childcare vouchers

Benefits

Childcare vouchers vs tax free childcare

childcare vouchers
After a long period of uncertainty, the Government closed the childcare voucher scheme to new applications from October 2018. Fortunately, those employees already enrolled in the scheme will be able to continue with it, and the scheme will continue to run in the same way it always has.

A new tax free childcare scheme has been set up and is being run by the Government, and employers will have no involvement with the administration of the scheme.

Employees may currently choose to take childcare vouchers or tax free childcare, and which scheme is right for them will depend upon their own circumstances.

These are the key differences between the 2 schemes.

Childcare vouchers vs tax free childcare

Childcare vouchers
 Tax free childcare
All working parents enrolled in the scheme can continue to take childcare vouchers even if their spouse/partner doesn’t work, or works less than 16 hours per weekBoth parents must be working at least 16 hours per week and earning at least £115 per week. Parents who earn over £100k cannot apply
Standard tax payers save 32% and higher rate tax payers save 42%Everyone saves 20%
Maximum annual saving £933.12 per working parent (£1,866.24 if both parents participate)Maximum annual saving of £2,000 per child
For children up to 15 or 16 with a disabilityFor children up to 12 or 17 with a disability

 

In summary:

  • Parents with older children and those with modest childcare costs (which tends to be the case with school age children) will probably be better off continuing with childcare vouchers
  • Tax free childcare may be the better option for parents with at least one very young child and significant childcare costs.
  • Parents with older children (unless they have a disability) may be better off with childcare vouchers as tax free childcare can only be used for children up to 12 years old. childcare vouchers can be used for children up to 15 years old.
  • Employees who earn more than £100k pa and/or whose spouse or partner works less than 16 hours per week and earns less than £115 per week will be ineligible for tax free childcare so childcare vouchers will be the best option.

 

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