Tax-Free Childcare vs. Childcare Vouchers, a brief comparison

The Government has recently announced that the final date for signing up to an employers’ Childcare Voucher scheme has been extended to 4th October 2018. After this date the scheme will close to new applicants.

With this in mind, it may be worthwhile considering which scheme would be the most tax efficient: either the existing Childcare Voucher scheme, or the government’s new Tax-Free Childcare scheme.

The Childcare Voucher scheme is only available where it is provided by your employer. The Tax-Free Childcare scheme is available for both employed and self employed, providing both parents are working and neither parent has income over £100,000.

The main points that you will need to consider when choosing a scheme is the number of children that you are claiming for and the level of childcare costs.

The Childcare Voucher Scheme offers a tax and NI saving equivalent to 32% for a basic rate tax payer, 42% for higher-rate and 47% for additional rate. Each parent can claim a maximum weekly rate of tax relief on contributions £55, £28 and £25 respectively. In comparison the Government’s new scheme offers a tax saving of 20%, the relief available is up to a maximum of £2,000 for each child (£4,000 for disabled children). Therefore if you have a high level of childcare costs for a number of children this may be a better option.

If you are an employer then you should be aware that Childcare Vouchers are exempt from Employers National Insurance and therefore offer an annual saving for each participating employee. If your business does not currently offer Childcare Vouchers and you would like to find out more about the scheme, please contact Scrutton Bland’s Employee Benefits team for further information.
Scrutton Bland’s tax team can review your whole family’s tax affairs, so if you would like further assistance please contact the tax department via email at hello@scruttonbland.co.uk or telephone  01206 838400.