Employer-supported childcare can be offered to you in addition to your cash salary, sometimes known as 'salary plus', but is more commonly offered as a 'salary sacrifice'. This means that your salary is reduced by a specific amount and you receive that amount in support towards your childcare instead. You will only pay tax and National Insurance Contributions on the reduced level of your salary. As a basic taxpayer, this could save up to £904 per year in childcare costs. If you pay 40 per cent tax, you could save up to £1,195 a year.
Changing your employment contract
To join a salary sacrifice scheme you have to formally (by a change to your employment contract) agree to a reduction in your salary and instead receive that amount as support towards childcare costs. You have no legal right to return to your original salary, once you have sacrificed your salary, but your new contract should include a list of the situations (life changing events) where you could opt out of the arrangement.
Effects on your benefits and allowances
If your employer allows you to keep a 'notional salary' (the amount before you reduce your salary), your pension and any other benefits or allowances will not be affected. If you do not keep a 'notional salary' your pension contributions and other salary-related allowances will be reduced.
You will also need to bear in mind that you cannot sacrifice your salary below the National Minimum Wage and that salary sacrifice may affect your entitlement to statutory payments such as Statutory Sick Pay and Statutory Maternity Pay.
Further information about this is available in our factsheets.