11th Hour Changes to Childcare Vouchers
Plans to scrap government childcare vouchers have been delayed to October 2018 the exact date has not yet been communicated by the government.
The scheme was set to close on April 5 and be replaced by tax-free childcare, which entitles families to claim up to £2,000 a year per child.
Why the delay?
Since launch last April, the system has been faced with back to back flaws and numerous complaints over administrative glitches that have left some families out of pocket and seeking compensation.
For example, while childcare vouchers are available to parents with children up to the age of 15, Tax-free Childcare is only open for those up to the age of 12.
How do each of the schemes work?
Childcare vouchers are purchased through salary sacrifice, therefore saving on income tax and NIC’s.
Tax-Free childcare scheme requires you to pay money in and then get a top up bonus of £2 for every £8 paid in.
If you pay higher rate tax you get a better benefit from childcare vouchers and even at basic rate tax, because salary sacrifice you save both income tax and NI, amounting to 32% in total, whereas the new system only gives 25% uplift equivalent to getting basic rate tax back.
The new scheme is good for the self-employed as they are not allowed childcare vouchers.
HMRC have a useful calculator that helps you to choose which scheme is best for you.
|Childcare Vouchers||Tax-free Childcare|
|· Vouchers bought through salary sacrifice from pre-tax income||· Tops up every £8 paid in by £2 to turn it into £10|
|· Save basic rate payers 20% income tax plus 12% NI = 32%||· Saves equivalent of 20% income tax|
|· Saves higher rate payers 40% income tax plus 2% NI = 42%||· Tax saving of up to £2,000 per child per year|
|· Maximum annual saving of £933 for basic rate and £625 higher rate||· Only available if both parents work|
|· Not available if self-employed||· Not available if either parent earns more than £100,000|
|Better for those spending smaller amounts on childcare||Better for those spending larger amounts on childcare|