Childcare vouchers explained
What are childcare vouchers?
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What are childcare vouchers?
Expert guide to childcare vouchers - what they are, how the voucher scheme works and how much money they could save you.
New childcare scheme 2017
A new childcare support scheme called Tax-Free Childcare will be introduced in 2017. The new scheme was due to be introduced in 2015, but has been delayed until 'early 2017' as a result of an unsuccessful legal challenge by a group of childcare-voucher providers. The scheme will replace the current childcare vouchers scheme (officially called Employer-Supported Childcare), which is offered through employers and paid for through salary sacrifice. Find out what you need to know about the new scheme, how it will affect you and and how it compares with the current scheme.
Tax-Free Childcare in a nutshell
- The new policy – called Tax-Free Childcare – will be introduced in early 2017.
- Eligible families will receive a 20% subsidy on childcare costs – up to £2,000 a year per child.
- Parents pay into an online account run by a single provider – National Savings & Investments.
- As with the previous policy, it can only be used to pay for Ofsted-regulated care.
- Vouchers are not paid for through ‘salary sacrifice', and availability no longer rests on whether or not employers decide to offer vouchers.
How do I get Tax-Free Childcare?
Part of the policy's aim is to streamline the childcare vouchers process and make access to childcare support simpler. Here are the five key things you need to know about accessing this new scheme:
- You need to register with the government and open an online account. The government will then ‘top up’ payments into this account at a rate of 20p for every 80p that you pay in, up to a limit of £2,000 of government support per child per year.
- You need to reconfirm your eligibility every three months (see below for eligibility requirements).
- You will have separate accounts for each child (there’s no limit on the number of children you can claim for) but the reconfirmation date will be the same.
- There is some flexibility with payments: grandparents and other family members can pay into the account, and you can pay into the account as and when you like.
- You can withdraw your money from the online account if you need to – but the government will get its portion back at the same time.
What's new in this scheme?
|Tax-Free Childcare explained|
|Under the new scheme||How does it differ from the current scheme?|
|Who qualifies?||• Only one earning parent (single or partnered) will be able to open an account – but both parents must be earning (unless the other parent is a carer and receives Carer’s Allowance or contributory Employment and Support Allowance).
• You must be working a minimum of eight hours a week on minimum wage – or around £50 a week.
• You can be earning up to £150,000.
• Available to parents who are self-employed.
• If you qualified for the scheme prior to taking paid parental leave, you can continue to benefit during this non-working period.
|• Under the new scheme, you cannot claim if only one parent is working (unless the other parent is a carer and receives Carer’s Allowance or contributory Employment and Support Allowance).
• Extended eligibility for parents on paid sick leave and paid and unpaid statutory maternity, paternity and adoption leave under new the scheme.
• Extended eligibility for self-employed parents, with some leeway on earning levels within a start-up period under the new scheme.
|What age does my child have to be?||• Under five from introduction, expanding to under 12 within the first year.
• Under 17 for disabled children from introduction.
|• No longer available for children over 12 - with the exception of disabled children.|
|When can I use it?||• You can enrol from its introduction in early 2017, initially for younger children then expanding to all children up to the age of 12.
• You cannot claim vouchers under both schemes at the same time.
• Workplace nurseries will not be affected by the scheme.
|• If you are currently using Employer Supported Childcare, you can stick with this as long as you stay with the same employer and as long as they continue to offer it.
• Enrolments to this scheme will be closed with the introduction of the new scheme.
Tax-Free Childcare vs Childcare Vouchers
- By raising the cap on total costs covered from £6,000 to £10,000 per child each year, maximum total savings can be up to £2,000 per year, compared with £933 under the current scheme.
- The government says that a working couple with one child will be £134 better off per year under the new scheme, while a single parent with three children can claim £5,067 more than under the current scheme.
- However, depending on their circumstances and eligibility, some parents will be better off under the current scheme.
- Those with lower childcare costs might find that they're better off with childcare vouchers.
- If you think you're better off under the current scheme, you might want to talk to your employer about whether they plan to continue offering it after the new changes come in.
- For help with family finance issues, give our Money Helpline a call. The service is free for all Which? members. If you're not a member, you can sign up for a £1 trial.
How to access childcare vouchers
You need to claim these vouchers through your employer. If you're interested, contact your human resources department to find out whether it has a voucher scheme and what’s on offer. If your employer does offer childcare vouchers, you should be able to buy these whether you are a full-time or part-time employee. Contractors and freelancers can claim childcare vouchers through a Limited Company.
Companies may offer their own scheme, or they may offer vouchers through a childcare-voucher provider – such as Kiddivouchers, Employersforchildcare, Edenred or Computershare Voucher Services.
Warning: if you currently receive childcare tax credits, you need to consider whether these will be affected before you sign up for childcare vouchers - as in some situations, parents can end up worse off using childcare vouchers. See our advice in childcare vouchers vs childcare tax credits to find out how your childcare tax credits may be affected.
How do childcare vouchers work?
Most employers that offer childcare vouchers do this through ‘salary sacrifice’. This means that your salary will be decreased by the amount you’d like to claim in vouchers.
This will be deducted before tax and National Insurance, and currently you can claim up to £55 a week, or £243 a month in vouchers for basic-rate tax payers. If you’re a higher-rate (40%) tax payer, you can claim a reduced rate of £28 a week and £124 a month. For additional-rate (50%) earners the amount is £22 a week or £97 a month.
This limit applies no matter how many children you have, but the limit is per person – so if both parents claim, they can get up to £110 of vouchers a week in total.
To understand what rate of tax you are paying, visit our tax rates, allowances and amounts guide.
You might get your childcare vouchers as paper or electronic versions directly from your employer, or your employer may ask a childcare voucher provider to give them to you. When initially setting up the scheme, there may be a delay in receiving the vouchers, even if money has been taken from your salary. Speak to your employer or voucher provider for details.
Where can I use childcare support?
Childcare support - either through vouchers or Tax-Free Childcare - can be used for older kids, too. Childcare vouchers cover children until they turn 15, and often longer, depending on when their birthday falls. Under the new Tax-Free Childcare scheme, the upper age limit will be decreased to 12. Officially, children qualify up to the first Saturday following 1 September after their 15th or 12th birthday.
You can use vouchers for nurseries, childminders and preschool, but they can also be used for a variety of other types of childcare, including after-school activities and childcare over the summer holidays. Which? members can find recommended childcare providers in their area by visiting Which? Local, our local services review site.
If your employer provides childcare, either contracted outside of the workplace or within your building, the rules on how much you pay that is not tax- and National Insurance-deducted remains the same as paying for childcare yourself with vouchers. Your employer may offer additional support on top of the childcare voucher, but you will have to speak with it directly for details.
Also, you don’t have to spend your childcare vouchers in the week or month you receive them. They have a long expiry date, so you can save them up to use later – for example, you may save them for the school holidays when your childcare costs may be higher than normal.
The main criterion for using childcare vouchers is that the childcare provider must be registered with Ofsted (Office for Standards in Education, Children’s Services and Skills). The childcare provider also needs to agree to receiving payment or part-payment with vouchers, and make an agreement with your employer. Ask your employer or childcare-voucher provider for details on how to set this up.
Is my childcare provider registered?
You can usually find out whether a childcare provider is registered simply by asking them, but if you want to check you can call your local Families Information Services. You can find their details by searching on the National Association of Family Information Services website, or by calling 0800 234 6346.
All registered childcare providers have a unique reference number (which appears on their most recent registration certificate), and you can check whether their registration is still valid by calling Ofsted on 0845 640 4040 or visiting www.ofsted.gov.uk.