Tax relief on nursery vouchers to be withdrawn

In his speech to the Labour Party Conference, the Prime Minister, Gordon Brown announced an extension of free nursery places, to be financed by the withdrawal of the tax and National Insurance (NIC) exemptions for childcare vouchers.

The proposal is that the provision of free nursery places will be extended to two year-olds (this would be on top of the existing free childcare available to three and four year olds). It is expected that 250,000 children will benefit from this by 2015/16. However, the quid pro quo would be the eventual withdrawal of tax and NIC exemptions for employer provided childcare vouchers. Currently employees are exempt from tax and NIC on childcare vouchers provided by employers. The exemption is available on the first £55 a week of vouchers per employee, as long as a range of conditions are met. Any excess over the £55 is liable to tax and to NIC (both employees’ and employers’ contributions). Under the proposals, it appears that from April 2011, employees who join an employer-supported voucher scheme will not be entitled to the current tax and NIC exemptions. Those already receiving vouchers will be unaffected until April 2015, when the exemptions for vouchers will be withdrawn completely. More details are expected in the 2009 Pre-Budget Report.