Out With the Old, In With the New: ‘Childcare Voucher Scheme’ Depreciated with ‘Tax-Free Childcare’ to Replace
Phasing out of the Childcare Voucher Scheme
Following changes made to childcare vouchers, the following schemes are closed to new applicants:
- childcare vouchers
- childcare your employer arranges with a provider (known as ‘directly contracted childcare’)
If you joined one of these schemes on or before 4th October 2018, you may be able to continue receiving vouchers or directly contracted childcare.
You can keep getting vouchers or directly contracted childcare as long as:
- your wages were adjusted on or before 4 October 2018
- you stay with the same employer and they continue to run the scheme
- you do not take an unpaid career break of longer than a year
You can take up to £55 a week of your wages depending on the tax bracket you are in, which you do not pay tax or National Insurance on (find out more at https://www.gov.uk/help-with-childcare-costs/childcare-vouchers).
All Working Parents, Not Just ‘Employees’ are Eligible for Tax-Free Childcare – Good News for Contractors
What is Tax-Free Childcare?
Tax-Free Childcare launched in April 2017. You open up an online, state-run, Childcare account and for every 80p you put into it, the government adds 20p. You can get up to £2,000 a year for each child (£500 every 3 months), this would mean you are paying £8,000 a year and so the government is adding £2,000 towards your childcare costs.
You and your partner (if you have one) must be earning at least the National Minimum Wage or Living Wage for at least 16 hours per week. You are not eligible if you or your partner has taxable income of over £100,000.
You cannot continue to claim childcare vouchers or directly contracted childcare if you successfully apply for Tax-Free Childcare.
If you are still getting childcare vouchers and want to move on to tax-free childcare, you must tell your employer within 90 days if you get tax-free childcare. They will then stop giving you new vouchers or directly contracted childcare.
You can continue to use any vouchers you already have, including to make a joint payment for childcare with tax-free childcare. There’s no deadline for using your vouchers or directly contracted childcare.
Once you’ve told your employer that you’re getting tax-free childcare, you cannot re-join their voucher scheme or their directly contracted childcare scheme.
Pros and Cons of Tax-Free Childcare
|
Pros |
Cons |
|
Benefit available per child |
Can’t get if claiming some benefits |
|
Available to self-employed parents |
Can’t get if taxable income is over £100k |
|
Savings can increase more if childcare costs are high |
Both parents must work to qualify |
Pros and Cons of Childcare Vouchers
|
Pros |
Cons |
|
No HMRC eligibility checks |
Employer may not offer it |
|
You could save more depending on your childcare cost and company setup |
Can’t get it if self-employed |
|
Both parents do not have to work |
Savings can be less if care costs are high |
Tax-Free Childcare – What to do?
1. Check that you are eligible and ensure the childcare provider is approved. Approved childcare is usually provided by one of the following:
- registered childminder, playscheme, nursery or club
- childminder with an Ofsted-registered childminding agency
- registered school
- home care worker working for a registered home care agency
2. If you are already using childcare vouchers or directly contracted childcare, compare the financial benefits to you between this method and tax-free childcare.
3. Apply for tax-free childcare and if you are eligible, a childcare account will be created for you.
4. You can then use the online account to pay your childcare provider.
5. Every 3 months, you will be required to sign into your childcare account and reconfirm your details.
If you would like to speak to a member of the Gorilla Accounting team, call 0330 024 0406 or email info@gorillaaccounting.com.
