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Tools for parents
Working couple both paying Higher rate tax?
Here’s how one family is shaping up their options.
Are you a couple where one of you works and the other doesn’t?
This stay-at-home mum considers the future.
Both in work with high childcare costs?
With an expanding family, this proud dad discusses his family’s options.
Not using childcare vouchers at the moment?
This mum discusses her choices as she prepares to rely less on her parents for support.
Do you and your partner both pay Basic rate tax?
With one child in nursery and other turning twelve, this busy dad talks through his options.
Do you have a child with a disability?
If your child is registered disabled, it’s important you make the right choice for your family. This mum shares her thoughts.
Are you or your partner self-employed?
If one of you is self-employed, TFC is an option for you. This mum explains how she’s weighing up the situation.
Do you work part-time?
This mum grapples to understand whether TFC or childcare vouchers is better for her family.
Single parent relying heavily on childcare?
This mum has high childcare costs so it’s crucial she makes the right choice.
What are childcare vouchers?
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 are 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!
*For parents who joined 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.
What is Tax-Free Childcare (TFC)?
The government has introduced a new scheme called Tax-Free Childcare (TFC) to help working parents with childcare costs. TFC is different to childcare vouchers, and will not be offered through your employer.
TFC works a bit like a savings account, and you will need an account for each child. You pay money into an 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.
Crucially, from October 2018 you will lose the right to sign up to a childcare voucher scheme through your employer.
When is TFC launching?
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.
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.
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.
Do I need to do anything right now?
If you’re new to childcare vouchers you must join a scheme and receive a childcare voucher by October 2018.
If you’re already registered for childcare vouchers you must receive at least one voucher in every rolling 12-month period. If it’s more than 12 months since your last childcare voucher, you need to receive one by the closing date to stay on the scheme.
After October, TFC will be the only scheme open to new joiners.
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 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 receive a voucher before the closing date - and give yourself the luxury of time to work out what’s best for you and your family, based on your circumstances.
What if I’m on Maternity leave?
Is this your first child?
If so, you and your partner (if you have one) can register for your employer’s childcare voucher schemes as soon as your baby is born, but you must receive a voucher by 5 April 2018.
If your first baby is born after April 2018, you won't be able to join your employer's childcare voucher scheme.
More than one child?
If this is your second (or third, fourth, fifth…) child, both you and your partner (if you have one) need to join your employer’s childcare voucher scheme and receive a voucher by 5 April 2018. This will ensure you have the choice of which option is best for you and your family. If you’re already registered on the childcare voucher scheme through your employer you need to make sure you order a childcare voucher at least once every 12 months to stay on the scheme.
Do both parents have to be working?
Both parents have to be working to be eligible for TFC (unless you’re a lone parent).
You can use childcare vouchers if both of you, or just one of you works, or if you’re a lone parent.
If both parents work, you can both join your respective employer’s childcare voucher scheme.
I'm self-employed, what am I eligible for?
If you’re self-employed you will be able to register for TFC, but you can’t claim childcare vouchers.
If your partner takes childcare vouchers, you will have to decide which scheme is best for you as a family as you can’t be in both schemes.
- I'm a Basic rate/Higher rate/Additional rate taxpayer – how does this affect me?
How do you save money with childcare vouchers/TFC?
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*.
TFC will work a bit like a savings account, and you will need an account for each child. You pay money into an 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^ from your take home pay to reach the maximum government contribution of £2,000 per child per year.
* Subject to individual circumstances
^ If you’re a Basic rate taxpayer, this £8,000 from your net pay was worth over £11,500 in your gross pay so you’ve already paid over £3,500 in tax & National Insurance.
When can I use childcare vouchers/TFC?
Both childcare vouchers and TFC need to be used to pay for registered childcare.
You can use childcare vouchers at any time, as long as the carer is registered to accept them (this is easy and free for them to do).
However, TFC can only be used to pay for childcare during the hours you are at work*.
*If your childcare provider doesn’t make you book childcare sessions on a regular weekly pattern, you won’t be able to use TFC for the days you’re not at work.
What is registered childcare?
Registered childcare is where the carer is registered with one of the organisations listed below:
- England through Ofsted.
- Wales through the Care Inspectorate Wales.
- Scotland through the Care Inspectorate.
- Northern Ireland through the local early years team register
- The Independent Schools Inspectorate (ISI) in England.
What documents do I need to show to register for childcare vouchers/TFC?
