In 2018, HMRC confirmed that childcare vouchers will close to new starters on 4 October 2018. For those who applied for the scheme up to that time, childcare vouchers will run in the same way as they always have. After October 2018, any employee who is in the scheme will be able to continue to receive childcare vouchers.
The 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:
Tax free childcare
|All working parents can apply for childcare vouchers even if their spouse/partner doesn’t work, or works less than 16 hours per week||Both 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 disability||For children up to 12 or 17 with a disability|
The above information shows that 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 with childcare vouchers.
Tax free childcare may be the better option for parents with at least one very young child and significant childcare costs.
A few important points to note:
- With the extension to 30 free hours per week in 2017 for 3 and 4 year olds, it seems likely that it will only be parents with very young babies and toddlers under 3 years old who will have large childcare costs (tax free childcare allows employees to save £2,000 if they deposit £8,000 so this would require an employee to be spending c£10k per annum on childcare to make this level of saving).
- 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.
If you don’t already offer childcare savings options for your employees and you’d like to find out more about this valuable benefit, please get in touch on 0333 2000 104.