Sage One Help

Childcare vouchers

There are several schemes available for childcare provision, and you can process these in Sage One Payroll.


Qualifying conditions

Vouchers can only be used to pay for childcare where the following conditions are met:

  • The child must be the employee’s child or stepchild.

  • The child must be cared for at the employee’s expense.

  • The child must be 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 up to their 16th birthday if the child is disabled.

  • 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. You may provide childcare vouchers above the limit, but the additional amount is subject to 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. Employees who joined the childcare scheme before this date can continue to receive this amount regardless of earnings.

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

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

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


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 advise 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 reduces correctly.

For example, if 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 > Payroll Settings.
  • 2. Payment & Deduction Settings > Create New Payment.
  • 3. Enter the following information:
Payment Category Salary

You must choose the Salary payment category. This ensures 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 Enter 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 > Process Pay Run > process pay as normal until the Edit Pay window option.
  • 2. Add Payment > Childcare vouchers.
  • 3. Enter the value of the voucher as a negative value > 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 are exempt from tax and NI, as long as the qualifying conditions are satisfied.

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

If the vouchers exceed the limit, to account correctly for tax and NI you must record the excess in Sage One Payroll.

To record the value in Sage One Payroll, you need to use both a payment and a deduction:

  • 1. Set up a payment to record any childcare voucher amount in excess of the weekly or monthly limit. You should set this up as a pre-tax, pre-NI payment.
  • 2. Set up a deduction to balance the amount and ensure the employee doesn’t actually receive the money. You should set this up as a net deduction.
  • 3. When you pay the employee, Summary > Process Pay Run > process pay as normal until the Edit Pay window option.
  • 4. Add Payment > choose the new payment you created > enter the value of the excess.
  • 5. Add Deduction > choose the new deduction you created > enter the value of the excess > continue processing pay as normal.

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

  • The employee doesn’t actually receive the extra money, as 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. These are exempt from tax and NI up to the weekly or monthly limit.

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

If the vouchers exceed the limit, to account correctly for tax and NI you must record the excess in Sage One Payroll.


  • 1. Set up a payment to record any childcare voucher amount in excess of the weekly or monthly limit. You should set this up as a pre-tax, pre-NI payment.
  • 2. Set up a deduction to balance the amount and ensure the employee doesn’t actually receive the money. You should set this up as a net deduction.
  • 3. When you pay the employee, Summary > Process Pay Run > process pay as normal until the Edit Pay window option.
  • 4. Add Payment > choose the new payment you created > enter the value of the excess.
  • 5. Add Deduction > choose the new deduction you created > enter the value of the excess > continue processing pay as normal.

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, as 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.

In these circumstances case you don’t need to record the value of the childcare either in the P11D, or when you process 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 you should record the cost 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 payment as normal to record it. You should set this up as a pre-tax, pre-NI payment.

If the additional income is provided in the form of cash vouchers, you should enter both a payment and deduction to record it:

  • 1. Set up a payment to record any childcare voucher amount in excess of the weekly or monthly limit. You should set this up as a pre-tax, pre-NI payment.
  • 2. Set up a deduction to balance the amount and ensure the employee doesn’t actually receive the money. You should set this up as a net deduction.
  • 3. When you pay the employee, Summary > Process Pay Run > process pay as normal until the Edit Pay window option.
  • 4. Add Payment > choose the new payment you created > enter the value of the excess.
  • 5. Add Deduction > choose the new deduction you created > enter the value of the excess > continue processing pay as normal.

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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