You won’t be eligible for TFC if you or your partner (if you have one) receive Universal Credit. However, you may be eligible for childcare vouchers - please visit the HMRC ‘Better Off’ calculator to understand if childcare vouchers are right for you: www.gov.uk/childcare-vouchers-better-off-calculator.
You may be able to receive childcare vouchers or TFC if you or your partner (if you have one) are in work and the other receives any of the following:
- incapacity benefit
- long-term incapacity benefit
- severe disablement allowance
- carer’s allowance
- contribution-based employment and support allowance
- National Insurance credits on the grounds of either incapacity for work or limited capability for work
I (or my partner) work abroad – am I eligible?
If you (or your partner) work abroad but are still paid by your employer on a PAYE basis (i.e. your employer deducts tax and NI for you), you’re eligible for childcare vouchers.
If you (or your partner) are working outside of UK for longer than 6 months, you can’t register for TFC
What if my situation changes in the future?
The money you could save with TFC will vary depending on your family’s circumstances, so predicting which scheme will be best for you in can be hard if your situation is likely to change.
To avoid missing out, make sure you have joined a scheme and receive your first childcare voucher by October 2018. You’re then in a position where 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.
Which scheme is best for you and your family in the long term could be affected by:
- Changes in salary – either you won’t meet the minimum income level or you’ll earn more than £100,00 a year
- The age of your children
- If you or your partner stop work, either voluntarily or through redundancy
If my partner changes employer after October 2018 and has to go into TFC, do I automatically have to leave the voucher scheme?
You will have to work out which scheme benefits your family the most before choosing:
- If you decide to stay in the childcare voucher scheme your partner won’t be able to join TFC
- If you decide to leave the childcare voucher scheme, you can both pay into the TFC scheme
Will voucher providers allow us to withdraw funds if we decide to use TFC?
That decision doesn’t sit with the voucher provider – it depends on your employers’ scheme rules. If your employer allows childcare vouchers refunds, you can have them paid back to you through payroll, though you will pay tax and National Insurance on their value. However, it’s worth remembering, if you decide to switch to TFC, you can still continue to use your childcare vouchers to pay for registered childcare. You just won’t be able to order any more vouchers.Close
Do I have to use up all my vouchers before switching to TFC or can I continue to use my saved up balance?
No. You can still continue to use your childcare vouchers to pay for registered childcare, you just can’t order any more vouchers.Close
Can one parent receive vouchers and the other parent be in the TFC scheme?
No. You must choose the scheme that is best for you and your family, for as long as you’ll use registered childcare.Close
Can I move to TFC now but move back to vouchers after October 2018 if I change my mind?
No. Once you’ve joined the TFC scheme and officially cancelled 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.
However, you can continue to receive an additional 3 months’ worth of childcare vouchers after the date of your successful application for TFC.
Before making any TFC application, we would also strongly recommend you check whether your carer is registered for TFC. See our TFC Health Check for more information.
Can I stay with the voucher scheme and switch to TFC at a later date if I change my mind?
Yes, you can switch from childcare vouchers to TFC, even after October 2018.Close
If I join the TFC scheme, and stop buying vouchers is there a notice period?
If you want to leave the childcare voucher scheme and join TFC, you need to complete a “Childcare Account Notice” (CAN). There is no set template for this, but essentially you have to commit, in writing, to stop receiving childcare vouchers within 3 months of joining TFC - please contact us for a form. Your employer will then stop your salary sacrifice and amends your terms and conditions of employment.
If both parents swap from childcare vouchers to TFC and then one parent stops working, does that mean there's no way back to the voucher scheme?
That’s correct. After October 2018, once you leave the childcare voucher scheme and join TFC you are unable to re-join childcare vouchers as they will be closed to new entrants.
Also, if one parent stops working, both would become ineligible for TFC (as both parents have to be in work to be eligible).
I applied for TFC but I’ve changed my mind and want to stick with vouchers. Can I withdraw my application as long as I have not used it yet?
If this is before October 2018, you can switch back to childcare vouchers providing you haven’t officially cancelled your childcare vouchers by completing a Childcare Account Notice (CAN). If this is after the closing date, you can’t re-join the childcare voucher scheme as it’s closed to new entrants.Close
If I move from vouchers to TFC, can I keep my voucher account open – and even contribute in myself – while using TFC?
Your unused childcare vouchers will remain in your online childcare voucher account for you to use as and when needed. However, you must stop paying into your childcare voucher account within 3 months of your successful TFC application.