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Childcare Vouchers vs. Tax-Free Childcare – who are the winners?

Posted on 26 February 2018

Update: Since this article was originally published the government has extended the deadline to join a Childcare Vouchers scheme to October 2018. The precise date in October is yet to be confirmed by HMRC. All other information provided in this article remains relevant.

 

Childcare Vouchers will be closed to new joiners from 6th April 2018 and replaced by Tax-Free Childcare (TFC) from the government.

However, as This Is Money flagged, many families will be better off on the existing Childcare Vouchers scheme, and parents will only be able to receive the full advertised £2,000/year savings through TFC if they have childcare costs of £10,000/year. The average UK expenditure on childcare, however, is just £3,700/year.

Families, particularly those on average wages could be hundreds of pounds worse off under Tax-Free Childcare than with Childcare Vouchers.

Who are the winners for each scheme?

It’s impossible to say that one scheme is better than the other. What is right for you will depend on both your current and future circumstances (e.g. an increase in earnings or stopping work could mean you are not eligible for some childcare support). And what will be better for one family will not be the same as for another.

But generally speaking, as Money Saving Expert identified, there are distinct groups of winners for each scheme:

Childcare Vouchers:

  • Couples where one parent doesn’t work (or earns less than £120/week)
  • Basic-rate taxpayers with childcare costs of £9,336/year or less
  • Higher-rate taxpayers with childcare costs of £6,252/year or less
  • Parents who earn £100k+/year
  • Parents with childcare costs for children aged between 12 and 15
  • Parents who claim Child Tax Credits or Universal Credit with Childcare Vouchers, where combined savings exceed those offered by Tax-Free Childcare

Tax-Free Childcare:

  • The self-employed
  • Some parents with more than one child
  • Basic-rate taxpayers with childcare costs higher than £9,336/year
  • Higher-rate taxpayers with childcare costs higher than £6,252/year

Information and figures provided are for general guidance only. Please note, we are unable to provide advice on individual circumstances.

Keep your options open

If you’ve yet to join a Childcare Vouchers scheme and would like to benefit from the savings, you must be in receipt of your first vouchers by 5th April 2018. This means you will need to join by your March payroll – please speak to your employer to confirm when this is in your company.

To join (or rejoin) the Childcare Vouchers scheme, speak to your employer or HR department straight away – they will also be able to advise you when the cut-off date for applying is in your organisation.

However, if you are already receiving Childcare Vouchers by 5th April 2018 then you can continue to use them for as long as:

  • You remain with your current employer
  • Your child is eligible
  • You receive at least one voucher payment within a 12 month period

If you leave Childcare Vouchers to join Tax-Free Childcare you will not be able to re-join.

If you’re unsure, remain on the Childcare Vouchers scheme to keep your options open. For example, you could keep your account active by contributing from as little as £1/month*.

For more information on the changes, download our ‘Parent’s Guide to Childcare Vouchers & Tax-Free Childcare’.

 *Minimum contribution may vary – please check with your employer