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Childcare Vouchers and the Tax-Free Childcare Scheme – FAQ’sWritten on February 7, 2018 by Kirk Rice LLP

Childcare Vouchers and the Tax-Free Childcare Scheme – FAQ’s

With the new Tax-Free Childcare scheme coming into effect from 5th April 2018, here are some answers to the burning questions you may have…

What are Childcare vouchers?

Currently, employers  can offer their employees a Childcare Vouchers salary sacrifice scheme allowing employees to pay towards their childcare from their PRE-TAX salary. This scheme allows employees to save up to £930 a year (for 20% tax payers) in tax and employee National Insurance Contributions (NIC). Employers can also save up to £402 a year (again, for 20% tax payers) in employer NIC for each employee on the scheme. Existing schemes close to new applicants in April 2018 because of the new Government-backed Tax-Free Childcare.

What is Tax-Free Childcare?

Tax-Free Childcare (TFC) will not be offered through employers, it is different to childcare vouchers and will work more like an online savings account. Parents pay money into an account from their net pay (so after tax and NIC have been deducted) and then for every 80p they pay in, the government adds 20p. The government will pay in a maximum of £2,000 per child per year, which means the parents have to pay in £8,000 per child per year to reach the maximum government contribution. TFC will benefit self-employed people who earn less than £100,000 each, as they’re eligible for Tax-Free Childcare, but can’t get Childcare Vouchers. It will also benefit parents with more than one child and high childcare costs, as the help available goes up with the number of children.

When is this happening?

As of 5th April 2018 employees will no longer be able to register for an employer Childcare Voucher scheme. For those already in one, or importantly, those who register before 5th April 2018 the scheme will continue. Please note, at least one deduction from salary must have been made before 5th April 2018 so effectively employees must join an employer scheme in time for their March payroll.

What is the eligibility criteria for each?

Tax-Free Childcare (TFC)

Childcare Vouchers

  •  Anyone can apply – both employed and self-employed
  •  Only available if an employer offers them
  •  £120 per week minimum earnings – if a couple, both parents must work
  •  No minimum earnings – one parent needs to work
  •  Child’s maximum age of 11 (16 if disabled)
  •  Child’s maximum age of 15 (16 if disabled)
  •  Maximum income limit of £100,000 per parent
  •  No maximum income limit

How will employees know what’s best for them?

Employees already using the current Childcare Voucher scheme will need to weigh up the pros and cons of each and decide which will provide the best value in the long term. Eligibility issues aside, the amount of money a family spends on childcare and their tax bracket will determine whether it is more beneficial to remain with the childcare voucher scheme or use the new TFC.

In general, TFC is likely to be the best option for a family with more children and a higher childcare cost. Whilst Childcare Voucher schemes are likely to remain the best option for a family with fewer children and lower childcare costs.

Any employee in doubt of which scheme is best for them could join an employer Childcare Voucher scheme before the April 2018 deadline, they are then in a position to switch to TFC in the future if they decide it’s a better scheme for them. To help make the right decision, see the government’s website www.childcarechoices.gov.uk.


 Employer Supported Childcare

Any reader interested in discussing this topic further can telephone Maxine Guest in our Ascot office on 01344 875000 or alternatively email info@kirkrice.co.uk

If you would like to receive Kirk Rice’s Financial Services Questions or Taxing Times Questions regularly by email, simply email info@kirkrice.co.uk stating Taxing Times in the subject heading and we will add you to our distribution list.

Please note: advice is given for general guidance only and specific advice should be taken before acting on any of the suggestions made.