Childcare Vouchers

THE NEW GOVERNMENT TAX FREE CHILDCARE SCHEME AND CHILDCARE VOUCHERS

TAX-FREE CHILDCARE
‘Tax-Free Childcare’ will be launched early 2017. There will be some definite changes for parents currently using childcare vouchers, such as the maximum age of a child. You’ll be able to use the scheme for your child up to the age of 12 years (currently 15 years), but up to the age of 17 years if your child has disabilities (currently 16 years).

In terms of money, you will receive 20p from the government towards your childcare, for every 80p you contribute. They say this is the equivalent of the tax most people pay (i.e. 20%), hence their catchy phrase, ‘tax-free childcare’. Their maximum contribution in a year is £2000 for your £8000. If your child has disabilities, the support rises to £4000.

That is more than the maximum of £243 that can be claimed each month by each parent under the present system. You should also consider that the present Childcare Voucher system can only be used by employees, and only if the Employer has joined the scheme. However, there are other things to weigh up with the changes, to make sure what you choose works for you:

The new system requires both parents in the household to be working, or one parent in a single-parent family, in much the same way that the new 30 hours funding system will work. To qualify, parents will have to be in work, and each earning just over an average of £100 a week and not more than £100,000 each per year. The scheme will also be available to parents on paid sick leave and paid and unpaid statutory maternity, paternity and adoption leave.

If you’re in a household where only one of two parents work, you can remain on the current childcare voucher scheme for as long as as your employer offers it. If you’re not on it at the moment, but you prefer it to the new system, you need to start using it. Once ‘tax-free childcare’ begins, the childcare voucher scheme will be frozen to new entrants.

You’ll have an account that you create from following the link at https://www.childcarechoices.gov.uk/ In that account, you will input various details about income and employment which will be checked by the HMRC. You’ll then pay in your contribution, to be added to by the government contribution. Using a drop-down menu, you’ll allocate where your childcare payment goes. You will only be able to use the funds for childcare that is registered officially e.g. through Ofsted.

With your account, you as well as family members, employers, can also pay in, as and when you like. The government hopes this means you can build up your balance when it’s convenient to you, and use it when you may need childcare more than usual eg during school holidays. If you’ve built up a balance and no longer need it, you can withdraw the money… although the government will withdraw their contribution too.

Childcare vouchers will help save money on your childcare bill. But make sure it is the right scheme for you first. That’s because for those parents who are able to claim tax credits, childcare vouchers may affect how many tax credits you can claim.
So if you get tax credits, go to the Childcare Indicator Calculator on the HRMC website to see whether you are better off.

If you don’t claim tax credits, childcare vouchers really do help. Any child up to the age of 15 years is eligible, or 16 years old if your child has a disability, and it can apply to areas such as:

Early Years childcare (and that includes Ofsted registered nurseries, childminders, nannies, au pairs), school’s extra-curricular activities that you pay for (think about tutor’s costs such as music lessons, though the tutor must be registered too), holiday clubs, before and after-school care.

It works as a ‘salary sacrifice’ scheme through your employer and can help you contribute up to £243/month to your childcare costs, for each working parent. So if you and your partner both claim, it adds up:

Basic-rate (20%) Taxpayer: £55/week voucher maximum annual tax/NI saving of £930.
Higher-rate (40%) Taxpayer £28/week voucher maximum annual tax/NI saving of £630
Top-rate (45%) Taxpayer £25/week voucher maximum annual tax/NI saving of £590

Typically, your employer has already selected a childcare voucher company for its employees. If your employer does not belong to a childcare voucher scheme, there are plenty it could use! It costs them nothing to join and could make you, the employee, feel your boss has your best interests at heart.

You choose how much of your salary you wish to ‘sacrifice’ to vouchers and the amount then comes from your gross salary, and that is how you benefit. £100 of salary gives you about £70, after tax and NI contributions. In childcare vouchers, it gives you the full £100.

As long as your child has already been born, you can also ‘bank’ your vouchers if, for example, you don’t use your full allowance in present circumstances. You may go on maternity leave and can start saving them up before you start using a childcare provider; or you may be on maternity leave with a second (or more!) child, and you can start banking them whilst you’re at home with baby.

This scheme is due to end in 2017, when a new government scheme takes over and it’s called ‘Tax-Free Childcare’. This new scheme was due to launch later this year, but two Childcare Voucher companies challenged it in court, not surprisingly. Delays mounted up and the new launch date is now 2017.

The new scheme is for working parents who will receive 20% towards childcare costs, up to a maximum of £10,000 per year of childcare costs.

The advantages with the new scheme are that you can save more money; self-employed can claim, whereas you have to be an employee with childcare vouchers; you benefit for more than one child, whereas vouchers do not increase with the more children you have.

However, some will lose out – couples where one parent doesn’t work; basic rate tax-payers and higher-rate tax payers, where the savings are not as great.

Useful site links for more information:

Tax-Free Childcare: 10 things parents should know

www.gov.uk/government/news/tax-free-childcare-10-things-parents-should-know

‘Kiddi Vouchers’ has put together a calculator to see which scheme is best for you:

www.kiddivouchers.com/tax-free-childcare-savings-calculator.php

One thing you must do is look into Childcare Vouchers, as they are the schemes on offer at the moment, and you can benefit. These are some of the companies your employer may use:-

  • Allsave Limited
  • Apple
  • Busy Bee Benefits
  • Care-4
  • ChildcareVouchers.co.uk
  • Co-operative Employee Benefits
  • Computershare
  • Early Years Vouchers
  • Edenred
  • Employers For Childcare (a not for profit organisation)
  • FairCare
  • Fideliti
  • Gemelli
  • Kiddivouchers (donates at least 5% of profits to charity)
  • Kids Unlimited
  • PES
  • Saycare Pass
  • Voucher Solutions
  • Vouchers4Kids

We are registered already with many, and for those we are not, we can be quickly if you use them. If you require any further help setting up childcare vouchers, please call us on 0113 268 6141 or contact us via the website.

Thank you