Government extends childcare voucher scheme for additional six months

George Hay Chartered Accountants

Working parents across the UK will be pleased to learn that the Government has confirmed a six-month extension of the childcare voucher scheme, meaning that it will remain open to new joiners until October 2018.

Parents already using childcare vouchers can continue to do so after this date, given that the employer continues to offer them.

It has been estimated that around 80 per cent of working parents may be better off using Childcare Vouchers, as opposed to the new tax-free childcare scheme.

The voucher scheme gives employees access to funding for childcare, such as nurseries, childminders and after-school clubs, via their employer.

In return, employers can save up to £402 per year in National Insurance contributions for every employee who signs up; though it is worth noting that this saving will only apply if the vouchers are provided via salary sacrifice.

Following several debates in Parliament, the Secretary of State for Education, Damian Hinds, confirmed that the Government has agreed to a six-month extension of the Childcare Voucher scheme. Consequently, the scheme will not be closing in April as previously reported.

The Government’s extension to the popular scheme was announced following criticism, which professed that the tax-free childcare scheme is largely misunderstood and its rollout somewhat sub-standard.

The childcare voucher scheme is available to all working parents in the UK. It allows parents to take up to £55 each week from their salary, before tax and National Insurance, or £243 a month, to put towards childcare no matter how many children they have, providing that the parent is a basic-rate taxpayer.

Childcare vouchers can save many parents with children aged up to 15 (16 if they’re disabled) over £1,000 a year on childcare.

However, under the alternative tax-free childcare scheme parents have 20 per cent of their childcare costs met by the Government each year, up to a limit of £2,000 a year per child, or £4,000 if a child is disabled.

The scheme is open to self-employed people, who are excluded from the childcare voucher arrangements.

Subject to eligibility, both parents (if they are together) must be working 16 hours a week and paid at least the National Living Wage of £7.83 an hour, if over 25, or £125.28 a week to receive tax-free childcare.

For families within the basic-rate tax bracket who qualify for either scheme, anyone spending less than £9,336 in total on childcare would likely fare better with the vouchers. The same goes for those who pay a higher rate of tax but spend less than £6,252 in total.

However, families with a larger number of children are more likely to benefit from tax-free childcare, as the system operates on a per-child basis rather than per parent.

Where tax credits or universal credit is being claimed, or where either parent earns more than £100,000 tax-free childcare will not be available.

The two schemes cannot be used in conjunction with one another, but either can be used alongside the 15 or 30 hours of free childcare offered to children aged three and four.

Here at George Hay, we can provide expert advice on the tax and NIC implications of employee childcare, arming employers with the information they need to put their best foot forward. To find out more about how we can help, contact us today.

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