiving the same amount again through payroll.

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