Childcare provision by employers is to remain free of NICs, the Chancellor announced today, to encourage employers to provide more childcare facilities for employees.

This will include employers contracting for places in commercial nurseries or for the services of a childminder, as well as providing workplace nurseries or childcare vouchers. Employers can already deduct the cost of providing all forms of childcare from their pre-tax profits.

Today’s announcement means that when the employer’s Class 1A National Insurance Contributions (NICs) liability is extended in April 2000 to cover most taxable benefits in kind, childcare provided as a benefit in kind will remain free of NICs.

There will continue to be no employee’s NICs on most benefits in kind including childcare.

Where, however, employers help by providing cash to meet or reimburse childcare expenses incurred by employees, this cash remains, as now, subject both to employer’s and employee’s NICs, though the employer will still be able to deduct the cost for tax purposes and the employee may qualify for help in meeting the childcare expenses via Working Families’ and Disabled Person’s Tax Credits.


1. Benefits in kind provided by employers for employees are generally taxable if employees earn #8,500 a year or more (including benefits and expenses).

2. Class 1A NICs are currently paid by employers on car and car fuel benefits only. The Government announced in the March 1999 Budget that from 6 April 2000, Class 1A NICs were being extended to cover all other taxable benefits in kind provided by employers and not already subject to Class 1 NICs. Under this new proposal, an exception is being made for childcare benefits in kind.

3. The new employer’s NICs exemption builds on the existing exemption from employer and employee NICs for childcare vouchers.

4. It means all forms of childcare provision in kind will remain exempt from employers NICs. There are no employee’s NICs on most benefits in kind including childcare.

5. All forms of employer help with childcare, whether in kind or in cash, are allowed as a deduction against profits in calculating the employer’s tax bill (if any).

6. Employees will continue to be taxable on employer help with childcare whether in kind or in cash, except where the employee is provided with a place in a qualifying workplace nursery or receives a childcare benefit and earns less than 8,500 pounds a year (including benefits and expenses).

7. Employees in low and middle income households who are eligible for Working Families’ or Disabled Person’s Tax Credits may be able to get help through the childcare tax credit. This provides help with up to 70% of childcare costs for which the employee is responsible, regardless of whether the employer gives the employee additional cash to meet these costs or settles part or all of the employee’s bill. Help is not given to the employee through the childcare tax credit for costs borne by the employer as a benefit in kind.

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