Changes to Childcare Voucher Schemes

Childcare changes

Amongst the headlines of recent days, one could easily be forgiven for missing an announcement regarding changes to the UK’s childcare voucher rules. As these changes may, in time, impact the manner in which we at Throgmorton process an aspect of our clients’ payrolls, we spotted it and wanted to help in bringing it your attention.

Childcare vouchers

Using childcare vouchers to help a parent pay for childcare can save significant sums.

The vouchers, which are currently available via a special UK Government scheme and operated through employers, allow a parent to pay for childcare through their pre-tax salary. This is achieved by a parent being able to claim up to £55 a week of their wages as childcare vouchers, on which they do not pay UK tax or National Insurance contributions (“NIc’s”)/social security. The vouchers are then used to (help) pay for childcare.
 

Exactly how much a parent can take as childcare vouchers depends on the amount they earn and when they join the scheme.

Key features of childcare vouchers include that:

• an employer has to sign up with a third-party voucher provider, which has a cost attached to it; and
• there are no minimum or maximum earnings.

What’s changing?

Childcare voucher schemes were to close to new applicants from 6th April 2018. However, it was announced on Tuesday (13th March), during a House of Commons debate, that this deadline is to be extended for a further six months.  As a result, parents now have until 6th October 2018 to sign up for childcare vouchers (if they have not done so already).

An alternative to vouchers

As noted above, from 6th October 2018, childcare voucher schemes will close to new applicants. After this date, parents may be able to get Tax-Free Childcare (“TFC”) instead (including those parents currently claiming childcare vouchers).

TFC can provide up to £500 every 3 months (and so £2,000 a year) for each child to help with the costs of childcare.

In addition to various other conditions, TFC is not available if one parent earns more than £100,000.

What do parents and employers need to do?

Parents can claim either claim childcare vouchers or TFC, but not both.  It is therefore important for both employers and employees to consider whether childcare vouchers or TFC are appropriate for them. 

In reaching the decision described above, relevant factors are likely to include:

• the level of earnings;
• childcare costs; and
• the number of children.

In evaluating all of the above, and more, one can make use of the UK government provided childcare calculator, found at https://www.gov.uk/childcare-calculator

Those parents who do prefer to receive vouchers can continue to provided:

• they’ve joined a scheme and received their first voucher before 6th October 2018; and
• they stay with the same employer, who continues to run the scheme; and
• they don’t take an unpaid career break of longer than a year.

If parents do prefer TFC, this operates independently from employers. Parents set up an online account which they use to pay for their childcare, and there is no need for an employer to be involved. In contrast to childcare vouchers, there is no salary sacrifice involved under TFC and therefore no direct UK income tax or NIC savings.

A parent can continue to use any vouchers they already have, including to make a joint payment for childcare with TFC. There is no deadline for using such vouchers.

A parent must tell their employer within 90 days if they opt to claim TFC. The employer will then stop giving the parent new vouchers. Once a parent has told their employer that they’re getting TFC, the parent cannot re-join the employer’s voucher scheme.

For further information, please speak to your usual Throgmorton payroll contact or anyone listed below:

Sharleen Purvis   +44 (0) 118 921 7 668 / sharleen.purvis@throgmorton.co.uk
David Holder   +44 (0) 118 921 1 351 / david.holder@throgmorton.co.uk
Liza Cordery   +44 (0) 118 921 1 393 / liza.cordery@throgmorton.co.uk

To download a pdf version of this publication please click HERE

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The information in this notice is intended for general guidance only. Throgmorton does not accept any responsibility for losses incurred to any person acting or refraining to act as a result of the information in this notice. Advice should be taken in the context of specific circumstances.