Childcare: Why Childcare Vouchers will be a better option for some parents

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Our previous blog story ‘Childcare Update: Childcare Vouchers and the New Tax Free Childcare Scheme’ explains the changes happening to childcare during 2017 and 2018 which we hope you’ll find useful.

In this blog story, we wanted to explain more about why childcare vouchers are still a better option for some parents than the new Tax Free Childcare scheme, being launched by the Government.

This new scheme will of course be better for some parents, although many will find they are far better off staying with childcare vouchers. It’s important for employers to understand more about this before it’s too late for employees to sign up for childcare vouchers.

HMRC have confirmed that childcare vouchers will close to new starters in April 2018. Up until that time, childcare vouchers will run in the same way as they always have. After April 2018, any employee who is in the scheme will be able to continue to receive childcare vouchers, and Salary Exchange have committed to continue to provide the voucher scheme after this date to meet the needs of parents who are better off with childcare vouchers.

Here’s our thoughts on who will be better off with Childcare vouchers:

1. Parents with modest childcare costs (which tends to be the case with school age children)

In a nutshell, Tax Free Childcare allows parents to save 20% on their childcare costs up to a maximum of £2,000 per annum per child. Childcare vouchers allow parents to save 32% (standard rate tax payer) or 42% (higher rate tax payer) up to a maximum of £933 per working parent. Therefore the percentage of saving is higher with childcare vouchers, but the maximum amount that can be saved is higher with Tax Free Childcare.

Those with large childcare costs of £10,000 per year could save HMRC’s stated maximum savings of £2,000 by opting for Tax Free Childcare. However, the increase in the provision of Free Childcare hours to 30 free hours per week for 3 and 4 year olds, will substantially reduce parents’ childcare costs resulting in childcare vouchers giving a greater level of savings than Tax Free Childcare.

This could mean that the potential savings outlined are probably not realistic for most parents and that childcare vouchers may be a better option for them.

2. Parents with children 12 and over (unless they have a disability)

3. Parents who earn more than £100k pa and/or whose spouse or partner works less than 16 hours per week and earns less than £115 per week – will be ineligible for Tax Free Childcare so childcare vouchers will be the best option.

Here’s a link to the Government website giving further details to help working parents understand the various options. There’s a useful calculator tool so they can work out which option would suit their circumstances best https://www.childcarechoices.gov.uk/

If you don’t already offer childcare vouchers for your employees, it’s not too late to set them up. Salary Exchange can launch a childcare voucher scheme quickly and easily for you, so your employees don’t have to miss out. Just give us a call on 0330 2000 104.

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