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Employee Benefits Advice for Corporate Clients

Changes to Childcare Vouchers – introducing the Governments new tax free Childcare Scheme

 

In March 2016, the Government confirmed their plans for a Tax-Free Childcare scheme (TFC) to be rolled out gradually from early 2017. The new scheme will provide working parents and self-employed workers with another option for tax savings on their childcare via the Government.  The existing childcare voucher scheme is still open to employees and will be able to accept new members up until April 2018.  Existing members will be able to continue with the old scheme beyond that date however the scheme will not be available to new members after that date.

Below is a summary of what is changing and whether the existing scheme or the Government’s new scheme may be better for your employees.

What is changing?

For a working parent with children under 12 (or under 17 for disabled children), they can open an online account to pay for registered childcare and the government will top-up the money the individual pays into the account. For every £8 the individual pays in to the scheme, the government will add an extra £2 up to £2,000 per child, or £4,000 if the child is disabled.

There are some caveats:-

  • The individual and their partner must both be working and each expect to earn (on average) at least £120 per week (equal to 16 hours at the National Living Wage).
  • If either the individual or partner, expect to earn £100,000 or more, the scheme is not available.

Which scheme is best for your employees?


Below is a brief summary of winners and losers:
Tax-Free Childcare wins for:

  • Self-employed people or couples who earn less than £100,000 each, as they're eligible for Tax-Free Childcare, but can't get Childcare Vouchers.

  • Parents with more than one child and high childcare costs, as the help available goes up with the number of children. There's a limit for Childcare Vouchers which isn't dependent on the number of children.

Childcare Vouchers win for:-

  • Couples where one parent doesn't work.

  • Basic-rate taxpayer parents with total childcare costs of £9,336 or less. Under this amount, the saving you make with Childcare Vouchers exceeds the saving you can make with Tax-Free Childcare.

  • Higher-rate taxpayer parents with total childcare costs of £6,252 or less. Under this amount, the saving you make with Childcare Vouchers exceeds the saving you can make with Tax-Free Childcare.

  • Higher earners, as anyone earning £100,000+ isn’t eligible for the Government scheme.

If you would like more information including a set of frequently asked questions and comparison table please speak to your normal consultant or contact Richard Haynes, Head of Employee Benefits at Richard.haynes@sanlam.co.uk

Based on our understanding of tax and employment law as at June 2018.  Information provided does not constitute financial advice. 

Sanlam is a trading name of Sanlam Wealth Planning UK Ltd (Reg. in England and Wales 3879955) and English Mutual Ltd (Reg. in England and Wales 6685913). English Mutual Ltd is an appointed representative of Sanlam Wealth Planning UK Ltd which is authorised and regulated by the Financial Conduct Authority.

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