From April 2018, childcare voucher schemes will be closing to new applicants. Employees who have already signed up to a company’s scheme will be able to keep receiving vouchers, but they will not be able to re-join the scheme if they leave or move to another employer.
The current childcare voucher scheme is being replaced by tax-free childcare, however the two arrangements do not operate in exactly the same way so it is important for parents to consider which scheme will be most beneficial.
It is not yet clear how long the current childcare voucher scheme will continue to exist before it is closed completely, so employers can continue to offer the current child care voucher scheme to existing claimants until further notice.
What’s the difference?
Factors to consider are how many children there are, the cost of current childcare and the applicant’s tax rate.
Childcare vouchers (current arrangement)
The current childcare scheme is offered to parents through their employers, allowing them to pay for childcare costs via salary sacrifice. This means that childcare is paid for from an individual’s gross income (before tax and national insurance).
Basic-rate taxpayers can claim up to £243 of childcare vouchers each month (£55 per week), per parent, so two working parents could get £486 of vouchers each month.
Tax-free childcare (new arrangement)
The government will pay parents 20p for every 80p they spend on childcare, with a maximum contribution of £2,000 a year per child.
The government will pay £2 for every £8 paid to a childcare provider via an online account through gov.uk. The scheme only applies to approved childcare.
To qualify, parents will have to work 16 or more hours, and each earn at least £115, per week, but no more than £100,000 each per year. The scheme is available for children up to the age of 12, or 17 for children with disabilities. Parents can apply even if they are self-employed.
Which scheme is best?
According to Martin Lewis’ MoneySavingExpert website, the new Tax-Free Childcare scheme is the best option if a parent has lots of children and has high childcare costs.
SJHR recommends that employers should communicate these forthcoming changes to their workforce and direct employees to www.gov.uk, where there is a childcare calculator to help work out which arrangement is best.
This article has been compiled by SJHR. Every care has been taken in researching the content of this document, but should not be relied upon as specific legal advice. The author cannot be held responsible for any errors or omissions.