Employers – ensure you complete a Basic Earnings Assessment for your employees at the start of each tax year

A Basic Earnings Assessment is needed to ensure employees can receive the right amount of Childcare Vouchers

Recently, our advisors at Employers For Childcare have been spoken to a number of working parents who are receiving a higher amount in Childcare Vouchers than they should be. This is because their employers have not been completing a Basic Earnings Assessment for them at the start of each tax year, and they are being treated as basic rate taxpayers, rather than higher rate taxpayers, for the purposes of claiming Childcare Vouchers meaning that they are sacrificing – and saving – more than they are entitled to.

This has resulted in a number of employees receiving bills from HMRC for underpaid tax for this year and for previous years. This also means that the employer will also have underpaid their Employers National Insurance due to making a higher saving through than they should have been.

How to complete a Basic Earnings Assessment

The Basic Earnings Assessment must be completed by the employer at the start of the tax year, using an estimate of what the employee’s income will be for the incoming year, based on the information available at that time. It does need to be revised during the year, even if the employee’s income significantly changes.

To complete a Basic Earnings Assessment you take the employee’s Gross Pay, deduct their personal tax allowance (£12,570 for 2025/26), deduct the value of maximum Childcare Vouchers over a 12 month period (£2,916) and then deduct any pension contributions they make. The net figure after these deductions is the figure you use to see how much of their salary they can sacrifice into their Childcare Voucher account.

If their net pay after these deductions is below £37,700 then they can sacrifice £243 per month. If it is above £37,700, but below £150,000, then they can sacrifice £124 per month. If it is above £150,000 then they can only sacrifice £110 per month.

Guidance is provided by HMRC in their Employment Income Manuals EIM16053 and EIM16054. A Basic Earnings Assessment template is available to download from our website here.

Speak to an advisor

For more information contact our Family Benefits Advice Service on 028 9267 8200 or email hello@employersforchildcare.org