Childcare vouchers to be hit by phased withdrawal of tax and NI breaks

Tax and national insurance breaks on childcare vouchers will be withdrawn in stages starting in April 2011.

Employees taking up childcare vouchers from April 2011 for the first time will no longer benefit from tax and national insurance breaks, while employees who are existing recipients of childcare vouchers with have their tax and NI breaks withdrawn from April 2015.

Exact details of the changes will be announced in the pre-budget speech in November 2009.

The money that the government will save from withdrawing these tax and NI breaks on childcare vouchers will go towards offering free childcare for 250,000 two-year-olds by 2015-2016, the prime minister Gordon Brown announced today in his keynote speech to the Labour Party Conference in Brighton.

A statement from HM Revenue and Customs said: "The government is not abolishing childcare vouchers, only phasing out tax relief for them. Vouchers are now well entrenched, employers will still be able to offer them, and existing users will be unaffected for five years.

"The government is not removing any tax relief from existing users of vouchers for five years. 250,000 two-year-olds – or 40% of all two year olds - will be able to access free places, which are in addition to the existing free provision for all three and four year olds."