Tick-Tock! Time is running out!
Financial support for working parents is changing next month
Childcare vouchers, which save parents up to £933 a year on childcare, closes for new entrants on 4th October, making way for Tax-Free Childcare, another scheme that was launched last year.
If you want to join the childcare voucher scheme, you must do it before midnight on 4th October! Otherwise your only option will be the Tax-Free Childcare initiative. You can join Walker Smith’s voucher scheme by contacting us on [email protected] or on our website.
How are the two schemes different?
Both schemes reduce the cost of childcare, but one may suit your circumstances better.
For example, the vouchers are not offered by all employers, meaning that many people miss out.
Put simply, Tax-Free Childcare offers savings per child per year, while childcare vouchers offer savings per parent per year.
Currently, parents can claim childcare tax credit, or pay for childcare vouchers out of their salary before it’s taxed.
With childcare vouchers, each parent can take up to £243 each month from their salary before tax and National Insurance to spend on childcare, no matter how many children they have, as long as the parent is a basic-rate taxpayer. This saves parents around £930 a year.
The Tax-Free Childcare initiative is more like a savings scheme.
Parents have 20% of their childcare costs each year met by the Government, up to a limit of £2,000 a year per child, or £4,000 if your child is disabled.
Unlike with vouchers, self-employed people can take part, although there are some eligibility rules. Both parents (if they are together) must be working 16 hours a week and paid at least the national living wage of £7.85 an hour, if over 25, or £125.28 a week.
Tax-free childcare is unavailable to anyone who is claiming tax credits or universal credit; additionally if either parent earns more than £100,000, both parents are disqualified.
You can’t use both childcare schemes at the same time. But if you have children aged three or four you can use the initiatives alongside 15 or 30 hours of free childcare.
There are no eligibility checks – the scheme is available to parents or those who have responsibility for a child as long as their employer offers it.
Tax-Free Childcare benefits self-employed people and parents with high childcare costs, but will leave some basic-rate taxpayers and single parents worse off, according to one analysis.
So, which is better?
Groups such as self-employed people and workers whose companies don’t offer the childcare vouchers would be able to use the new scheme.
Those who will lose out under the new scheme include families where one parent works and the other doesn’t – they can claim vouchers but will be ineligible for Tax-free childcare.
Divorced couples might also run into difficulties. Whereas parents can buy childcare vouchers through their own employer, Tax-Free Childcare allowances are per child – so some negotiation may be needed.
For families in the basic-rate tax bracket who qualify for either scheme, anyone who spends less than £9,336 in total on childcare would be better off with vouchers. The same goes for those who pay the higher rate and spend less than £6,252 in total.
On the other hand, families with many children are more likely to benefit from Tax-Free Childcare, as the system works on a per-child basis rather than per parent.
If you have money to save and spend large sums on childcare, Tax-Free Childcare is also likely to be better as you can get up to £2,000 a year per child, whereas under the voucher system the maximum you can save per parent is £930 a year.
If you can, the best thing to do is to sign up for the voucher system now and start benefiting as early as possible – if the new system is better for you, you can then switch to it when you become eligible next year.
If you are still unsure, Sodexo have an excellent calculator to help you determine which option is the best for you.