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Updates to Tax Free Childcare

A young accountant
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If you pay for registered childcare, then you might be already using or be eligible to apply for childcare vouchers, but the world of tax-free childcare is undergoing its most significant change since they were first introduced into the tax system back in 1989.

The existing childcare voucher scheme is finally being closed to new entrants after March 2018 and its successor, the childcare account, is being phased in now.

Existing users and new entrants can choose between both at present, but with different advantages, you must act now to select the best for you as after March 2018 you won’t have a choice.

What’s the difference?

Currently there are two options for tax free childcare:

  • Childcare Vouchers
  • Childcare Account

Which option is right for you will depend on your individual circumstances, and you’ll need to make a choice as you can’t be in both! The table below gives you a quick summary as to which is available to you and which may give you more savings:

Childcare Voucher Potential Savings 3
A table which sets out which tax-free childcare scheme is better for which users

New Users Time for Action* After March 2018

If, after reviewing the above, you realise you would benefit from tax free childcare then you should apply immediately in all cases as this will result in a saving for you. However, if you also realise you would be better off in a childcare voucher scheme then it is even more important to act now as after March 2018 there is no choice but to enter into the alternative childcare account scheme. As the qualifying conditions for this are much tighter you may even be in a place where you don’t qualify for any tax-free childcare.

The general rule of thumb a childcare voucher scheme takes around 4 months to implement, so if you want to introduce one then you need to act sooner rather than later.

You (or more precisely) your employer has until March 2018 to register and sign you up for a childcare voucher scheme.

Existing Users

If you are already part of a childcare voucher scheme and it continues to be of benefit to you then you have no action to take. However, if you do make this choice then please be aware you can’t also register for a childcare account as you can only be in one of the two schemes.

Childcare Vouchers Potential Savings

The tax and national insurance savings for each employee are achieved through a salary swap arrangement. This is where you swap some of your salary for childcare vouchers. The level of savings available are based on the rate of tax paid as shown in Table 1:

Tax Free Childcare Potential Savings
Table 1

In addition to the employee making a saving there is also scope for the business owner to make an employer’s national insurance saving too as shown in table 2. Depending on the number of employees who voluntary participate could mean that the employer savings could pay for introducing and running the scheme.* Annual saving per employee

Tax-Free Childcare Potential Savings
Table 2

Next Steps
* Annual saving per employee

We can assist you in setting up the scheme which is fully HMRC compliant with options ranging from some basic assistance while you do it right through to managing and implementing the whole scheme for you.

So, if you’re interested or just want some more information then please contact Matt on 01604 632 116 or by email at to see how you can start saving.

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