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Tax-Free Childcare changes – are you better off?

17th April 2014

The government announced in Budget 2014 that a new scheme is being introduced in October 2015 to provide parents with a financial boost.

Under the new scheme, parents will be allowed to buy vouchers online to pay for childcare. For every 80p they put in, the government will contribute 20p, up to a total limit of £10,000. The total saving on this scheme will therefore be a maximum of £2,000 (equivalent to the basic rate of tax).

It will be managed directly by NS&I, rather than through the employer. Parents will have to log-in and re-confirm their circumstances every three months, adding extra hassle to the process. Employers operating the Childcare Voucher scheme received a saving in their National Insurance payments, which will not be the case.

The current child-care voucher scheme will be frozen to new entrants, but current members will be allowed to stay in (provided that they don’t change employer).

To qualify for the new scheme, both parents must be working and earning below £150,000. If one of you is a stay-at-home parent, then you won’t qualify under the new scheme (however you will under the old scheme).

Tax-Free Childcare will be available to self-employed parents, which is a welcome change.

In general, parents will be better off under the new scheme if their childcare costs are higher than in the table below:

Family circumstances
Level of monthly childcare costs after which tax-free childcare becomes the better option (as opposed to the previous system)
Single parent, basic-rate taxpayer £389
Single parent, higher-rate taxpayer, joined childcare vouchers before 6th April 2011 £510
Single parent, higher-rate taxpayer, joined childcare vouchers after 5th April 2011 £260
Couple, both basic-rate taxpayers £778
Couple, one basic-rate taxpayer, one higher-rate taxpayer who joined childcare vouchers after 5th April 2011 £649
Couple, both higher-rate taxpayers who joined childcare vouchers after 5th April 2011 £521

source: https://www.kiddivouchers.com/taxfreechildcare10things.php

We would urge anybody who qualifies for the current childcare scheme (and would be better off under it) to ask their employer to join before they are locked out from October 2015.