Childcare vouchers explained Childcare vouchers vs childcare tax credit

What are childcare vouchers

If you are currently receiving childcare tax credits, you may or may not be better off if you use childcare vouchers – and you need to work this out before you sign up to a childcare voucher scheme.

What are childcare tax credits?

Childcare tax credits – officially the ‘childcare element of working tax credit’ - are payments from the government designed to help eligible working parents cover some of the cost of childcare, so they still benefit from working.

To claim these benefits you must work at least 16 hours a week and use a childcare provider registered with Ofsted. The credits apply whether you are an employee or self-employed, single or a couple. You can also claim if you are sick, disabled or on maternity leave, but you must have been working for at least 16 hours a week before.

You can get up to 70% of your childcare costs covered, dependent on your level of income and the maximum limit that applies per week - £175 for one child and £300 for two

These are different to child tax credits – which parents can receive whether they work or not. You can find out more about child tax credits and working tax credits in our tax credits guide, and find out whether you are eligible for tax credits by filling out HMRC’s quick questionnaire.

Why might I lose out with childcare vouchers?

It’s important to work out first how much you could get through childcare tax credits and how much you would benefit from childcare vouchers.

You can only claim for childcare tax benefits if you pay for childcare yourself, and this doesn’t include paying by using childcare vouchers. However, you can claim childcare tax benefit for costs you incur and pay for yourself after your employer has paid with vouchers.

If this is the case, keep in mind that your entitlement to childcare tax credits and the amount may be affected if your salary has been reduced through salary sacrifice (see our guide to what are childcare vouchers for more on this). As a result, some people may find themselves worse off overall if they use childcare vouchers.

You can use HMRC’s online calculator to find whether you’d be better off using childcare vouchers or not, or you can call the Tax Credit Helpline on 0845 300 3900.

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