As of October 2018 the Childcare Vouchers salary sacrifice scheme has closed to new applicants. Parents wishing to get support with childcare may now sign up to the government's Tax-Free Childcare scheme instead.
This article aims to explain the new Tax-Free Childcare scheme (TFC) and compare it to the Childcare Vouchers scheme (CCV).
Key points
Childcare Voucher scheme (CCV)
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Tax-Free Childcare scheme (TFC)
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- The CCV scheme closed to new applicants in October 2018.
- Existing participants can continue using this scheme until their child is 15 years old(or 16 for children with a disability). Both parents can apply.
- Parents can buy childcare vouchers from their pre-tax and NI salary up to a maximum based on their tax rate.
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- The TFC is now available to all eligible families. The scheme is based on the youngest child's date of birth and both parents can apply.
- The scheme will allow some working parents (where both parents are working or are single parents) to claim up to £2,000 per child towards the cost of childcare each year, or £4,000 for disabled children.
- The scheme will be available for children who are 11 years old and under, or 16 for children with a disability.
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Eligibility
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Eligibility
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- Only existing participants who stay with their current employer, contribute at least once every 12 months and haven't told their company that they want to join TFC
- For children who are 15 years old or less (16 for children with a disability).
- For parents who earn more than the National Minimum Wage once childcare vouchers are deducted.
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- Children who are 11 years old or less (still 16 for children with a disability).
- Both parents are working or are single parents (this means that couples, where one parent is not working, will not be eligible).
- Parents who individually earn more than £50 a week but under £100,000 annually.
- Parents who work a minimum of 16 hours per week.
- Parents who are employed or self-employed.
- Parents who are not receiving support through tax credits.
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How does the TFC work compared to CCV?
CCV
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TFC
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- Savings under this scheme are per parent.
- For basic rate taxpayers, each parent can buy a maximum of £243/month (£2,860/ annum) in vouchers, which is a tax saving of £915.20/annum.
- For higher-rate taxpayers, each parent can buy a maximum of £124/month in vouchers.
- These are from pre-tax and NI salary.
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- Savings under this scheme are per child.
- For every 80p a parent pays in, the government will pay in an extra 20p. This is equivalent to the tax most people pay - 20% - which gives the scheme its name, “tax-free”.
- Parents can receive up to £2,000 per child per year towards their childcare costs, or £4,000 for a child who has a registered disability.
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What's different in the way it's used and managed?
CCV
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TFC
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- The employer administers the scheme through a salary sacrifice arrangement with a provider such as Reward Gateway on behalf of the employee/parent.
- Vouchers can be used with any Ofsted regulated childcare provider in England and the equivalent bodies in Scotland, Wales and Northern Ireland.
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- Parents will be responsible for opening up their own online account for each child through the government’s website. There will be no involvement from the company.
- Parents will pay into each account separately through the government’s website.
- There is an eligibility validation done every three months.
- Vouchers can be used with any Ofsted regulated childcare provider in England and the equivalent bodies in Scotland, Wales and Northern Ireland.
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Which scheme is better?
Some parents will be better off staying with CCV, while others will save more through TFC. There will be no going back for anyone who joins TFC, even if their circumstances change, so parents should carefully weigh their options before making a decision.
Here are some of the factors parents should consider:
- Eligibility - Which scheme(s) are they eligible for based on their job and salary?
- Age of the child - Which scheme is their child eligible for based on their age?
- Childcare costs - Which scheme offers more savings based on their childcare costs?
Here are some examples:
CCV Scheme
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TFC Scheme
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- Couples where one parent doesn’t work and the employed parent already uses CCV.
- Basic-rate taxpayer parents with total childcare costs of £9,336 or less. Under this amount, the saving made with CCV exceeds the saving that can be made with TFC.
- Higher-rate taxpayer parents with total childcare costs of £6,252 to less. Under this amount, the saving made with CCV exceeds the saving that can be made with TFC.
- Higher earners. Anyone earning £100,000+ (or in a couple where one earns £100,000+) isn’t eligible for the TFC scheme, whereas these high earners can get CCV.
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- Self-employed parents or couples who earn less than £100,000 each
- 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 CCV which doesn't change in correspondence with the number of children.
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What will happen to the current CCV scheme?
There are no announced plans to close down the current CCV scheme. Participants who were in the scheme as of October 2018 can keep ordering vouchers and making tax and National Insurance savings through CCV for as long as they have an eligible child.
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