Employers are not obliged to continue the provision of childcare vouchers under a salary sacrifice scheme during maternity leave, according to a recent decision of the EAT (Peninsula Business Services Ltd v Donaldson). Contradicting HMRC guidance on this issue, the EAT said that it did not amount to discrimination or a breach of the Maternity and Parental Leave Regulations 1999 to discontinue childcare vouchers provided under a salary sacrifice scheme during maternity leave.


Childcare vouchers through salary sacrifice has become a common type of benefit offered by employers to both parents and has certain tax and NIC advantages to both employer and employee. However there has been uncertainty whether such vouchers should be treated as “remuneration” (and therefore not payable during maternity leave) or as a non-cash benefit (which is preserved during maternity leave). In 2008 HMRC issued guidance saying that the vouchers amounted to non-cash benefits and should continue to be paid to women during maternity leave. Regulation 9 of the Maternity and Parental Leave Regulations 1999 (the MPL Regulations) explains that women on maternity leave are entitled to non-pay benefits during ordinary and additional maternity leave, whether or not the benefits are contractual. Accordingly the majority of employers have felt obliged to play it safe and follow the HMRC guidance and continue childcare vouchers during maternity leave. Yet this can result in the situation where employers are responsible for the costs of the vouchers for the periods where the employee is in receipt of statutory maternity pay or when they receive no pay, since there is no salary to sacrifice. As the EAT remarked in this case, this approach has created a windfall for the employee and additional costs for an employer. 


Mrs Donaldson, who was pregnant, refused to join her employer’s childcare voucher scheme because it had a rule which suspended the provision of childcare vouchers during maternity leave. She successfully argued at Tribunal that her employer’s practice was discriminatory on the ground of sex, amounted to unfavourable treatment because of asserting a right to maternity leave, and was a breach of regulation 9 of the MPL Regulations.

The Tribunal accepted the guidance written by the HMRC that childcare vouchers are non-cash benefits and therefore should continue during maternity leave. The employer appealed.

In upholding the employer’s appeal, the EAT said that the Tribunal had been incorrect to accept the HMRC Guidance regarding child care vouchers amounting to non-cash benefits since this had no basis in statute. Instead, childcare vouchers provided through salary sacrifice are remuneration and so an employer does not have to continue to provide them during maternity leave.

This decision should be distinguished from cases where employers provide vouchers as a benefit additional to salary. In such cases, Regulation 9 of the MPL Regulations requires that vouchers continue to be supplied during maternity leave.


While in theory employers may wish to rely on this case to change how they deal with the provision of childcare vouchers during maternity leave it is worth noting that the EAT gave its decision tentatively, acknowledging that there may have been legislative or policy considerations it had not taken into account. In particular, employers should be aware that changing the rules for current members now as a result of this case could amount to a breach of contract, and so legal advice should be taken before any changes are made. Employers may therefore wish to hesitate before following this decision to see if further case law develops to confirm the position.

Regardless of new cases, any changes will be relatively short-lived given the government’s new tax free childcare scheme which comes into force in early 2017. Existing schemes will be closed to new entrants from April 2018.