Employer provided childcare vouchers and Scottish Income Tax
This HMRC article is intended to provide clarification around the income levels used to calculate the appropriate tax and NICs relief for childcare vouchers following the introduction of the Scottish rate of income tax.
Eligibility to tax-free childcare vouchers depends on an employee’s income level. Employers have to estimate the employee’s relevant earnings for the tax year since the ‘exempt’ amount of childcare vouchers is based on their relevant earnings.
S270A of Income Tax (Earnings and Pensions) Act 2003 sets out the levels of income at which the exempt amount changes.
If the estimated relevant earnings amount:
- exceeds the higher rate limit for the tax year the exempt amount will be £25 for each qualifying week;
- exceeds the basic rate limit but not the higher rate limit then the 'exempt amount' for that tax year will be £28 for each qualifying week;
- otherwise the 'exempt amount' for that tax year will be £55 for each qualifying week.
Following the introduction of the Scottish rate of income tax, the Scottish Parliament have set the Scottish income tax rates and thresholds for the 2017/2018 tax year.
Eligibility criteria for employer provided childcare vouchers are not devolved to the Scottish Parliament and, therefore, the basic and higher income tax rates mentioned above are the UK rates.
This means that the same limits apply for all employees in the UK in receipt of childcare vouchers.