For many families, childcare vouchers will save you more money than Tax-Free Childcare (TFC). It’s important you know which is best for you.
FIND OUT MORE
Watch interviews with parents and use our interactive decision tree to work out what’s best for you.more
How childcare vouchers work today
Childcare vouchers are a Government-approved, tax-efficient way of paying for childcare. By joining your employer’s scheme you can exchange up to £243* a month for childcare vouchers.
The money you choose to spend on childcare vouchers is taken from your gross pay. This means it’s taken before tax and National Insurance is deducted, so you save up to £933* a year. And when both you and your partner (if you have one) join a scheme you can double your potential savings to £1,866!
You can use the vouchers in your account to pay for childcare for any of your children.
*Please take a look at ‘The nitty gritty’ below to get into the detail.Close
So what’s changing?
The Government has introduced a new scheme called Tax-Free Childcare (TFC). TFC is different to childcare vouchers, and will not be offered through your employer.
TFC works a bit like a savings account - you need a separate account for each of your children. You pay money into the account from your net pay, so it’s taken after tax and National Insurance have been deducted. Then for every 80p you pay in, the Government adds 20p. You will need to pay in £8,000 to reach the maximum Government contribution of £2,000 per child per year.
TFC has now launched. So far, it's only being offered to parents of children who were under 4 years of age on 31 August 2017. Parents of older children will be able to use TFC soon.
From April 2018 you will lose the right to sign up to a childcare voucher scheme through your employer. However, if you already take childcare vouchers, you can continue taking them for as long as you remain eligible.
Assuming you’re eligible for both schemes, some working parents will be better off with TFC and some will save more with childcare vouchers. If you use (or plan to use) registered childcare, and to ensure you have a choice, register on your employer’s childcare voucher scheme today and give yourself the luxury of time to work out what’s best for you and your family, based on your circumstances over the long term. (It's also worth knowing you can't switch from TFC to childcare vouchers. But you can switch from childcare vouchers to TFC).Close
Tell me about TFC
Here’s what we know so far:
- You can only use it for children under the age of 12, or 17 for children with disabilities
- You will need to set up a separate TFC account for each child that you use registered childcare for
- You can only use TFC if both parents are in work, unless you are a lone working parent
- You can only use TFC if both parents meet the minimum income level. The minimum income level means you must reasonably expect to earn the equivalent of 16 hours National Living Wage rate a week - from April 2017 this is £120 per week on average - for the next 13 weeks. If you are under 25 or are an apprentice, you must expect to earn the equivalent of 16 hours a week at the National Minimum Wage rate which applies to you.
- You can’t use TFC if you or your partner (if you have one) earn more than £100,000 a year
- You can use TFC if you’re self-employed
- There are some benefits you or your partner (if you have one) can receive if you are in work whilst remaining eligible for childcare vouchers and TFC. However, you can’t use TFC if you receive tax credits or the childcare element of Universal Credit
- TFC can only be used to pay for childcare during the hours you are at work
- If you (or your partner) work outside the UK for longer than 6 months, you can’t register for TFC
To help you understand your options, we’ve been out to interview a range of parents with different family situations. Watch the interviews.Close
How do I know which scheme to use?
When tax and National Insurance calculations are involved, we know that it can be difficult to work out what’s best for you. We’ve put together a decision tree which we hope will make it as easy as possible.
After April 2018, you'll lose your right to sign up to childcare vouchers. But, if you’re already in your employer’s childcare voucher scheme, you can take your time to work out which scheme is better for you and your family, based on your circumstances at that time.
However, once you sign up for TFC, you can't start taking childcare vouchers again, so it's important that you know which is better for you.Close
What if my situation changes in the future?
The money you could save with TFC will vary depending on your circumstances, so predicting which scheme will be best for you in the future can be hard if your situation is likely to change.
To make sure you don’t miss out, you should put yourself in a position where you can choose whether to switch to TFC or stay with childcare vouchers. Once you’ve joined TFC you can’t switch back.
Your eligibility for TFC could be affected by:
- Promotions, redundancy, salary changes
- The age of your children
- Whether you leave your current employer
- If you’re thinking about extending your family
- If you or your partner stop work
- If you’re thinking about becoming self-employed, or leaving self-employment
What do I need to do now?
TFC has now launched, but the existing childcare voucher scheme will remain open to new entrants until April 2018.
If you decide to register for TFC, you can keep taking childcare vouchers through your employer for three months after you first use TFC, but you must then cancel your voucher order. Crucially, once you join TFC, you can’t switch back to your employer’s childcare voucher scheme at a later date.
After April 2018, you won’t be able to sign up to a childcare voucher scheme through your employer, and TFC will be your only option (if you’re eligible). If you already take childcare vouchers, you will be able to continue taking them as long as you remain eligible.
So, to ensure you have a choice, register on your employer's childcare voucher scheme today and give yourself the luxury of time to work out what’s best for you and your family, based on your circumstances.
If your employer doesn’t offer childcare vouchers, let us know and we’ll contact them.Close
The nitty gritty
*For parents joining a childcare voucher scheme after 6 April 2011, the amount of childcare vouchers you can request each month is capped at £243 for a Basic rate taxpayer, £124 for a Higher rate taxpayer and £110 for an Additional rate taxpayer. If you joined your employer's childcare voucher scheme before 6 April 2011, you can request up to £243 a month (£55 a week) in childcare vouchers, regardless of your tax status, providing you remain in the same employer's scheme.
Figures quoted are the maximum available savings for a Basic rate taxpayer. Higher and Additional rate taxpayers may save around £623 a year. The savings you make will depend on your circumstances.Close