Childcare Voucher Changes – Everything you Need to Know
October 1, 2017
For millions of parents across the country who pay for childcare, using the Government-backed childcare vouchers helps them to save up to £933 a year.
It’s an invaluable scheme which allows parents to pay for childcare from their pre-tax salary, effectively offering tax-free childcare.
Now, the government have decided to simplify and streamline tax-free childcare for citizens by announcing that applications for childcare vouchers will close in April 2018, to be replaced by the Tax-Free Childcare scheme, which begun its rollout in April 2017.
Understandably, that’s a worry for parents who aren’t fully aware of what the new scheme will offer them in comparison to the existing childcare vouchers, or for BookingLive customers who aren’t sure whether to disable childcare voucher support in their system.
In this guide, we’re going to explain everything you need to know.
How does the current system work?
The current childcare vouchers scheme is available for parents with children up to the age 15 and is offered through employers. The vast majority of employers offer childcare vouchers through a ‘salary sacrifice’, which works thusly: you might give up £1,000 of salary, but after tax and your National Insurance contribution, it would only be £700. In return, you’d get £1,000 worth of vouchers to spend on childcare, making you £300 better off than you would be if you’d simply taken your salary.
Basic rate taxpayers can pay for up to £243 worth of childcare vouchers each month, working out at £55 per week. It’s crucial to note that this figure is per parent, so two working parents can get £468 worth of vouchers each month.
The childcare voucher scheme will close to new applicants in April 2018, however, if you’re currently on this scheme you can continue to claim them until your employer stops supporting the scheme or you change jobs. Discuss with your employer what their intention is regarding childcare vouchers.
How will Tax-Free Childcare work?
The new Tax-Free Childcare scheme was unveiled during budget week, March 2014, and was always explicitly designed to replace the childcare voucher scheme, although the specific rollout and cut-off dates have since changed.
Tax-Free Childcare is once again intended to help parents with the cost of childcare, though it goes about it in a different way. Launching in April 2017, parents who opt into the scheme will give eligible families an extra 20% towards their childcare costs.
Even at such a late stage, we still don’t know the exact details of how the Tax-Free Childcare system will work, partly thanks to poor messaging from the government and also due to the change in Chancellor. However, we do know that for every 80p you put in, the state will add 20p, effectively giving you a basic-rate tax back on what you pay.
In total, you’ll be able to pay for childcare of up to £10,000 per child per year, so you could get up to £2,000 per year (or £4,000 if your child is disabled) every year.
Are you eligible for Tax-Free Childcare?
With the childcare voucher scheme ending and the childcare vouchers changes 2018 due to come in next year, you might be wondering whether you’re eligible for the new scheme.
Eligibility for the Tax-Free Childcare scheme is much the same as for the outgoing childcare vouchers scheme. However, if you’re unsure of those requirements, you’ll be eligible if all of the following apply:
- is under 12, or if they are regiserted as having a disability then 17
- lives with you
- are either 16 or older
- live or work in the UK
- are employed or self-employed
- are over 21 and earn on average at least £120 a week, unless in your first year of self-employment. Different rates apply if you’re under 21 or an apprentice
- earn less than £100,000 a year each
- don’t get other support with your childcare, including from a childcare voucher or salary sacrifice scheme
It may be that case that you’re eligible if you have a partner and one of you receives any of the following benefits:
- Carers Allowance
- Employment and Support Allowance
- Incapacity Benefit
- Severe Disablement Benefit
The information above was from the Government’s website – to find out more click here.
How will this affect BookingLive customers?
In October 2015, BookingLive introduced a way for childcare providers like schools, nurseries and after-school clubs to accept childcare vouchers as a form of payment for their customers who chose to book online.
This has been a huge success and a massive bonus to our customers working in childcare sectors, but what do childcare vouchers ending and the move to Tax-Free Childcare mean for customers who use BookingLive? We are currently working on adapting our software to the Childcare changes and we will update this page once we have further information on the matter.