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Last chance saloon for Childcare Voucher schemes

22 December 2017

It is often those items that have been on the “to do list” the longest that carry the greatest risk of not being actioned in time.

So, with a critical deadline looming, any HR department that still has workplace Childcare Voucher matters sizzling on the back burner needs to dramatically turn up the heat.

The long talked-about new government Tax-Free Childcare (TFC) scheme, which finally started being rolled out in April 2017, will replace the existing Childcare Voucher scheme in April 2018. In our view most people are likely to be better off under the existing scheme – which can save families with children aged under 15 up to £1,866 a year in tax and NI – but this is to be closed to new entrants at the April 2018 deadline.

So the clear message is to buy while stocks last. As long as employees sign up to the existing Childcare Voucher scheme by April 2018 they can continue in it going forwards.

The new TFC seems attractive enough at first glance. It allows single parents or couples who are both working to claim up to £2,000 per child aged up to 12 towards the cost of annual childcare, with the government putting £2 towards every £8 the parents transfer to a dedicated online account. Like with the current scheme, the vouchers can be used with any childcare provider regulated by Ofsted in England or the equivalent bodies in other parts of the UK.

But TFC is certainly not all good news. Couples where one parent is not working are ineligible, so are couples where either parent earns more than £100,000, works less than 16 hours a week or receives tax credits. Additionally, parents must not already be getting support through the existing Childcare Voucher scheme.

Although some parents, such as working couples with total childcare costs of over £9,500 a year, can be financially better off under TFC than under the current Childcare Voucher scheme, they could find themselves actually far worse off should they undergo a change in circumstances. This is because once a parent has been in TFC for three months they are not allowed to revert back to Childcare Vouchers.

So if, for example, one partner loses their job or decides to give up work they could find themselves ineligible for both TFC and Childcare Vouchers.

Furthermore, Childcare Vouchers score more heavily on grounds of employee user-friendliness because deductions are made automatically from gross salary. TFC, on the other hand, requires people to access a government portal every three months, fill in countless details, wait for approval and then eventually make payment via a debit card. Believe it or not, the government does not even offer the comfort of a telephone helpline service to assist users through this minefield.

So we strongly advise employers to launch a communications programme to encourage employees to consider signing up to the current Childcare Voucher scheme if they haven’t already done so.

There is also much to be said for such a communications programme to highlight that TFC and Childcare Vouchers are not the only tax-efficient ways of funding childcare.

For example, Workplace Nursery Provision can be a highly attractive option for working parents using nursery care for children aged up to 5, and Chase de Vere now works in partnership with Enjoy Benefits, a leading provider in this field.

As long as a number of key conditions are satisfied by the employer, nursery and scheme provider, Workplace Nursery Provision can allow an employee to save tax and NI on all their fees – not just the amount achievable with vouchers.

If childcare costs are £1,500 a month, a higher-rate taxpayer can save as much as £6,516 a year using Workplace Nursery Provision and a basic-rate taxpayer can save £4,536 a year. Furthermore, Workplace Nursery Provision scheme providers can add further value by discussing additional ways in which employers can help and support nurseries.

If you would like to find out more about our partnership with Enjoy Benefits or to receive advice about the relative merits of TFC, Childcare Vouchers and Workplace Nursery Provision then please do not hesitate to contact us on 0345 300 6256 or complete this simple form and we’ll call you.