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What is Tax-Free Childcare?

Childcare costs are on the rise making it difficult for parents to return to work. The Government wants to make childcare more affordable so that parents are able to pursue career aspirations whilst young children receive high quality childcare which has been proven to improve children's life chances.

The Government announced the introduction of the Tax Free Childcare scheme at the 2013 Budget and initiated a Government consultation with a number of stakeholders, which included Parents, Employers, Childcare Voucher providers and Childcare providers.

The current Childcare Voucher scheme allows working parents which attracts both employee tax and NI savings, as well as offering employers relief on Employer NI contributions.

Childcare Vouchers are now closed to new joiners, the deadline was the 04th October 2018. The Government’s Tax Free Childcare Scheme has been launched and is available to all eligible families.

 

Download our FAQ
 

 

The current childcare voucher scheme has been replaced with tax free childcare allowing parents a payment of up to £2,000 per child up to the age of 12 years old (4,000 if registered disable and under the age of 17).
 
 

The table below details information on how the current Employer Assisted Scheme and the Tax Free Childcare compare:

 
 
 
  Employer Assisted Childcare Scheme: Childcare Vouchers Tax Free Childcare Scheme
Savings Each working parent can save £933, the savings are doubled to £1,866 for parents who both work. Employers make 13.8% Employer National Insurance savings. Parents can save up to £2,000 per child, per year. There is no Employer saving
Eligibility of Child Available for children up to the age of 15 (16 if disabled) Available for children up to the age of 12 (17 if disabled)
Employed Parents in the Family Only requires 1 parent to work to qualify Both parents must work to be eligible (unless single parent)
Income Criteria Parents who earn above the National Minimum Wage are eligible Each parent must earn a minimum of £120 per week.The upper limit for earnings is £100,000.
Commencement Date Currently in place and offered to working parents where their Employer has signed up to the scheme The scheme will begin rollout from April 2017 and will be available to all eligible families by the end of 2017.
 
 
 

The Tax Free Childcare scheme is solely administered by National Savings & Investments (NS&I), rather than several providers as the current Employer Assisted Scheme is. The Government has designed a gateway that enables parents to register for the scheme and open a childcare account; pay in their money, receive Government top-ups and manage their childcare costs. Parents are expected to confirm their eligibility every quarter in order to qualify for the Government top-up.

The Government will top-up 20p for every 80p that the parent contributes with the maximum level being up to the value of £2,000 per child (or £4,000 is disabled), per year.

The Government has produced a calculator to help parents understand what savings they can make. To see what you can save click on this link: www.gov.uk/childcare-calculator

 
 
 
Scenario Level of monthly childcare fees after which the Government's proposed Tax Free Childcare Scheme will be a better option
Single parent, basic rate taxpayer £389
Single parent, higher-rate taxpayer, joined childcare vouchers before 06th April 2011 £389
Single parent, higher-rate taxpayer, joined childcare voucher after 05th April 2011 £260
Working couple, both basic rate taxpayers £778
Working couple, 1 basic rate taxpayer and the other higher rate taxpayer, who joined a childcare vouchers scheme after 05th April 2011 £649
Working couple, both higher-rate taxpayer who joined a childcare vouchers scheme after 05th April 2011 £520
 
 
 

Example #1, below shows how a single parent paying basic rate tax with 1 child under 12 years is affected by each scheme depending on their level of childcare cover:

Monthly
Childcare
Annual
Childcare
Savings under current
Childcare Vouchers
Savings under new
Tax Free Childcare Scheme
£350 £4,200 £933 £840
£700 £8,400 £933 £1,680
 
 
 

Example #2, below shows how a working couple both paying basic rate tax with 1 child under 12 years is affected by each scheme depending on their level of childcare cover:

Monthly
Childcare
Annual
Childcare
Savings under current
Childcare Vouchers
Savings under new
Tax Free Childcare Scheme
£700 £8,400 £1,866 £1,680
£800 £9,600 £1,866 £1,920
 
 
 

Example #3, below shows how a couple with only 1 partner working and paying basic rate tax with 1 child under 12 years is affected by each scheme depending on their level of childcare cover:

Monthly
Childcare
Annual
Childcare
Savings under current
Childcare Vouchers
Savings under new
Tax Free Childcare Scheme
£700 £8,400 £933 £0*
£800 £9,600 £933 £0*
 

*Both parents must work to quality for the Tax Free Childcare Scheme

 

The following are useful links for further information on the Tax Free Childcare Scheme:

 
 
 
Download a copy of the Governments response to the Tax Free Childcare Consultation https://www.gov.uk/government/consultations/tax-free-childcare
Click on this link to view the 10 things that parents should know https://www.gov.uk/government/news/tax-free-childcare-10-things-parents-should-know
 
Sign-up today with a childcare voucher provider and start making the savings you are entitled to.
For more information call 0800 458 7929, email info@taxfreechildcare.co.uk or fill in the form below and a member of our team will get back to you.
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