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An update on changes to childcare vouchers


The Queen’s speech, in June this year, included plans for a new scheme to help working parents with their childcare costs.
 
The new scheme, called Tax-free Childcare (TFC), will launch in autumn 2015 and will work very differently to the current Employer-supported Childcare (ESC) scheme, commonly referred to as childcare vouchers, run by your employer. At present, it looks like TFC will be run by the Government, through HMRC and National Savings & Investments (NS&I).
 
Not everyone will be eligible for the new TFC scheme so, to make sure you have the choice of which scheme suits you best, you need to remain enrolled on your employer’s childcare voucher scheme until at least the TFC launch, which is likely to be at the end of 2015 or early 2016.
 
If your existing scheme suits you best, this will mean you can continue using it.  However, once TFC launches you won’t be allowed to register for your employer’s childcare voucher scheme.
 
How is TFC different to the current scheme?
 
TFC has much more complex eligibility requirements: 
  • If you are part of a two-parent family, then both of you have to be in work to be eligible for TFC, each earning less than £150,000 a year and not receiving the childcare element of Universal Credit.
  • TFC is also open to self-employed parents, whereas the current scheme is not.
  • TFC will only be available for children under 5 initially or under 17 for children with disabilities, extending to all children under 12 within the first year (the current scheme is open to children aged under 16, or 17 if registered disabled).
Another key difference is how you pay in to the scheme:
  • The current scheme works as a salary sacrifice deduction, so you save tax and NI on your childcare vouchers. Under TFC, you will pay directly into TFC from your bank account (your employer is not involved).
  • However, for every 80p you pay in, the Government will top up 20p, up to a maximum £2,000 per child, per year.
This means that there will be many of you who are not eligible to join TFC or who would be better off staying with your employer’s childcare voucher scheme.
 
The existing childcare voucher scheme will stay open for parents who use it now
 
It has become clear that there is a lot of confusion about the impact of TFC on the current childcare voucher scheme.
 
Childcare vouchers won’t stop once TFC launches. They will continue to run if you’re already using them, but you won’t be able to join one of these schemes once TFC launches.
 
If you are already using your employer’s childcare voucher scheme you will still receive the same tax and NI savings if you continue to use it.
 
When TFC launches, if you are eligible for the new scheme you will have the choice to either remain in childcare vouchers or switch to TFC, depending on which suits you the best or saves your more. However, if you do choose to switch to TFC, you won’t be able to switch back to childcare vouchers at a later date.
 
Many parents will be better off with the existing childcare voucher scheme
 
We recently conducted a survey which you may have filled in for us.
 
One in five parents (that would not be eligible for TFC) told us that they or their partner would have to give up work if they did not have access to childcare vouchers.  A further 38% told us that they or their partner would have to reduce their hours if they didn’t have childcare vouchers.
 
Only 18% of parents told us that they thought they would be better off with TFC.
 

If you are in one of the following categories, it is likely that you would be better off staying with childcare vouchers:

 



 

With the high cost of childcare in the UK, it is important that you don't miss out on childcare vouchers, especially if you won't be eligible for the TFC scheme.

 

 

​Over the last five years childcare costs have risen 27% - parents pay £1,214 more in 2014 than they did in 2009.

What next?

 

To ensure you have a choice of scheme when TFC launches, you will need to be registered on your employer's childcare voucher scheme.