Guide

Salary Sacrifice for Childcare 2026/27

Published by the UK Money Calculators editorial team. Last updated for the 2026/27 tax year.

There are two main government-supported schemes that can reduce the cost of childcare: employer-supported childcare vouchers (now closed to new entrants) and Tax-Free Childcare. Some employers also run salary sacrifice arrangements directly with nurseries. Understanding the differences — and which applies to you — can save thousands of pounds a year.

Employer-supported childcare vouchers

The employer-supported childcare (ESC) voucher scheme closed to new applicants in October 2018. If you joined before that date and have remained 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 National Insurance. At basic rate, a £2,860 sacrifice saves approximately £572 in tax plus £229 in NI — around £801 per year, per parent. Two working parents could each claim, potentially saving over £1,600 combined.

If you are already a member of the ESC scheme, you should carefully compare it against Tax-Free Childcare before switching — you cannot use both for the same child.

Tax-Free Childcare

Tax-Free Childcare (TFC) is not a salary sacrifice scheme. It is a government-funded top-up through a dedicated childcare account. For every £8 you pay into the account, the government adds £2 — an effective 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 employer-supported childcare vouchers and Tax-Free Childcare for the same child at the same time. If you join Tax-Free Childcare, you must leave the ESC voucher scheme.

Which is better depends on your individual 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 are paid 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 borne by the employer as a business expense — meaning it is fully exempt from both income tax and NI for the employee.

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

If your employer offers nursery direct salary sacrifice, 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

Annual childcare spend: £10,000

You pay into your TFC account: £8,000
Government top-up (20%): £2,000
Total available for childcare: £10,000
Net saving: £2,000 (capped at this level)

For a second child, the same benefit applies separately — so two children could generate up to £4,000 in government top-ups per year (£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.

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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.

Official sources

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.