In April 2017, the government rolled out a new scheme called Tax-Free Childcare (TFC). TFC will subsidise 20% of childcare costs on fees up to £10,000 per year, more if a child is disabled. It is linked to how much parents spend on childcare instead of their income. From April 2018, employees will not be able to join a childcare voucher scheme and the Government’s TFC will be their only option. Parents who have completed 3 months with TFC cannot then go back to childcare vouchers.
They will not be administered by an external company e.g. Edenred, Busy Bees etc. Parents will need to log onto a NS&I government portal and credit their online account with the necessary funds for childcare. The Government will top up the amount. For every £8 a parent pays the Government will pay an extra £2 up to a limit of £2,000. If a child is disabled then parents can pay £16,000 into an account and the top up will be doubled i.e. £4,000. This limit is per child, parents may have several online accounts to pay into depending on how many children they have. Parents are required to login into their account to ensure their details are up-to-date and maintain their eligibility for TFC. Examples of eligibility include:
- If they are two parents in a household then both must be employed
- Parents over the age of 21 must earn a minimum of £120 per week (this is equal to 16 hours at National Minimum Wage/ National Living Wage)
- Parents claiming Child Tax Credits, Universal Credit or childcare vouchers cannot also benefit from TFC
As the scheme is administered through the Government, employers will not benefit from National Insurance savings as they do with childcare vouchers.
Childcare voucher schemes are offered by employers and run on a salary sacrifice basis. Vouchers can only be used for OFSTED registered childcare which can include nurseries, childminders, after school clubs. Childcare vouchers can be used until 1st September after a child’s 15th birthday or up to the age of 16 if the child is disabled. Both parents can register for the scheme, if their respective employers offer a scheme. There is no income restriction.
Employees do not pay tax or National Insurance on the amount of salary that is sacrificed. Similarly, employers do not pay National Insurance on the amount sacrificed which can save them up to £402 for every employee in a voucher scheme. The savings, for employees, vary according to a person’s tax bracket. A Basic Rate taxpayer can have a monthly allowance of £243 which equates to an annual saving of £933.
Whilst full details of TFC are still to be completely finalised, it is worth investigating which option is going to be most suitable to your circumstances. There are many variables to consider and this website is a good starting point: https://www.gov.uk/childcare-vouchers-better-off-calculator
Employers should promote their existing childcare voucher scheme to employees as they will not be able to join after April 2018. If you haven’t got a scheme set up then Madison HR can assist with this.