Child care vouchers given to employees by their employers are exempt from income tax up to specified limits. Employers are not required to report to Her Majesty’s Revenue and Customs (HMRC) the amounts that they have provided, so HMRC has no administrative record of the proportion of tax foregone that relates to basic rate taxpayers.
However, published research, commissioned by HMRC in 2005, by the National Centre for Social Research (NatCen) estimated that 70 per cent. of employees receiving Employer Supported Childcare (ESC) were either basic or standard rate taxpayers. The Family Resources Survey (FRS), which is published by the Department for Work and Pensions, for 2007-08 indicates that over a third of employees receiving ESC were higher rate taxpayers, with the remainder basic or standard rate taxpayers.
The Government have published its estimates of the cost of tax and NICs relief on ESC in the pre-Budget report 2008 and the pre-Budget report 2009 Tax Ready Reckoner, available at:
The full title of the NatCen report, published in 2006, is “Monitoring of the Reform of the Income Tax and National Insurance Rules for Employer Supported Childcare”. It is available on the HMRC website
On 4 December the Prime Minister announced Government's policy in relation to employer supported child care.
The Prime Minister confirmed that all families who currently receive vouchers will continue to get the same support in the future. He also set out that tax relief will be retained for any new child care vouchers that are issued in the future and that, from April 2011, all new recipients of child care vouchers will get the same income tax relief as basic rate taxpayers do currently. This will ensure that the system does not disproportionately benefit higher rate taxpayers.