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5 things you should know about changes to childcare funding

Posted on 23 July 2015

As a working parent you will have experienced first-hand the crippling cost of childcare frequently reported in the news.  Many reduce this cost using Childcare Vouchers (CCV).  Recent planned changes to childcare funding will impact any parent due to have or with a child under 15 years old.

Many parents will be financially worse off under the new scheme.  It’s important that you understand the impact these changes will have on your finances to make an informed decision about what action to take.

1. What are the planned changes to childcare funding?

Today parents whose employer has signed up to childcare vouchers can save up to £933 per year on the cost of childcare per child up to the age of 15.  The vouchers can be used to pay for any OFSTED registered childcare provision, including wrap around care at school and after school clubs held on the schools premises.

The Government has announced plans to introduce a new scheme called Tax Free Childcare (TFC) in 2017.

Under the new scheme parents can claim top-ups for childcare costs.  The government will add 20p for every 80p spent up to a limit of £10,000 per child, under 12 years old.  Parents will need to reconfirm their status and eligibility every 3 months.

2. Many parents are likely to be worse off under the new scheme

Analysis by think tanks and charities shows middle and low earning parents are likely to be better off with Childcare Vouchers than the new scheme.  This includes families with only one working parent; families whose children are only in childcare a few days a week and those whose children are over 12. 

3. The increase in free hours for 3-4 year olds has implications for TFC and CCVs.

The government confirmed in the summer budget that plans to increase free childcare for 3-4 year olds from 15 to 30 hours has been delayed to September 2017, although the scheme may be piloted in some areas earlier.

For an employer this scheme has the potential to attract more talented parents back into work but it has implications for Tax-Free Childcare.

It will reduce the number of hours of childcare a parent will need to purchase and in turn reducing their tax free saving.  Furthermore, free hours cover term-time only.  Free hours will therefore result in more parents being better off with Childcare Vouchers.

4. Childcare Voucher Schemes will continue to be around until 2033

From 2017 Childcare Vouchers will still operate alongside the planned government scheme but will be closed to new entrants.

This means any parent currently in the scheme will continue to benefit from savings until their child reaches 15.  Any parent wishing to benefit but not currently in the scheme must sign up before 2017.

5. Where to go for help to understand which scheme is best for you

The rules around tax-free childcare are complex and working out which scheme you will be better off under isn’t a simple financial comparison.  Other variables should be considered:

  • Do both parents work?  If not, they’re not eligible for TFC
  • Single parent?  TFC may be the better option as single parents only have half the entitlement to CCV as couples.
  • Children over 12 don’t qualify for TFC but do for Childcare Vouchers up to 15 years.
  • Do you receive other state benefits?  If so check with HMRC which scheme you will be better off under.

3 actions every parent should take to manage the changes to childcare funding in 2017

1. Work out which scheme you will be better off under

If your employer runs their childcare scheme through Edenred you can access detailed information and have your questions answered online at www.workingparentszone.co.uk

Parents that receive tax credits can use the HMRC calculator to work out the impact of childcare vouchers on tax credits.

For more information, book an appointment with a member of your HR team.  They will have all the information you need to work out whether you will be financially better off under the Childcare Voucher scheme or Tax-Free Childcare in 2017.

2. Maximize the benefit you receive from Childcare Vouchers

It’s important to understand the full range of the childcare provisions that Childcare Vouchers can be used for.  Many parents don’t realize they can bank unspent vouchers during term time and use these to pay for holiday clubs, tutoring and after school activities with an OFSTED registered provider.

They can be used for children up to the age of 15 years old, or 16 years old if the child is disabled.

Give your school the below link or print the poster out for them to encourage them to start accepting the vouchers. This will help save you and other parent’s money on your childcare costs.

Click here for the poster

3. Are you and your partner not signed up for Childcare Vouchers?

Ask your employer whether they have a scheme and how to sign up.  Remember the scheme will be closed to new entrants after 2017 but existing members can continue to use their vouchers. Both parents can take the vouchers to double their savings.