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Martin Brewer

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Ask the expert: Can they replace my holiday with childcare?


If an employer is making a contribution to childcare, can they remove some of my leave entitlement? And should I be able to avoid tax on the childcare?




The question:

I have a little boy aged two and my current employer has agreed to pay my £245 that I would get from the childcare voucher scheme direct to his nursery. This is not reflected in my pay slip and I am worried that it could appear on my P11D as a benefit.
As we’ve had a busy year at the office I haven’t managed to take my holiday and I have 17 days owing. My boss has said that these will pay for the £245 a month childcare he has been paying for the last three months. I’m worried now that I will have no holiday but the help of the childcare money is making a huge difference to our lives.
I’m hoping someone can give me some advice as to what to do and if what they are doing is right. They tend to play loose with the rules but I was sure he couldn’t take my holiday leave.

Legal advice:

Martin Brewer, partner, Mills & Reeve

In either case the payment of the £245 is going to be taxable as earnings from your employment. Section 62 of the Income Tax (Earnings and Pensions) Act 2003 makes it clear that ‘earnings’ includes any salary, wage, fee, gratuity, profit or any incidental benefit of any kind obtained by the employee if it is money or money’s worth (which essentially means something of monetary value to the employee). This payment, even though it is direct to the nursery should be shown as part of your employment earnings.
On the holiday point, under the Working Time Regulations every full time employee is entitled to 5.6 weeks (or 28 days) statutory annual leave. It is unlawful to not allow statutory annual leave to be taken and it is unlawful to make a payment in lieu of untaken statutory annual leave except on termination of employment. Your employer is obliged to allow you the time off.

Martin Brewer can be contacted at [email protected]. For further information, please visit Mills & Reeve.

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Esther Smith, partner, Thomas Eggar

With regard to your first point about the provision of childcare, if the employer is paying this sum to your nursery but has not taken it from your salary under a salary sacrifice scheme, then it will be deemed to be a taxable benefit provided with your employment and should be noted on the P11D, and taxed accordingly as a benefit in kind.

On the second issue, that is the holiday, it appears that you have not taken your holiday due to work being busy.  Unless your contract provides for a carry over of holiday into the next holiday year I am afraid that you will loose this entitlement and have no right (unless such a right is provided for in your contract) to be paid in lieu of untaken holiday at the end of the year.  The comment made by your boss is rather clumsy, and you are right that he cannot off set the benefit of holiday entitlement against the nursery provisions, but given that you do not appear to have a right to the holiday anyway, it is rather academic.  However, if you still have time within the holiday year to take the holiday accrued you are entitled to do so.

Esther Smith is a partner in Thomas Eggar’s Employment Law Unit. For further information, please visit Thomas Eggar.


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