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.
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.
Childcare voucher schemes, like the one we offer, will close to new entrants on 4 October 2018.
If you’re new to childcare vouchers you must join a scheme and have the value of your childcare voucher taken from your pay by the closing date. When the scheme closes to new entrants you can keep getting vouchers for as long as you remain eligible.
If you’re already registered for childcare vouchers you must have at least one voucher taken from your pay in every rolling 12-month period through your current employer. If it’s more than 12 months since your last childcare voucher, your eligibility has lapsed, so you 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 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 have the value of a childcare voucher taken from by 4 October. This will 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 that after the childcare voucher scheme closes 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 (for the 2018-19 tax year this is £125.28 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 (this includes all income, not just salary)
- 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 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 October 2018, you'll lose your right to sign up to childcare vouchers. But, if you’re already in your employer’s childcare voucher scheme, and you have received a childcare voucher from them in the last rolling 12-month period, you can take your time to work out which scheme is better for you and your family, based on your circumstances at that time.
You can switch from childcare vouchers to TFC at any time, even after October 2018, but once you register for TFC and officially cancel your childcare vouchers by completing a Childcare Account Notice (CAN), you can’t switch back to childcare vouchers later on.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 long term can be hard if your situation is likely to change.
To avoid missing out, join a childcare voucher scheme today. In the future you can choose whether to switch to TFC in the future or stay with childcare vouchers. It’s important to remember that if you join the TFC scheme and officially cancel your childcare vouchers by completing a Childcare Account Notice (CAN), you can’t switch back to childcare vouchers. But you can switch from childcare vouchers to TFC at any time, even after October 2018.
Your eligibility for TFC could be affected by:
• Changes in salary – either you (or your patner) won’t meet the minimum income level or you (or your partner) start to earn more than £100,00 a year
• The age of your children
• If you or your partner stop work, either voluntarily or through redundancyClose
What do I need to do now?
If you’re a parent registering for the first time (or a parent whose last childcare voucher was more than 12 months ago), a childcare voucher must be taken from your pay before the scheme closes. Once the scheme closes to new entrants you can keep getting vouchers for as long as you remain eligible.
If you’re already registered for childcare vouchers you must have at least one voucher taken from your pay in every rolling 12-month period to stay on the scheme.
After the closing date, TFC will be the only scheme open to new joiners.
If you decide to switch from childcare vouchers to 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 and officially cancel your childcare vouchers by completing a Childcare Account Notice (CAN), you can’t switch back to your employer’s childcare voucher scheme at a later date.
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.
If joining a scheme today, the maximum available tax and National Insurance for a Basic rate taxpayer. Higher and Additional rate taxpayers may save around £933 a year. The savings you make will depend on your circumstances.Close