Kathryn Clapp: Childcare vouchers may be discontinued during maternity leave

Kathryn Clapp

The Employment Appeal Tribunal (EAT) has recently raised doubts on HM Revenue and Customs’ (HMRC) guidance on the use of childcare vouchers while on maternity leave in the case of Peninsula Business Services v Donaldson. Current guidance is that vouchers should be maintained if provided by way of salary sacrifice because they are non-cash benefits rather than ‘remuneration’. The benefit to the employees, when at work and participating in the scheme, is a saving in tax and national insurance contributions (NICs) on the vouchers.

Peninsula’s scheme suspended provision of vouchers during maternity leave, and it paid only statutory maternity pay. Its employee, Donaldson, refused to join the scheme on these terms, believing they were discriminatory, and brought a tribunal claim. She argued that childcare vouchers were required to be provided during maternity leave as a benefit and so should be maintained during maternity leave.

The employment tribunal, acknowledging the HMRC guidance, upheld her claim concluding that Peninsular had subjected Donaldson to unfavourable discriminatory treatment.

On appeal by Peninsula, the EAT disagreed and held that vouchers were not payable on maternity leave. Salary was diverted from earnings to purchase vouchers under a salary sacrifice scheme that amounted to ‘remuneration’. Suspending their provision during maternity leave was not discriminatory.

Although the EAT did recognise its conclusions were somewhat tentative, in its view, the HMRC guidance had no legal basis. Neither could it have been Parliament’s intention to require employers to incur the cost of providing vouchers when there was no salary that could be sacrificed nor to provide a windfall benefit for the employee.

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Amending current procedures may require contractual changes to employees’ terms and conditions. If vouchers are currently provided as a benefit in addition to salary these would remain payable. In any event, existing childcare voucher schemes will be closed to new entrants from April 2018.

Kathryn Clapp is senior employment lawyer at Taylor Wessing