Guide

Salary Sacrifice for Childcare 2026/27

Written by James Whitfield · Updated August 2026 · Checked against 2026/27 HMRC rates.

Quick answer — 2026/27

Childcare-voucher salary sacrifice closed to new joiners in October 2018 — if you're not already in a scheme you can't join. New parents should use Tax-Free Childcare instead, where the government adds £2 for every £8 you pay, up to £2,000 per child a year (£4,000 if the child is disabled).1 Salary sacrifice for childcare now mainly survives as workplace nursery schemes, where fees paid through a qualifying employer nursery are exempt from income tax and National Insurance.2

Key takeaways
  • Childcare-voucher salary sacrifice is closed to new joiners — you can't start one now.
  • Tax-Free Childcare tops up £2 per £8, capped at £2,000 per child a year (£4,000 if disabled).1
  • You can't use vouchers and Tax-Free Childcare for the same child — pick the better one.1
  • Both parents must work and each earn under £100,000 adjusted net income for Tax-Free Childcare.1
  • Near £100k? Pension salary sacrifice lowers adjusted net income and can keep you eligible.3

There are two main government-supported ways to reduce childcare costs: employer-supported childcare vouchers, now closed to new entrants, and Tax-Free Childcare. Some employers also run salary sacrifice arrangements directly with nurseries. Which one applies to you — and which is worth more — can make a big difference to what you actually pay.

Employer-supported childcare vouchers

The ESC voucher scheme closed to new applicants in October 2018. If you joined before that date and have stayed a continuous member, you can still use vouchers. New employees cannot join.

Under this scheme, you sacrifice up to:

  • £55/week (£2,860/year) — basic-rate taxpayers
  • £28/week (£1,484/year) — higher-rate taxpayers
  • £25/week (£1,325/year) — additional-rate taxpayers

The sacrificed amount is exempt from income tax and NI.2 At basic rate, a £2,860 sacrifice saves around £572 in tax (20%) plus £229 in NI (8%) — roughly £801 per year, per parent.3 Two working parents could each claim, saving over £1,600 combined.

If you are already in the ESC scheme, compare it carefully against Tax-Free Childcare before switching. You cannot use both for the same child.

Tax-Free Childcare

Tax-Free Childcare is not a salary sacrifice scheme. It is a government-funded top-up through a dedicated childcare account. For every £8 you pay in, the government adds £2 — a 20% top-up on qualifying childcare costs.

Key facts for 2026/27:

  • Maximum government top-up: £2,000 per child per year (£4,000 for disabled children)
  • Applies to children up to age 11 (16 for disabled children)
  • Both parents must generally be working and each earning at least the equivalent of 16 hours at the National Minimum Wage per week
  • Neither parent can earn more than £100,000 adjusted net income
  • Available regardless of whether your employer offers a salary sacrifice scheme

You can use TFC with any registered childcare provider — nurseries, childminders, holiday clubs, after-school clubs. The account is managed via the government's Childcare Service on GOV.UK.

Can you use both schemes?

No. You cannot use ESC vouchers and Tax-Free Childcare for the same child at the same time. Join TFC and you must leave the ESC scheme.

Which is worth more depends on your circumstances:

  • Two parents both in the ESC scheme, both basic-rate taxpayers: up to £1,600+ combined saving — often better than TFC for lower childcare spends.
  • Higher childcare costs (e.g. £8,000+ per year): TFC's £2,000 top-up per child may be more valuable.
  • Higher-rate taxpayers: TFC does not give higher-rate relief; the ESC higher-rate voucher cap (£28/week) limits its value — compare carefully.

The government's Childcare Choices website has a comparison tool.

Nursery direct salary sacrifice

Some employers run salary sacrifice arrangements where childcare fees go directly to a nursery from pre-tax salary. If the employer has a contractual arrangement with the nursery and handles the payment, the cost is a business expense. That means it is fully exempt from income tax and NI for you.

This is separate from the ESC voucher scheme. It requires a formal agreement between your employer and the nursery. Not all employers offer it, and it is more commonly available in large organisations with on-site or nearby nurseries.

If your employer offers this, ask HR or payroll for the scheme details — eligibility, participating providers and whether it can be combined with other childcare support.

Worked example: Tax-Free Childcare, £10,000 annual spend

You want to cover £10,000 of registered childcare through a Tax-Free Childcare account:1

You pay into your childcare account£8,000
Government top-up — £2 per £8 (20%)1+£2,000
Available for childcare (your £2,000 saving is capped here)£10,000

For a second child the same benefit applies separately. Two children could generate up to £4,000 in government top-ups per year, or £8,000 for two disabled children.

Try the calculator

Use our salary sacrifice calculator to estimate savings from other salary sacrifice schemes, including pension and cycle to work.

Open the calculator →

Frequently asked questions

What is the difference between Tax-Free Childcare and salary sacrifice?

Salary sacrifice (via the old ESC voucher scheme) reduces your gross pay so you pay less income tax and NI. Tax-Free Childcare is a government top-up scheme — you pay into a childcare account and the government adds 20% (£2 for every £8 you put in). TFC is not salary sacrifice and does not reduce your taxable income, but it is accessible to anyone who qualifies, regardless of whether their employer runs a salary sacrifice scheme.

Can I still get childcare vouchers?

Only if you joined an employer-supported childcare voucher scheme before October 2018 and have remained a continuous member. New entrants cannot join the ESC voucher scheme. If you leave the scheme, you cannot re-join. Most employees now use Tax-Free Childcare instead.

Can higher-rate taxpayers use Tax-Free Childcare?

Yes, provided neither parent earns more than £100,000 adjusted net income. Both parents must also be working and earning at least the minimum earnings threshold. Note that salary sacrifice pension contributions reduce adjusted net income — if your income is close to £100,000, pension salary sacrifice may help you remain eligible for TFC.

Does employer-supported childcare affect Tax-Free Childcare eligibility?

Yes. You cannot be in the ESC voucher scheme and use Tax-Free Childcare for the same child simultaneously. If you receive ESC vouchers, you are not eligible for TFC. You would need to leave the voucher scheme to apply for TFC — and once you leave, you cannot re-join ESC.

Is Tax-Free Childcare available if I am self-employed?

Yes. Tax-Free Childcare is available to self-employed parents, as long as you meet the minimum earnings threshold (equivalent to 16 hours at National Minimum Wage per week) and earn less than £100,000 adjusted net income. The ESC voucher scheme was employer-based and was not available to the self-employed.

This guide is for general information only. It does not constitute financial, tax or legal advice. Tax rates and rules can change. Always check current GOV.UK guidance and consult a qualified adviser before making decisions.

Sources & references

Every headline figure in this guide is checked against the official HMRC and GOV.UK pages below and reflects the confirmed 2026/27 tax year. Each link opens the relevant official page in a new tab.

  1. Tax-Free Childcare ↗ https://www.gov.uk/tax-free-childcare
  2. Salary sacrifice and the effects on PAYE (HMRC) ↗ https://www.gov.uk/guidance/salary-sacrifice-and-the-effects-on-paye
  3. Income Tax rates and Personal Allowances ↗ https://www.gov.uk/income-tax-rates
Verified against published UK government guidance.