Employee Benefits Management @ Cornerstone Resources HR

Childcare vouchers are dead. Long live tax free childcare?

Intensive lobbying from interested parties has failed to change the Government’s mind on removing childcare vouchers. From 4th October 2018, the current childcare voucher scheme will be closed to new entrants and the only option on the table (for those who are eligible) is tax free childcare. We find it disappointing that the Government has not listened on this point and struggle to see the upside of the new regime. Our updated blog from earlier this year goes into the implications in more detail.

Anyone who has kids will know that the cost of childcare in the UK is extremely high! Indeed, studies have shown that the UK has the second most expensive childcare costs in Europe. For this reason childcare has featured highly in many companies employee benefits packages.

Since 1989, the main form of tax efficiency that the UK Government has offered taxpayers has come in the form of Childcare Vouchers. Depending on your income, you can get tax and NI relief on up to £243 per month and the best thing is, if your partner works, so can they! The vouchers are accessible via employee benefits; the employer signs up to the scheme and then the employee can join.

However, in October 2018, it is all going to change…

What’s the change?

From October 2018, you will no longer be able to sign up for childcare vouchers. They will still exist for current members but no new accounts will be allowed to open. Instead, the Government has brought in ‘tax-free childcare’.

How does the tax-free childcare scheme work?

Firstly, both parents (if they live together) must work at least 16 hours a week to qualify for tax-free childcare. This is different from the current childcare voucher scheme as only one parent needed to work to qualify.

For the tax-free scheme, if you meet the above criteria, you pay £8 of every £10 of your childcare costs and the Government pays the other £2. This is capped at £2,000 per child per year.

How do I know if I’ll be better off with the new tax-free childcare scheme or with the current childcare vouchers scheme?

The Government have a website to help you make your decision. Click here to view the Childcare Choices website.

How much does a childcare vouchers scheme cost to run for me as an employer?

The cost is minimal, typically just a commission based on the contributions that your employees make to the scheme. As the scheme runs on a salary sacrifice basis, you will save some Employers National Insurance costs to offset the commission.

Is there anything I can still do to launch a scheme?

Move quickly! You will have to be fleet of foot as you will need to register a scheme, sign the contract and make the first deduction by 4th October. You therefore only have a few days left. We can help you accelerate this and also review your employee benefits package and build an engaging and cost effective solution for your employees.


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