As of October this year, the government is planning to introduce a new way for families to make tax savings with their childcare costs. The changes will replace the current voucher schemes, which will be phased out over a period of time.
From this date, parents who are already signed up and using childcare vouchers with their employer will be able to continue to use them (as long as their employer runs the scheme and they stay with their employer); however parents who are not currently signed up to a childcare voucher scheme will be unable to sign up from this date.
While this won’t be a problem for many families – as a similar scheme will replace the current voucher scheme – some parents who are eligible for childcare vouchers but aren’t eligible for the new scheme will lose out.
Under the new scheme, called “Tax-Free Childcare”, eligible families will get 20% of their annual childcare costs paid for by the Government. So, for every 80p parents pay into a newly-created Childcare Account, the Government will contribute 20p, up to £10,000 per year per child.
The new scheme will be open to single parents/couples who work eight or more hours a week, including self-employed, and who pay for Ofsted-registered childcare for a child under the age of 12, or under 17 if the child is disabled.
It will also be open to ALL qualifying parents, unlike childcare vouchers – which can only be bought by people whose employer is affiliated with the childcare voucher scheme.
To be eligible for Tax-Free Childcare, parents will need to:
- Have one or more child aged under 12
- Be working – this means both parents, if part of a couple.
- Earn between £2,420 to £150,000 a year. This applies to both parents as a couple (so if one earns more than £150,000, then as a couple, you can’t access Tax-Free Childcare).
- Not be claiming tax credits (this includes the childcare element of Working Tax Credit) or universal credit.
So which is better? Childcare vouchers or the new scheme?
As with any new scheme, some parents will benefit more than others – it will all depend on their individual circumstances. If parents are unsure about which scheme would be most beneficial for their family, there is a government checker they can use:
Parents should be aware that not all employers are affiliated with the childcare voucher scheme. However if their place of work does offer this and parents are not already enrolled and would like to be, they should speak with their employer and ensure they sign up before October 2015.