Changes to Childcare Vouchers

May 29, 2015

Changes to Vouchers

The current system of allows working parents (but not those self-employed) to claim a degree of support to help pay for a registered childminder.

With a maximum monthly value of £243, vouchers can be bought by each parent with their salary before they are charged tax. Not having to pay tax or national insurance on each voucher can save basic rate taxpayers £930 annually.

In the autumn of 2015 this system will be replaced with a new one that will allow families to claim 20p of government support for every £1 they spend on a childcare. The scheme will have a limit of £10,000 placed on each child, which would lead to a government subsidy of £2,000.

Who is eligible?

The new scheme is open to both single parents who earn up to £150,000 or couples with combined salary of up to £300,000. It also applies to self-employed people, although families where one parent is not working will not be included.

The new scheme, currently entitled Tax-Free Childcare, will run alongside the existing Working Tax Credits that is available to lower-income families. It will run in 3 month entitlement periods where people can either pay, and receive their subsidy, monthly or in a lump sum at the beginning of quarter. This does mean, however, that people will have to reconfirm their inclusion in scheme every 3 months.

While only one parent will need to make the claim on behalf of a household, income details for both parents will need to be provided.
It is important to note that the current voucher scheme is not being replaced wholesale by the new Tax-Free Childcare one. Rather, members of the voucher scheme will be able to continue using it until their child reaches 15 on the condition that they do not change employer during that time.

Effect on employers

One of the biggest changes that the new scheme will usher in is that employers are likely to be significantly affected. Currently, employers also benefit from offering to contribute to childcare vouchers because they do not have to pay national insurance on the payments. But now that the voucher scheme will be closed to new joiners, businesses might reconsider offering vouchers.

A Summary of the main differences in the old and new schemes are:

  1. The new scheme both parents have to be working
  2. To save £930 a year in Tax and National Insurance on the old scheme you need to have £243.00 a month in childcare vouchers but to save £930 a year in the new scheme you need to have £387.50 a month in vouchers as it only saves Tax and no National Insurance savings.
  3. Higher savings can be made on the new scheme if used for higher fees.
  4. If parents want the old scheme they must register in it before August 2015 – even if their child is not yet attending childcare.