For many families, childcare vouchers will save them more money than Tax-Free Childcare (TFC). Help your parents understand what’s best for them.
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Useful downloads so you can explain the difference between TFC and childcare vouchers.more
How childcare vouchers work today
Childcare vouchers are a Government-approved, tax-efficient way of paying for childcare. By joining their employer’s scheme parents can exchange up to £243* a month for childcare vouchers, which they can use to pay for registered childcare.
However, childcare voucher schemes, like the one we offer, will close to new entrants in October 2018.
Parents new to childcare vouchers must join a scheme and receive a childcare voucher by the closing date.
If they’re already registered for childcare vouchers they must receive at least one voucher in every rolling 12-month period through their current employer. If it’s more than 12 months since their last childcare voucher, their eligibility has lapsed, so they need to receive one by the closing date to stay on the scheme.
After the closing date, TFC will be the only scheme open to new joiners, assuming they're eligible.
*Please take a look at ‘The nitty gritty’ below to get into the detail.Close
The Government has introduced a new scheme called Tax-Free Childcare (TFC). TFC is different to childcare vouchers, and will not be offered through employers.
TFC works a bit like a savings account - parents will need a separate account for each of their children. They pay money into the account from their net pay, so it’s taken after tax and National Insurance have been deducted. Then for every 80p parents pay in, the Government adds 20p. Parents will need to pay in £8,000 to reach the maximum Government contribution of £2,000 per child per year.
When Tax-Free Childcare (TFC) first launched in early 2017 it was only offered to parents of children who were under 4 years of age on 31 August 2017 (or who had their 4th birthday on that day). HMRC rolled out TFC to children under 6 on 24 November, children under 9 on 15 January, and children under 12 years old on 14 February 2018.
Government has also promised to make further improvements to the online application system, which has seen some issues. This means almost all parents should receive a response within five working days, and most get their decision instantly.
From October 2018 parents will lose the right to sign up to a childcare voucher scheme through their employer. However, anyone already registered for childcare vouchers – and has received one in the last rolling 12-month period - can continue taking them for as long as they remain eligible.
Some parents will be better off with the existing childcare voucher scheme. Parents can use our interactive decision tree to help them make an informed decision about what’s best for them.Close
TFC in a nutshell
Here’s what we know so far:
- Parents can only use it for children under the age of 12, or 17 for children with disabilities
- Parents will need to set up a separate TFC account for each child they use registered childcare for
- Parents can only use TFC if both parents are in work, unless they are a lone working parent
- Parents can only use TFC if both parents meet the minimum income level i.e. they must reasonably expect to earn the equivalent of 16 hours National Living Wage/National Minimum Wage a week (from April 2018 this is £125.28 per week on average) for the next 13 weeks
- Parents can’t use TFC if they or their partner (if they have one) earn more than £100,000 a year
- Parents can use TFC if they’re self-employed
- Parents can’t use TFC if they receive tax credits or the childcare element of Universal Credit
- TFC can only be used to pay for childcare during the hours they are at work
- Parents who work outside the UK for longer than 6 months can’t register for TFC
If you receive payment via childcare vouchers today, nothing will change
We’re committed to managing our childcare voucher schemes for as long as employers choose to offer it to their staff.
Parents who switch to TFC may still have a balance left on their childcare voucher account, so you may be paid from both schemes for a while.
Parents who decide to continue with childcare vouchers will pay you in the same way as before.Close
- Help your parents understand their options
The nitty gritty
*Figures quoted are the maximum available savings for a Basic rate taxpayer. Higher and Additional rate taxpayers may save around £623 a year. Savings will depend on each parent’s circumstances.Close