For a number of years employers have been able to offer their employees (and directors) a childcare voucher scheme whereby the employee is able to sacrifice up to £243* per month of their salary towards registered childcare. The employee benefits from the fact that this amount is not subject to tax or NI.
*the amount you can sacrifice reduces to £124 for higher rate tax payers and £110 for additional rate tax payers.
From April 2018, although existing schemes will continue, employees will no longer be able to join these childcare voucher schemes, as they are being replaced by Tax-Free Childcare which comes into effect from April 2017.
What is Tax-Free Childcare?
Tax-Free Childcare is a Government backed initiative whereby working parents can apply through Childcare Choices to open a childcare account, into which they can pay money to use towards registered childcare. For every £8 paid into the account, the Government will top up a further £2, up to a maximum of £2,000 per child, per year (increased to £4,000 for a disabled child). The Government top-up is instant and you can pay the childcare provider directly from the childcare account.
Which is the best option for me?
There is unfortunately not a “one size fits all” option for the childcare solutions and you are not allowed to use both schemes. It is important to consider your personal circumstances and there are a number of online calculators available to assist you. In the table below we have compared the basic elements of each scheme.
Please be aware that both Tax-Free Childcare and Childcare Vouchers can impact the amount of Childcare related tax credits you may receive so if you are eligible for these, additional care is required.
|Tax-Free Childcare||Childcare Vouchers|
|How much do I save?||A maximum of £2,000 per child per year is contributed by the Government.||A basic rate tax payer can save around £930 per year.|
|Who can pay for the childcare?||Working parents apply but families and friends can pay in.||Childcare Vouchers are only available to parents and guardians, although both parents can claim them.|
|How many children can I claim for?||At present there is no limit, the Government will contribute up to £2,000 per child.||There is no limit to the number of children, however the maximum of £243 is per parent regardless of the number of children.|
|Can anyone apply?||Working parents can apply for the Tax-Free Childcare, even self employed, if their income is at least £120 per week, and not more than £100k per annum. Both parents must work to apply.||Childcare Voucher Schemes have to be offered by your employer for you to be able to apply for them. Voucher deductions cannot drop your pay below the minimum wage and higher earners get less benefit from them.|
|Can I pay in forever?||Tax-Free childcare is only available until your child is 12 (17 for a disabled child)||Childcare vouchers are available until 1 September after your child’s 15th birthday (16th birthday if they are disabled)|
|What is childcare?||All childcare providers registered with Childcare Choices, including Nannies, Nurseries and After-school clubs.||All childcare providers registered with Ofsted, including Nannies, Nurseries and After-school clubs.|
‘* The amount available to sacrifice is reduced for higher and additional rate tax payers.