The short answer: Yes. If only it were that simple!
Before I continue, I should state that I am not a legal expert and that the following article is based on my own extensive investigations into the topic over the past two months. The facts are correct, to the best of my own knowledge, at April 2012. I'm not offering legal advice – just sharing my research.
What are Childcare Vouchers?
Childcare vouchers (CCVs) are a government-sponsored employment benefit run by third-party benefit providers. Vouchers can be bought by your employer and given to you as a benefit to then be spent by you with OFSTED registered childcare providers. The government encourage CCV usage by offering parents who subscribe to a childcare voucher scheme the opportunity to receive upto £243 a month of vouchers without having to declare them as taxable income.
What is Salary Sacrifice?
While it is possible that your employer might give you childcare vouchers outright as an employment benefit, most employers instead operate a salary-sacrifice scheme. Under such schemes, you agree to alter your terms and conditions of employment to reduce your salary each month by the value of childcare vouchers you receive. In such circumstances the benefit you get is not so much the childcare vouchers, but the tax relief on the value of those vouchers. If you claim the full £243 a month of vouchers, you are effectively not paying tax on £243 of your salary each month. For higher-rate tax-payers who joined a childcare voucher scheme before April 6th 2011, you can claim the full higher rate tax relief on the value of the vouchers you receive (upto £1200 in savings per year); for standard-rate tax-payers and all employees who joined the scheme after April 2011, the maximum saving you can make each year is £900.
What Happens When I Go On Maternity Leave?
HRMC, who govern taxation and government benefits in the UK make a very clear statement that during a period of maternity leave, your employer MUST continue to offer you all your standard terms and conditions of employment other than your salary and wages. HMRC also make a n explicit statement that this includes the continued provision of non-cash benefits which include (but are not limited to) childcare vouchers, pensions, holiday allowance, gym member ship, car allowance, health insurance and dental insurance. http://www.hmrc.gov.uk/childcare/
HMRC also state that your employer cannot make deductions from Statutory Maternity Pay. The details of this statement are complicated a little by the rules around National Insurance Contributions (NICs), but in summary, HMRC state that by law, salary sacrifices cannot be deducted from the government-funded part of your maternity pay (SMP). Many employers and legal professionals mistakenly interpret this to mean that the employer must stop paying for childcare vouchers and that you, as an employee, must leave the scheme.
Read HMRC's guidance for employers: Salary sacrifice and non-cash benefits during statutory maternity leave (PDF 133K)
Given the two facts above, it would seem clear that, during maternity leave, your employer should continue to pay for your childcare vouchers even though you do not earn enough money to sacrifice in return. Correct. To HMRC, the arrangement you have with your employer in regards to salary sacrifice is not related to your arrangement to receive childcare vouchers as a benefit. Guidance offered by HMRC on this topic was first issued in 2006 and updated in 2010 when the Equality Act was updated to state that benefits should continue for the full 52 weeks of maternity leave.
Can My Employer Refuse To Continue My Childcare Vouchers During Maternity Leave?
Yes. Confusing isn't it? Obviously it isn't in the financial interests of a business to continue paying for upto £243 a month of vouchers out of their own pocket (although I'd argue that it might be in their interests to keep their employees happy and well-rewarded so that they return to work in good spirits!).
Despite all of the guidance from HMRC, their guidance is not the law and is not enforcable. Your employer can take several different approaches to avoid having to pay for your benefits (not just childcare vouchers) during your maternity leave.
- Your employer may ask you to leave the scheme during the period when you are not earning enough money to sacrifice. You have the right to say no. For a higher-rate tax-payer who joined the CCV scheme before April 2011, leaving and re-joining the scheme on their return to work would mean the loss of higher-rate tax relief on the value of the vouchers.
- Your employer 'may' choose to cancel the scheme for all employees, not just you. It is unlikely approach because there are benefits to employers of running such schemes (such as employee satisfaction and a reduction in employers NICs).
- Your employer may ask you to pay for the vouchers out of your own pocket (by cash or cheque with no tax-relief) in order that you do not have to leave the scheme. If you choose to do this, you may wish to reduce your voucher contributions to their lowest permissible value during your maternity leave (check this with your childcare voucher provider); In some cases you may be able to suspend rather than cancel your membership of the scheme.
HMRC rightly state that an employer who refuses to continue to provide non-cash benefits during maternity leave puts themselves at risk of an employee tribunal or court case based upon the Sexual Descrimination Act (1975) and the and the Equality Act of 2010 . It is a risk that some employers are prepared to take as the likelihood of an employee making a claim (and winning it) are low.
Who Can I Ask For Help?
If you are confused about whether or not you should be receiving childcare vouchers (or other benefits) during maternity leave then contact your local HMRC tax office for advice (their phone number will be on your most recent tax code statement).
If you believe that your employer is not following the HMRC guidance and would like to find out more about raising this issue tactfully with your employer, contact ACAS for guidance on resolving employment issues.
My own employer has refused to continue to pay my childcare vouchers during maternity leave. I do understand the business reasons why, but I am disappointed in their decision – especially given that they do continue to allow me to accrue holiday which is guidance offered by HMRC under the same parts of employment and equality law. I do not intend to take my concerns to an employee tribunal (mainly because I believe my employer would apply the same restrictions to benefits for any male members of staff who chose to take statutory paternity leave, therefore I don't believe I have a valid case for sexual discrimination). I have agreed to remain in the scheme and to pay for the vouchers each month by cheque because I do not want to leave the scheme. My employer believes that there is a test case currently at the Court of Appeal involving HMRC and the (Equality and Human Rights Commission) EHRC on exactly this issue and that, in the event that this case is settled in the employee's favour, my own employer will refund the costs of childcare vouchers I have incurred during my maternity leave. Currently I can't find any reference to any such case so I am still investigating! Let me know if you know/hear anything about it.